freenet AG (FNTN) Earnings Call Transcript & Summary

Dear, ladies and gentlemen, welcome to the conference call regarding the preliminary results for the financial year 2021 of freenet AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Mr. Vilanek, who will lead you through this conference. Please go ahead.

Thank you very much for the introduction. Thank you very much to all of you for joining today's conference as always by tradition, we are here in Hamburg, our headquarters, Ingo Arnold and myself and also Tim Oehr, the Head of our Investor Relations department. Today, we're going to talk about our previous year's result. So 2021, we will give an outlook on like what's going on in Q1 and what do we expect for the year 2022. And finally, we will give you our guidance on the already running fiscal year 2022. Let me start with the review of last year's guidance and the preliminary outcome. This is on Page 4. We focus on the financial performance at the beginning, as you can see, and as predicted, we have a stable revenue. You're all well aware that the volatility of our revenue results from -- mainly from the hardware sales, either in mobilcom-debitel or in Travis. This is why it floats somewhat up and down. But overall, we have reached a stable level with minus 0.8%, but these deviations do not result in the bottom line. As you can see in the next line, we have increased the original guidance within the year in summertime, and as you can see, we have even hit the upper end of EUR 445 million with a total result of EUR 447.3 million. This is a plus 5% performance compared to the previous year 2020. I think we will give you an overview later on, on how this fits to our predictions for 2025. There are some exceptional effects. One is that we have reached some support payments due to short-term work. But at the same time, we had to pay out a significant amount of severance payments at some people that returned to Deutsche Telekom in Media Broadcast, but also some layoffs and reorganization effects in the core business. So I think Ingo will also give you a bit more detail, but we have to bear that in mind, if we would take these effects out we would be more likely on EUR 42 million, EUR 43 million. But as I said, Ingo will give more details, even better performance compared to the previous year is the performance in free cash flow with some very positive side effects and also leading to an attractive dividend proposal, which we will outline in a minute. If we look at subscriber base, I think even though the difficult year, and I'll skip -- I'll go into a bit more detail in a second, we have a positive growth on postpaid contracts. We have a very, very strong performance of plus 150,000 on waipu subscribers. But as predicted, we have lost customers in freenet TV, a bit more, to be honest, than we originally expected, but given the full year effect of the price increase from the year 2020 bottom line did not impact the overall outcome. If we move on to the next page, the difference in the numbers in terms of mobile subscribers. You see that we take into consideration the subscribers from the digital app-based tariff plans. So we have a total gain of 130,000 from 7,135 million to 7,266 million, about 2% increase. What are the highlights or the key things that we've either had to live with or to cope with? Certainly, we -- there was an in and out every now and then with lockdowns and closed shops, also heavily impacted was MediaMarktSaturn. But from the total and the bottom line, you can identify that we were able to compensate the majority of those lockdowns through other channels, certainly, of help was that we could introduce 5G tariffs plans in Vodafone as well. In T-Mobile, not so much in terms of the net ads, but more in terms of the margin, the introduction of smart pricing and renewal was a successful story during the past year. And you can see the results, the brick-and-mortar share came down from 6 percentage points to 39% and in parallel the captive channels were growing to 75%. That is an implicit logic of the 2 because we control the online channels even when we do a brick-and-mortar. If we look on the next page to waipu, you might remember that in May 2020, we told you that it was the first time that we had a positive monthly result. We were -- the team was working hard on it to deliver 12 months in a row with a positive contribution and still invested in growth of the customer base by 26% to 722,000 which is again, slightly above the indicated guidance that we have given before. But we have also decided to be even more, given the good development, given the size of this business now, we will give even more details than we did in the past. As you can see, revenue increased almost 70% and the EBITDA is now EUR 6.3 million compared to minus EUR 1.8 million of the previous year. And there is one indicator, which we would like to share with you. We have disclosed that there is some advertising revenues, which we do on our so-called new TV channels. We generated ourselves to programmatic planning and the monthly run rate of these revenues are EUR 600,000 a month, which gives you a flavor that there will be even more revenue this year only from exploiting this additional source of revenues. We will not be in a position to fully disclose the marginally because there is side contracts with some of the channels, but the margin on this advertising is about definitely above the average margin for our overall business. In Media Broadcast, we have -- we are also going into more detail than we did in the past. We will, from now on, always report freenet TV, the B2B and the digital radio business, the digital radio business has finally established the national -- the second national multiplex with 16 channels is up and running now for the first full year in 2022, 6 out of those channels are captive, which means that we own them, and we are also in charge of the like editorial, the concept music selection, et cetera, et cetera. We have -- we are now measured in the public audio measurement system in Germany so that we will also see a strong increase in advertising sales in 2022. Very positive in the B2B. We have media broadcast has won a couple of local or regional licenses such as Hamburg or Northern Westralia. We have some of the bigger carriage contracts were prolonged, and we have won a couple of 5G projects, and there is one bigger one to be signed hopefully still in Q1, and we will also be in a position to talk about it most likely in our next meeting, which is going to happen in early May. On freenet TV, as I said, the EBITDA was positive and growing even though we have a decrease of RGUs. We see -- we foresee another price increase during the course of summer this year so that it's a minimum aim is to conserve the EBITDA range as we see it right now and our 3 years internal planning shows that this is a kind of guaranteed. From September onwards in last year, we have done and we are still doing a testimonial campaign with Dieter Bohlen. Germans among you will certainly know who the guy is. Some others might remember, more than talking as a band in the '80s and '90s. Dieter Bohlen is a famous guy because he was running a super talent in German TV shows and RTL. We were lucky enough to have to win him as our testimonial for all our brands. And the indicators here is the first measurement in February only recently -- we've done a survey October was kind of the pre-volume time. And now we have all the campaigns with Dieter Bohlen and I think it's impressive to see that brand recognition as well as advertising recognition does the steep curve. The intention for a site intention with this testimonial campaign was the idea when is it the right time and what could be a good incident to create synergies in our advertising communication. You might -- some of you might remember in 2008 and '09 when we formed today's business, we have decided for the double name mobilcom-debitel. I think there was a good reason back then because we were afraid that people might churn or leave the subscription because of the changing names because of the changing brands. But for a long time, we have been thinking about moving into freenet is the key kind of umbrella brand. This is why we have launched freenet TV or TV service as freenet, the FUNK as freenet, or FLEX as freenet, or the energy product as freenet. And finally, we have early this year after the success of the TV campaigns. And after a careful assessment of all the effects involved, we have decided that we will delete the mobilcom-debitel brand during the course of this year in public visible items, meaning the shops, the website and above-the-line advertising. There will be left overs on the -- in the customer base, which will still go into 2023. But the result is that we will a, write off the old brand and Ingo will give the details. It's a pure balance sheet effect, but still a significant one which also needs to be understood. But more importantly, we think that we can much optimize our on and offline communication, the freenet as an umbrella works for our own captive brands, but also for others and waipu,for example, would be a non-captive but also our cooperations with Samsung with Xiaomi and so on and so forth, will take benefit because out of the testing, we have learned that end consumers understand freenet much more as kind of the digital lifestyle store, then we we'll become [ Indiscernible ] free. So the positive effect out of advertising synergies will only be hitting the P&L in Q4, up until then, we will have to invest into the refurbishing into the changing all these things. But nevertheless, we hope and we are 100% sure of these positive synergies over time. One thing that we've always been working and committed to, but certainly in reporting, but also in public perception becomes even more important are the 4 elements of ESG. Here on this Page #10, we have listed a couple of things which we think are relevant processes and contributions in the field in the course of 2021. And I will not go into all details, but we have Media Broadcast is by far the biggest power consumer in the group, and we have changed all directives to renewable energy, accepting that we have higher cost. There -- we have started with the first full recycled phone in Germany with refund, which we run exclusively, and we have now the first also demand yesterday from a couple of other stores and brands that want to source it to us the same goes for the Networx Greenline brand, which is our GRAVIS internal accessory brand out of fully recycled plastic and so on and so forth. So I think it be dismissed from 2021 already gives you a strong indication how committed and how important the topic becomes and how important is it also to be an attractive company, an attractive brand for consumers but also for employees. Consequently, on the next page, we list a couple of key initiatives also in 2022. I will once again not go through the full list. I think it's worth reading it, but it gives a clear indication that we talk to our internal staff about the topics, also things like equality, no discrimination and all these things are common sense, and we have learned that our people are very committed to these goals. This ESG will also, for the first time in 2022 and in the so-called company goal and any employee in the company is measured against that company goal and will get depending on its contract special bonus payment. We have that for the last 10 years. We have had it for the last 10 years. But this year, the first time we will also include an ESG goal. If I may end my contribution here with a statement on how we do after the first 6 weeks of the year. You are all aware that we have had the changes, the so-called EECC changes in the regulatory regime, which allows people to cancel a non-renewed contract any month, but also has a strong regulatory impact of how contracts must be signed and documented. We have seen a short-term impact in December when it was introduced. Right now, we have a strong feeling that we can cope with all these changes and the process and IT team have done a tremendous job to change our processes and customer journeys according to the new rules, but in a way that we might not have a strong impact on any of the major operational KPIs. Customer acquisition, obviously, was not so strong in January once again through German lockdowns, and the pandemic effect. If we look now, I've reviewed the numbers early this morning for the first 3 weeks of February. I think in February, we will be already back to our budget. And I hope that we will things, we will also meet the budget in March. No indicator against it. But we will have a bit of a damage from January, not a tremendous one. And I'm quite positive that we will regain during the course of the year. We are launching in Q2, our fixed mobile Internet product and our fixed line Internet access, you could call it, DSL will be coming in Q3. And we have also indications that not much later, we will start the cable DSL. So we'll go back to the broadband offering, which allows us also converged products that are feasible for our consumers. And I spoke about the transformation to freenet. On the TV side, waipu is a strong first quarter expected growth without -- within our planning and within the trajectory from the past year. On freenet TV, as I said, we expect -- or we are planning a price increase. Our radio business Antenne Deutschland is growing in a nice way this year, but still with all the investments in programming in moderators, et cetera, et cetera, we expect a negative result for this year, but then a positive one for 2023. And as I already mentioned, we're working on a couple of nice projects in B2B, which are supposed to be disclosed within the next session. So having said that, Ingo will now go into even more detail on the financial results.

Thank you, Christoph. Good morning, everybody. I start, as usual, with a group overview on Page 13. What we do see is that -- and Christoph already commented that we reached all our goals. What we had for the year '21, so what we saw were stable revenues and on the other hand, slightly increasing gross profit, which is based on a very stable and resilient mobile business and on a growing waipu TV business. And in the EBITDA, we do even see a better result and a higher increase than in the gross profit because what we have to add here is a sustainable cost management what we saw in '21. And so all in, I would say, a very, very successful year. Moving to the segments. I start with the mobile business. On a revenue view from my point of view, again, it is stable. But I think it makes a lot of sense to mention here that we have to split the revenues in more valuable revenues and low valuable revenues as we do with the chart on the left-hand side. And I think what is the most important one for us is the service revenue in the postpaid business. And what you can see in this chart here is that since Q2 '21 in each single quarter, it was possible to increase the service revenue compared to the last quarter. So I think this is, from my point of view, this is something like the benchmark to see how successful the business itself is. And this is much more important for me than the overall revenue in this business here. Switching to the gross profit. Here, again, we see a stable gross profit. I think we saw a headwind in Q4. It was not a headwind from Q4 '21, but it was more or less a headwind from Q4 '20, because in Q4 '20, there was a special agreement with one of the MNOs who was interested in generating more gross adds in Q4 '20. And so we focused our business on this MNO in Q4 '20, and therefore, we received a extraordinary special payment from one of the MNOs. And this improved our gross profit in 2020. So as this was not repeated in Q4 '21, you see this dip in the gross profit, but compared to the other quarters, I think the gross profit in the fourth quarter is fine. And it is slightly lower than in the other quarters because it was the Christmas quarter and we had to invest into the business. On an EBITDA side, we could increase the EBITDA in the year '21 from EUR 355 million to EUR 370 million, so an increase of 4.3% from the bad debt. I think several times, we discussed the bad debt provision what we built in Q4 '20 of EUR 5.5 million, this is still not released. We have not released it. So it is still in our book. So it was not necessary to reach the EBITDA to release any bad debt provisions here. And on the other side, yes, definitely, we have the short-time work effect Christoph already explained something around it to make it clear here in figures. And I think it is not new to you that we received something like EUR 11 million of short time work money from the government in the first half of the year. On the other hand, we had some restructuring measures from which we will profit in the following years. So we invested something like EUR 6 million in restructuring. So the net effect on the personnel side is something like EUR 5 million what was positive in '21. Moving to the KPIs of the mobile business. I think customer base, we already commented. It's a good development. The ARPU is stable. And in the digital lifestyle business, it was again possible to increase the revenues by something like 7% to more than EUR 200 million in '21, especially with the background of the pandemic and closed stores at the beginning of the year, I think it's a very good result that it was possible to increase it in such a difficult year here. Moving to TV and Media. On Page 16, all in a very positive picture. The revenues could be increased based on the increase of customers in the waipu.tv area. Gross profit, 9.3% increase in '21 to EUR 185 million or EUR 84.5 million, also driven by the waipu.tv business. And on an EBITDA base, an increase of 15.2% to EUR 92 million. I think it is -- and I read it in some of your comments. Yes, it is a little bit disappointing the EBITDA in the fourth quarter of the TV and Media segment. I think important to say, on a gross profit basis is not definitely not disappointing because it was a very, very strong quarter in gross profit and definitely more than 10% higher than in Q4 '20. So the business is fine. It is all working fine, so no problems. But on the cost side, what we did, we built a very conservative provision here for the analog radio business of something like EUR 4.5 million in the fourth quarter. I think we are still of hopes to release it again. We do not exactly know today. But I think -- it was no obligation to do so, but we decided that it was necessary to do so. And therefore, we are here maybe a little bit cautious. But from our point of view, it made sense to do so. But it's definitely a onetime effect -- it -- there will be -- it will not be repeated in the future if it really happens, but I think there are good chances that the provision at the end of the day was not necessary. But this was only a onetime effect. On Page 17, the free cash flow. Yes. I think from my point of view, no big surprises. In the cash flow bridge, you see the higher EBITDA, which is the high cash conversion is something what you see here from the higher EBITDA. On the other side, the working capital is slightly better than in 2020. And therefore, all in, you have this free cash flow of EUR 234 million, which is even higher than the corrected guidance or the upper end of the corrected guidance. So that's a very positive result, and it's -- and the increase compared to 2020 is very, very relevant. This is what we see here. The dividend proposal, I think also this should not be a surprise. During the whole year, we promised to pay 80% of our free cash flow. And normally, what we promise, we do also hold. And therefore, I think it should not be a surprise. It is more or less a calculation what you see on this page here. And if you take the total distribution out of the 80% and divide it by the number of shares, then you get a figure of 1.57 what we will propose to the AGM. Maybe just for you to remember what we presented in November last year, we presented our 2025 ambition. And I think we showed all the separate segments of the business then. And I think now, yes, we have to prove what we show then. And I think the guidance, what I will present later is the confirmation of what we promised in November because if you compare the EBITDA of 2020 and the guidance of 2022, you see that the CAGR, what we promised of something around or slightly higher than 4%. This is something what we promised to deliver in '22. And I think what is also very important is that the ambition, what we published in November will not be a back-end loaded ambition. It will not be a hockey stick. What we see so often. We try to deliver it from the first year onwards. And I think this is also a position of strength here what we see. Moving now to the guidance. 2022, we again guide a stable revenue. And I saw some comments here that people are disappointed by it, and I would like you to remember what I said before to the mobile figures. For us, the revenue is important. We need the top line, yes, everything is correct. But we have so different revenues. And what we are focusing on is the value-added revenue. And therefore, what is behind this table, definitely behind this table is an increase in postpaid and waipu service revenue and behind this table is a stable freenet TV service revenue. And I think these are the most valuable parts of our business. And therefore, I think this table, what we guide here in the revenue is a very strong one. EBITDA EUR 450 million to EUR 470 million. We -- again, we choose a range share and mid of the range is the EUR 460 million. Free cash flow, EUR 230 million to EUR 250 million, maybe a little bit disappointing compared to the EBITDA. But what we will see on the next page is the CapEx which is linked to the renovation of our building in Budelsdorf, and therefore, there will be a payment of EUR 10 million. So the CapEx will be higher in '22. And therefore, the free cash flow is a little bit lower than what you maybe would expect from the EBITDA. Subscriber guidance is, yes, we expect further on a moderate growth of the postpaid contracts, a solid growth of the waipu.tv subscribers. I think Christoph already commented that the first quarter here in waipu.tv is running fine. We see further on growing subscribers here. And the freenet TV RGUs, I think we are a little bit -- maybe last year, we were not that conservative here, but we have the experience from 2021 in freenet TV RGUs. And again, in summer, we have these vouchers, which are due in every time it's a little bit uncertain what happens when these vouchers have to be renewed, the customer have to move in a short or have to actively do something. So therefore, there is a risk. Therefore, we guide here a noticeable decrease, but with a price increase during the year, again, we expect a stable EBITDA even from this business. Free cash flow bridge on Page 20, I think, starting with the EBITDA, what I already showed, change in working capital, EUR 30 million tax CapEx here, the increase of EUR 10 million. What I already mentioned, I think all in lower interest payments all in no surprises. So therefore, we expect something like EUR 230 million to EUR 250 million. On the last page here, 21, I come back to the brand decision, what we took at the beginning of January. So we decided to move from the mobilcom-debitel brand to the freenet brand what Christoph already explained, we have an intangible asset on our balance sheet. And the size is EUR 293 million. So yes, we -- there will be a linear meltdown over the next 18 months. So in '22, there will be a depreciation of EUR 195 million and another depreciation of something like EUR 100 million in the first half of 2023. No cash effect, no EBITDA effect, but definitely an effect in the net profit and in EPS. And therefore, we would introduce an adjusted figure here during the year because I think otherwise it would not be transparent that the overall business or the underlying business is totally healthy. And what I even expect after the depreciation is the more healthy balance sheet with less intangible assets. So I think everything is fine here, but there will be an effect during the year. Therefore, I close my comments to the year 2021 and hand it over to the operator again and ask you to give us your questions.

[Operator Instructions] And the first question is from Ulrich Rathe, Jefferies.

I have 3 questions to start with Vilanek, please. The first 1 is on this special agreement that you had in the fourth quarter of last year of 2020, that's interesting, not just from a point of view of this year-on-year effect that you're pointing out quite validly, but also it sort of highlights that in what ways you can be useful to your suppliers, the MNOs. So I'm wondering how often do such situations arise that the MNOs really draw on the flexibility that freenet offers to them as a distribution partner. Is this something that happens once in 10 years? Or is it something really that happens from time to time, maybe on a smaller scale occasionally just be interested whether that's the running feature or really just a complete one-off? And the second question is Mr. Vilanek, you talked about the -- in the media, I think, about the end to DVB by 2030. Is that essentially the business plan? Or was that more a lobby pitch about spectrum or other issues there? And -- is there a migration plan? Are you building up a customer base and then you're essentially just melting it down, the business at some point end? Or do you have plans what to do with this customer base that you're building there? And my third question is just a clarification. You're saying the mobilcom-debitel write-down wouldn't have any impact. Now -- can I just confirm that it would not be a tax impact either. So the fact that you have lower profits on these amortizations is outside of the tax accounts? Could you please confirm.

Yes. Thank you, Ulrich, for your questions. I think I can -- in this case, I can handle all the 3. No there is no tax impact. So that was your third question of the write-down. The first one, I think you put it and you interpret it perfectly well. I mean there are every now and then special effects where we short-term to get special agreements with any of the MNOs. I think the exceptional thing was end of 2020 that the size of it was exceptionally high. This is why we see it. At the end of the day, I would call it more a seasonal effect that it was exceptional and was a very special situation on the other side with our partner that they were incentivizing us in an outrageous manner. Other than that, it's the standard things going back and forth, which you would not -- you would typically not observe or you would not realize because of the sizes. So I think that was exceptional in saying that we could not name rhythm 5 year, 10 year ago, it was just a one-off exceptional item accumulating in 1 quarter. I think that is more the specialty. On the -- and then finally, thanks for raising the topic of DVB-T2. Once again, you've done the right conclusion. I was asked on how this -- the business would go. And this was a lobbying pitch in the sense of we need to make also the channels be aware. So the public channels be aware of -- at this very moment, the auction for the frequency are auctioned to DVB-T2 up until 2030, it's a long time up until then. But for sure, we have a common sense, and we would like to start right now, talking to the authorities and making them aware. So it was a lobbying pitch. Other than that, you can be assured that we have a number of scenarios depending on the outcome, we think that the prolongation would not only happen by the end of 2030, but it would be come visibly much earlier. The fact that we are testing 5G broadcasting with 2 German public channels, the fact that you might see under the freenet umbrella advertising for both TV product at the time and also the fact that we do a lot of research on those people that cancel freenet TV in order to understand what potential migration effects we have and where will we move, all these things are under a constant review driving our thoughts on why do we migrate cannibalize ourselves how long will the whole thing work, are there potentially other technologies. And I mean, this is kind of a close shop discussion. I hope that you would not quote this. But we have also spoken to a number of potential partners for DVB-T2 frequencies for a complete different usage of them, even other than 5G. So there is a bigger group of different parties looking at this, and nice thing would be that in such a case, we might even be able to split and start use part of spectrum and create other businesses. So -- but I have to admit it's early stage, these things are long-lasting, also new technologies might hit the ground up until then.

The next question is from Yemi Falana, Goldman Sachs.

I had two, please. Your competitors have cited the German Telecom Law as having driven a pull forward in churn. Are you noticing this same churn pull forward? And is this a tailwind for your volumes in the mobile business in the first half of 2022? And then secondly, German Telecom Law or otherwise, is it fair to say that your negotiating position with other MNOs has strengthened now versus, say, a year ago, given kind of how vital your sales channel has proved as a distribution channel?

Yes. On the first one, maybe this is not super well known to everybody. The new regulation has the 2 major impacts on our business. The 1 is part of our customer base are people that have not actively renewed the contract. We have made them aware that they could renew it, but for whatever reason they neglected forgot or something else. We call those people sleepers. And according to the old rules, they dropped from a 24-month contract into a 12-month commitment. And then when they finally woke up and said, oh, I've forgotten that either we gave them a 24 months contract again or we had to inform them that they might only run out in whatever maximum 12 months. The rules are now different for those people that have not actively renewed the terminology sleeper that we use, they can now call in and basically drop out of the contract within a month. What you need to understand from the customers is that a lot of customers call us and say, how long is my contract still lasting? So in the past, we said right, there's another 9 months. So it's not -- we might give you a new device or something because typically, that's the reason why people are calling. Right now, and this is the effect that I think everybody was experiencing right at the beginning -- from 1st of December. People were calling it. And suddenly, our agent said, well you can drop out within a month, so we saw kind of a flood of people coming in and then we have seen higher churn in January this year because the effect was and obviously, the months are delayed. So we saw a higher intake. The first one, the second one. We also see a higher rotational churn because people that go into a dealership and ask the dealer then -- the dealer says, okay, you can drop out basically overnight, but I can give you a new contract because it's attractive for the dealers to do so. So we have seen those 2 effects monitoring them, I think it's slowing down already. It was -- as I said, it was kind of a flood at the beginning. It's slowing down, and we think that we can cope with it and it will be a wash over 12 months. People understand that we need to -- that they still -- if they want the device and so on and so forth that they -- we do a commitment. And even in our -- today's SIM-only base, the majority is already on a monthly contract and is still very loyal and stay with us. So yes, there is an impact, but it's not as big as we thought or it was at the beginning, but it will be a wash over the year. The other topic that happened is that when we do close a deal on the phone, in the past, it was necessary to record this closing and to repeat the relevant conditions. And then we have recorded that on the tape and then there was prove enough that the contract was created on the phone. We had to change that as well. So what we do now is a bit different, during the phone call, we said we are sending you in parallel all the terms and conditions. And if you want to review them, please review them. And with your click, you do agree. That is a new procedure that basically all of the operators as well as ours deploy once again, a bit of a starting pain in December, our new process difficult for about 900 agents that had to be trained. So technology had to be implemented. So on the telemarketing and on the customer care, and it works perfectly well. We are still struggling a bit with the situation on the point of sale, because the new regulations demand from us that we do a full printout of all the documents, which on average is 35 pages. And we are trying to now switch also the point of sale to the same customer journey that we do on the phone. Once again, yes, we have seen some impact, but we leave us out now, and we think we will not see a tremendous change if we look back after 12 months, I think it will be a wash.

The next question is from Joshua Mills, BNP Paribas Exane.

A couple for me. The first is that at the 3Q results in Capital Markets Day, you highlighted the potential to partner with one-on-one and resell their fixed and mobile products. So I'd just like to get an update on how those discussions are developing and whether you factored any new sales from one-on-one into your guidance for this year already? The second is just regarding the EBITDA guidance in particular, how would you kind of break down the swing factors. It's obviously quite a wide range, which you provided as usual. Is it more to do with how much investment you'll be making into TV or not? Or are there any other kind of events or developments that could move the needle towards the higher or lower end of that guidance, it would be great to know? And then finally, to the extent you're able to comment, it would be great to get any insight into how you see customer demand for certain brands, yourself, Telefonica, DTN, Vodafone developing over the past few months. I think a sense that VT and TD are doing a bit better at the expense of Vodafone and vein to hear your perspective on that.

Yes. On the first one, we are in a constant exchange with [ Indiscernible ] They have indicated that by the end of the year, they will start running some of their networks. But they are also -- there was -- I think there was even a comment in 1 of your analyst reports that they have certain limitations to give us full access. We have spoken to the guys, and we have identified the potential hurdles, but also the legalities around it. And we have a common sense that the limitations that we see right now are not appropriate to competition law. And together with United Internet, we will find a way to remove these rules. I cannot go obviously in full details, but the fact that we have joined forces to do so and go into the same legal claims I think, is a strong indicator for both sides wishing to cooperate. But it will certainly not happen this year because there is no own business in a typical sense from [ Indiscernible ] yet this year. But once again, I think it still looks very positive that we're going to do so. Your second question was about the swing or the spread in the EBITDA, maybe a split answer 1 from Ingo apart from me. There is -- from the operational side, there is no explicit topic that we have -- that drives the spread. But still, there are some unknown items. This goes from -- and I think it's a long list of topics. It's like what is price changes, inflation doing, how much do we have to give to our employees in order for them to survive in those difficult circumstances. There is a certain impact on some of our service providers out of the new minimum wage in Germany. So, there are -- I think it's more like 20 or 30 items that we said it's more feasible for us to give once again a spread. But as Ingo, I think made clear by stating the middle of it is EUR 460 million, I think this should indicate to you that the range on where we are measured and we plan to measure the company is EUR 460 million, not EUR 450 million. Ingo?

And I would answer it from the other way around, I would say, there are no concrete topics where I would say that the swing is based on. I would just say it's a timing issue. Now we are at the beginning of the year and a 5% uncertainty. I think this is normal what you have in the business. So from my point of view, I would answer, it's more a timing issue that we have the swing now, but I would not -- and you can also say, yes, in every topic, something can happen, and therefore, Christoph's answer is also correct to say 20 topics, but you can also so there is no concrete topic what we have in mind at the moment.

Okay. And I think that -- and the third question was about -- I hope I got the right tonality was about is there any changes in customer perception and customer demand over the last, let's say, 3 to 4 months. So what do we perceive? We saw Telefonica being -- showing good performance. Honestly -- maybe it was not a surprise, but we can't see them so much. So I think visibility is not -- I thought it was higher in previous years with more advertising, with more presence, et cetera, et cetera. So I perceive them as focused and doing a very nice job, but they are very visible on high street in the market. So no changes in the sense. Deutsche Telekom showed more actions than we did in the past. Last 2 years, they were very much dedicated to premium prices, no special offers, no moves. We have seen them in the second half of 2021 that they did more short-term tactical moves across their entire dealership, including [ Indiscernible ], more special offers I think what Sinicopalan has very successfully done in many other countries, pushing out for convergence penetration is what he intended right at the beginning, but I think you saw from the data that it is a bit different in the German market. And therefore, he became more tactical. We see that the TV product is not working too well. They spend a lot of money. But all the numbers that we see are not satisfying. And I'm not even happy about it because it will strengthen the entire IP arena, which would also help us. But I think that is how we perceive them. And I also have to say that the relationship on a daily basis with Deutsche Telekom has improved much since the new team on top is working, there is a fine and yes intense relationship effect that we have 5G and also all indicators that they consider our position more important than the predecessors did. Finally, Vodafone is an interesting piece to me because we, on the one hand, on the business fleet, we see them aggressive and aggressiveness is always an indicator for, well, coping with challenges, fact that [ Indiscernible ] is not doing with them anymore. A couple of their products are under pressure. Deutsche Telekom is winning Internet DSL sales even though and even fibre, even though the Vodafone penetration is so high. I think they're struggling with self cannibalization questions on their cable business, whether they should go into IP or even cooperating with others. And when we do research, and ask end consumers, it's fabulous to see that Vodafone has a very positive notion. People say that they are hit, they're cool, they're modern, they are dedicated to CSR, interesting. And that is -- I mean, we stand on big surveys. So no matter where people take it from, but they have done a nice job there. Whereas Deutsche Telekom is in the research stated as still state-owned type of slow moving. And Telefonica is not -- is nonexistent in the survey, it's amazing. They're doing a great job in actual performance. But when we do surveys, it feels like they are not there. And [ Indiscernible ] is still doing well. People do not have a full perception that they're going to build up their own network yet. Once again, we have not done advertising on it anyway. So when there's very qualitative statement, but I hope that it still gives you a flavor of what is going on, Josh.

The next question is from Martin Hammerschmidt Citigroup.

I have 3, please. The first 1 is on the EBITDA target in 2025. So you mentioned in your presentation that will not be back-end loaded. But if I think back on the CMD, the contribution from fixed Internet is I think we flagged as the biggest growth element and that will only start to sort of contribute, I think, in 2023, maybe 2024. So could you help us understand which EBITDA can have grown over the next 2 years? And then we'll start to tailor once the fixed Internet product is fully up and running. Definitely, I want to see hockey stick development that you alluded to earlier. The second question is on your shop strategy in light of the decrease in the bricks and mortar share projects. So could you give update us on your thoughts there and especially on how you view your partnership with MediaMarktSaturn, do you still see like a net positive EBITDA impact as I think the EUR 25 million yearly payments will look quite hefty when brick and mortar share goes down. And the next one is on shareholder remuneration. Could you share with us sort of the latest thinking on the remaining 20% of the usage of the remaining 20% of free cash flow. What do you intend to do with that?

Yes. I think I'm going to give an answer on the eleven and then the second and I think Ingo will also talk about the first one and then about the shareholder or the 20% free cash flow. Let me start with MediaSaturn. We have had a tough year because they were heavily hit by all the limitations because of their square meter size they have had the longest lockdowns. And I think [ Indiscernible ] with the recent AGM, made very clear that this was a heavy-duty job but they are coping with it, they are improving on many levels. And thanks to the fact that they have many countries they by themselves are in an okay shape given the circumstances. The way we are working together is still on our multiyear contract and on a trustful relationship. We are -- actually, we are having each week, we're having a call between either himself and myself in order to discuss how we can improve the business and how we can do better. They have done a test in accordance with us on what we call the original tariff plans in August, September last year. We have seen the results that there is some incremental business, but it's not majorly changing it. So I'm expecting that this -- even though the contract is now in the period where both parties could basically renew or stop it with a 12 months notice period every second, every half year. I have no doubt that we will continue this tight and fruitful cooperations way beyond 2023. By 2023 because of this is when the contract would end. So we still have 18 months to go to review and to renew. Overall, I think you've also asked -- were asking the question whether we make money on these customers? Yes, we do. They are a demanding partner in terms of terms. -- and also including the EUR 25 million exclusivity premium, which they get. But still, we have a margin on those customers, the margin is certainly a smaller one than the ones that we do on our own shops, but we need a broad and wide range of their big store presence all over the country. And then my comment on the EUR 520 million, I mean it's a CAGR of 4%, which means in absolute terms, we have to step up in growing. I think what Ingo showed on the first 3 years that we are very well on track. And if you continue the curve that we had that we are indicating with our guidance for 2022. I mean the minimum you will see proven is that EUR 520 million is within the range. There are upsides, as you said, like the free Internet, there's also upsides with the radio business, which is still having negative results and will change sooner or later. There is new products, new projects -- but there's also some things on a 5-year plan, which you include uncertainties about the market conditions, potential regulatory impact the open question on what the price is going to be. So I think on a 5-year scale, it's fair not to add all the positives and I've mentioned the risks, and this is why I think it's not worth having a discussion whether there's a hockey stick or something. The proof is that the first 3 years within the range we are fully in line and this is what's meant that we are not backloaded.

So it's difficult for me to add something to this answer. I think I totally agree what is normal in a 5-year period. It is normal to have headwinds. And so you need the positives, but there will also be headwinds. And to have freenet Internet and radio starting later on in the period is just to compensate whatever happens there. So it makes the EUR 520 million even more stronger. On your -- about your question about the free cash flow, and the remuneration of the cash flow, what we generate. Yes, you are correct. There's 80% what we will pay out or what we plan to pay out also part of our financial policy still. And then there is another 20%. And I think the first idea is to invest the money into the business. This is the first idea of what we have. Whenever there are opportunities, then we will use the money to optimize our business. The second thing is, I would say, Christoph, that on an M&A list, we do not still do not have any topics at the moment from my point of view. So therefore, I do not have a good idea for the next month, where the 20% could be invested on the M&A side. And then at the end of the day, it is still a question, which I cannot answer today. Would we like to do another buyback. Would we like to reduce our net debt further, which should from a balance sheet point of view would not be possible. But I think I do not have any concrete ideas to use the 20%. But at the end of the day, from my point of view, the best idea would be to invest it into the business wherever we see opportunities.

And if I could just add a real quick false one. You have 5G tariffs out on agreements with Deutsche Telekom and Vodafone. Could this update on the process too. Are there discussions going on? And can we expect something in 2022?

Questions -- yes. Yes, it's going to be coming soon.

The next question is from Adam Fox-Rumley, HSBC.

Thanks very much for the presentation and the answers so far. I just had a couple of short ones, I think. Firstly, in your guidance for freenet TV customers today, you've talked about a noticeable decrease. And without being too pedantic, you talk about a moderate decrease you just kind of experienced through 2021. So if you could just give us a little bit more color around that trajectory, that would be helpful. Secondly, I'd be really interested to hear any comments that you feel you can make around customer lifetime value. You've made some very interesting reflections on that in the past. And this how that's progressed. That would be very helpful, too. And thirdly, I'd love to know about the initial uptake of the waipu.tv stick whether how you run kind of stock levels are going, how that product has been initially received.

Adam, I would like to start with your first question. Yes, obviously, there is a change in the wording here in the guidance. At the end of the day, I would not expect a difference in figures I think what we said last year were a moderate decrease, and then we lost something like 100,000 customers. I do not expect to lose more than 100,000 this year. But if you're asking what is wrong of both, I would say, maybe last year, it was a little bit too positive to use the moderate wording because it is more than 10% and so forth. We just changed the word in here. But in absolute figures, I do not expect a higher churn this year than last year.

Okay. The second was CNTV. Well, we are implementing that. The team was formed in September that is in charge of this. We have -- as I said last year, we have implemented it in all dimensions in our renewal business. And now we are stepwise also doing it in the -- in the gross adds and new customer acquisition business. Technically, we also needed to implement a full solution of separate contracts for SIM cards to hardware. That's almost finished. I think -- it's fair to say that maybe with the first quarter results, we will give you -- and we take a note on it we will do 2 or 3 slides to explain what exactly it is and how it works and what impact it is. I think that's better than now to just give you it already. And there was a third question.

waipu.tv stick.

waipu.tv stick, right. Sorry. waipu.tv stick, well, we're very happy with it. What we can see is that the people that buy it usage is really cord-cutting type of usage. If we look at the daily consumption that is really fully in line with what the German average is of 200 minutes. So people do fully understand it as the alternative to cable or satellite or DVB-T. The -- we have been shipped a second bigger shipment early January and about to be sold out by the end of February. You can imagine that also this product is impacted by semiconductor shortage. We have, I think, bought or been shipped so far 27,000 and they should be all out of the house by the end of February.

And the next question is from Usman Ghazi, Berenberg.

I just had one clarification, please, from an earlier question and then a few questions. So the first question, with the clarification was just on the impairments. So just to make sure that this impairment is tax deductible. So the loss will increase your kind of tax loss. Is that the right way to interpret it? That was the first question. Then the second question was just on the momentum that you're seeing on the cost reduction. So there's a cost below gross profit, particularly in mobile. I'm sorry if this has been clarified before, but I just wanted to understand what is driving that? I know that you mentioned that you took some restructuring costs in the first half of the year. So is it that you were just seeing the benefit of the restructuring FTE restructuring now coming through and then that should continue for the -- for at least the first half of next year. And then my final question was just back to Ingo on the use of the remaining 20% of the free cash flow for investment. I'm just wondering, are there particular vectors that you think freenet can further expand into beyond the core that is now in your mobile and TV business. I mean do you have any specific ideas around that? Or would it be the strengthening positions within the areas that you're in? And just related to that, obviously, even if you use the 20% of free cash flow, your leverage is still quite low, well below your target levels. And in this environment, obviously, of uncertainty after the Ukraine issue, I mean companies that can do buybacks obviously in favor with shareholders. So would you consider that if that you would put in buybacks on an as-needs basis going forward?

Yes. Good morning, Usman. The impairment that definitely is not tax relevant because it is only an IFRS topic. And therefore, it's not relevant for the tax. On the cost in the mobile business, which were -- which are relatively low, yes, definitely in the fourth quarter. I think we again saw very low bad debt levels. This helps the effect from the restructuring, what I was -- what I talked about before, this effect is relatively small. This we will see in '22, but only with a low effect in the fourth quarter. It was an all-in low travel cost, everything was low administration costs. So it was relatively with the home office in the business and so on. So the whole package on the cost side was low. And so there were no extraordinary payments or whatever. And therefore, the whole level was that low in the fourth quarter. On the free cash flow question, I don't know if I got you correct. But if -- I think what could be an idea to use the free cash flow for the business? If the management of waipu.tv would say it would be possible for them to generate 200,000, 300,000 additional customers, but they would need special amount of money, definitely, we would say, yes, it makes sense to grow further here. And therefore, it would make sense to invest the money into the business. But definitely not to do -- only to do serious things and reasonable things. And up to now, we have not seen these reasonable ideas. But whenever we would see then it could be possible to invest it into the business. And therefore, I think at the end of the day, it's also the best decision for the shareholders because at the end of the day, the profit earlier or later, it will end in the pockets of the shareholders. So buyback, yes, it's a good possibility, and it was fine as long as we did it. But it is only second best if we would have the chance to invest reasonably into the business.

And we have a follow-up from Ulrich Rathe, Jefferies.

I just wanted to clarify one thing. Mr. Vilanek, when you talked about the impact of the telecom law, you talked about this flood of churn from the what you call sleepers. I'm not entirely sure what the dynamics there is. The sleepers are sleepers, right? So they're sort of in and not much is happening. And occasionally, as you say, they call out because they want a new device and in past, they go to 9 months now get paid 1 month. But that by itself doesn't explain necessarily why there would be a flood. Is it the case that the sleepers all woke up. And if yes, why was there sort of a particular reason why you're seeing a flood? And then in this context also, if this is a flood, why exactly is it then slowing down so quickly again? So I'm not entirely sure about the dynamics of this impact. The issue being, of course, that we had some MNOs sort of talking about it, but others really said it's not an issue. So it's a bit unclear from our point, I mean, where we sit whether this is all a bit of a fluke and maybe some companies use it to sort of explain competitive efficiency way or whether it's actually happening on the ground in a sort of visible way. So if you could just explain that a bit better, that would be great.

Yes. I apologize for the word flood because flood means like overwhelmingly much water. That's not what's happening. But I can easily explain and clarify. If you imagine just 1,000 sleepers in a normal month prior to the change, would have called us that I need a new device that we would have told them, yes, certainly, you can have it. And if we were not satisfied, we would then terminate the contract. So just on a normal distribution of cases, those, let's say, 100 users would split over the next 12 months, basically. Yes, because some of them call -- there's a month left, some other 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12. If you recall the first day after they have been renewed in the 12 months. So if the same people call in and get now the information that they can terminate within 12 months, then just by definition, you have a flood because in the normal case, you have a split of 10 or 9 -- what is it, 8.5 per month. And now suddenly, you have 100 for the upcoming months. This is what I call flood. This is why it's a onetime effect because it flattens out right after it. But in the first place, it creates a special yes, high peak. So that is the one reason. And the second reason is that people that are reading those papers and then the most on bill side and so on and so forth, where people said, sadly, now you can change all this, not only in telcos but also in some other cases. Some people woke up and said, okay, now it's time for me to trade or to ask for a special offer. This is -- I think this is why we saw a onetime effect, and it's still a bit higher than it was. But I remember the first 3 weeks, we were talking about it more or less every second day. And now I haven't heard talk about it the last 3 weeks. So this is -- it was a strong or a visible onetime impact that we -- some people in the company that are more the ones that the skeptic part, they said, okay, if we now extrapolate that in the full year, oh my god not going to be the impact. And 6 weeks later, we see that this is -- it has an impact, but we learned to handle it.

And the next question is from Sahir Aaron, Redburn.

Two from me, mainly on waipu. So just doing some rough calculations, FY '21 saw about 150,000 more subscribers. If you assume 6-year ARPU that's about EUR 11 million in revenues. So just taking the EUR 8 million increase in EBITDA year-on-year base value, that's a 75% margin. So we clearly have to really think about the programmatic ad revenues. Could you give any color on how much revenue the advertising produced in FY '21? And what sort of EBITDA margin that runs at? And the second one was just to do with the market share. So you said that you've still maintained roughly 40% of the German over-the-top market at 720 subs. That means the sort of -- it seems quite low at the total market of EUR 1.8 million for a country of 40 million households. So could you just give a bit of color on how that 40% is calculated? And -- and does that imply quite slow growth for the market overall?

Yes. I think on the first question, well, if you have plus 150,000 and you do times 6, times 12, that's obviously wrong because the 150,000 is a result end of the period. So if you average it out, the maximum would be 75 x 12. I mean then it's not EUR 11 million, but only EUR 6 million. Now you would say, well, suddenly, we had 120% margin. No, I think this is like apples and peers. It's just -- the EBITDA is the result of acquisition -- of gross margin minus acquisition cost minus SG&A. So I think the equation that you made is a bit too simple. On the other one, I mean, we have said that December MRR on advertising was 600,000. So if you say the minimum we take is we take that time -- and I said, we cannot -- we are not in a position to fully disclose it. But the margin -- because it's a margin split between us and the owner of the channel only if we own the channel ourselves then we take a full benefit of it. And we have some third-party costs we have some partnering costs, et cetera, et cetera. But the margin on this is more like definitely more than double than our normal average EBITDA ratio. So then you can do a little bit of math there. And the other one on the 40%, I think, I mean, like any percentage of market share, it's a matter of definition. If we -- the way we look at it is the pure OTT market, it's not our numbers, it's ones the third-party second is we look at -- one is the OTT players in Germany, that's Saturn, waipu and that's magenta.tv. And they do exclude GIGA as long as with their basic set-top box. We also do not count Sky as long as this is a typical set-top box business. So it's the pure OTT and also the pure OTT in terms of the way we source rights, that makes a huge sprints, where you have distribution rights on a closed network. You could also argue that offerings from M-net or NetCologne or DNS net are OTT. But in a legal sense of distribution of content, they are not -- they are considered close network and by doing so, they're not OTT, but cable. So this is we compare subscribers on pure IP exits and where the content is sourced on an OTT distribution country.

There are currently no further questions. [Operator Instructions] And we have a follow-up from Usman Ghazi, Berenberg.

Two questions just going back to waipu. I just wanted to understand, is there an overlap of customers that are mobile customers and who've taken the waipu product or are these two distinct set of customer groups that we have. And then a follow-up was also -- I mean, we got HBO Max that is beginning to launch across Europe. Are you in discussions with them for access to the platform like it is in the Netflix? Or is it just too early?

When there is an overlap between waipu customers and the e-customers but it's a rather small one right now. We will review the number, but I think it's -- it's definitely not more than 5% right now. And I mean, we are obviously in discussion with any of the platforms, be it Netflix, be it Zoom, be it some others from other countries. But since rights typically are nationally bound, any of those discussions are never on a European scale, but always on a national scale. And once again, we see that -- I mean we do a combined offer with Netflix that is doing okay, but it's no big gain for either of the two because those people that wanted to have Netflix, they are already in. And when people have a consumption of Netflix, they not automatically consider IPTV as the right solution because many of them have either satellite DISH or something on top. So I think the replacement or what we would call cord cutting is a slower process, I think that anybody thought really looking at the German market.

We do have one more follow-up from Ulrich Rathe.

I just wanted to follow up, sorry for trickling this, but on this whole churn issue, how would you explain that ultimately there is a net negative effect because the way -- the way you're describing it, everyone should be seeing the same effect, right, which means the overall churn pools up, it should mean that you lose churn obviously, the pool is up, so you should be fishing in that pool as well and getting the gross adds. Is it your channel mix? -- that put here the disadvantage to some other players? Or why would this all be a net negative for freenet? I think an earlier question, I think, from my colleague at Goldman Sachs also sailing in this direction.

Okay. I mean, thanks for the question because I have never said that the journey is up. I just said the impact of this is that we had a flood of people calling and telling us that they might leave and then we had to do things. And I think, overall, the pool is not increasing because the pool was just short term increasing with any of the operators, no matter what they told you, we had the numbers, and we have the chats with all the others. We have all seen the same -- but everybody was immediately up and running and say, okay, if your customers call indeed tell me, "Oh, yes, so I can leave within the month." Well, then certainly, we immediately told these people, you can either have a prolongation or you can out of our full portfolio, you can have a new contract. So it was not creating millions of additional customers out there to be fished. It was just the one effect over a period of maybe 6 to 8 weeks, where we had what I explained before, the accumulative effect that normally would go in. And if things like that happened to any of the operators, we all see it within the first 24 hours because we see that call reasons are changing, that the impact is different that our agents are more selling -- doing more upselling or cross-selling or renewing. And then the team is immediately changing the offers in order to fix it. So I -- honestly, I wouldn't have mentioned it unless somebody was asking what the special effect was because past is already past. It's gone. It's day-to-day business.

Perfect. Thank you so much for the explanation. Appreciate it.

And there are no further questions. I hand back to the speakers for closing remarks.

Yes. Thanks, guys, for that intense discussion and for your patience, more than 90 minutes, but I think it was worth talking. Thanks for all the questions and the chance to clarify misunderstanding that I have created, maybe with one or the other answer. Thanks a lot and hope to speak to you soon and stay healthy.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect. .