Tele Columbus AG (TC1) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Tele Columbus AG Preliminary Fourth Quarter and Full Year 2019 Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Leonhard Bayer. Please go ahead, sir.

Thanks, Elaine, for the introduction. Good morning, ladies and gentlemen. It's my pleasure to welcome you in the name of Tele Columbus management team to our today's conference call following the release of our preliminary fourth quarter and full year results for fiscal year 2019, which ended on 31st of December 2019. This call is limited to 60 minutes. In case of any follow-up questions, Manuel and myself are available and happy to discuss. We are here today with Daniel Ritza, Chief Executive Officer; Timm Degenhardt, member of the Management Board, and Eike Walters, Chief Financial Officer. Now I would like to remind you that if any lenders or rating agencies are on the call right now that this is a public conference call in which only publicly available information will be discussed. I would, therefore, ask you to refrain from questions containing information not belonging to the public domain. This conference call is intended for capital market participants only and not for press representatives. If any journalists are on the line right now, we would highly appreciate if you are leaving the conference call now. Press representatives are welcome to call my colleague, Sebastian Artymiak, to discuss any outstanding questions. In addition, I would like to draw your attention to the fact that everything we are saying on this conference call is under the EU-U.S. Privacy Shield reservation. Having said that, now it's my pleasure to hand over to you, Daniel. The floor is yours.

Thanks, Leo. Good morning, ladies and gentlemen. A warm welcome also from my side. As you're aware, I've taken over as CEO of Tele Columbus on 1st of February. My predecessor, Timm Degenhardt remained the member of the management board until the end of this month to ensure a smooth handover for which I'm thankful. We have therefore decided to structure the presentation such that Timm and Eike will update you on the full year 2019 and Q4 in the format which you are used to, while I'll be sharing with you my first impressions as a CEO after 7 weeks, my view of the priorities for 2020 and the guidance. As part of my presentation, I'll also be talking about how we are tackling COVID-19. With this, Timm, over to you.

Yes. Thank you, Daniel. Welcome to the TC Q4 and full year 2019 call. And of course, a special welcome to Daniel for his first quarterly results at telco. And he is succeeding me as he's just turned CEO of Tele Columbus. This is my 11th and last quarterly call. Over this period, we have driven true transformation of Tele Columbus from being a holding company for a variety of regional cable operators to a truly integrated telco focus on fixed infrastructure and with a notable strength in fiber. We have stabilized our business with the housing industry. And are now the only competitor operating nationally and competing with Vodafone. We have switched off the analogue signal and leveraged the capacity to launch gigabit tariffs. We have launched and established the PYUR brand and has developed our distribution channels. We have focused the organization on the customer and build platform for growth. We have strongly grown our B2B business to compensate for our weakness in linear TV. Finally, we have decided to open our network and entered into an agreement to serve Telefónica Deutschland as a wholesale partner to further boost our growth in IP. Before I start my review of our operational performance of 2019, let me thank all the investors that have patiently followed our course and who have always been very supportive. I'm glad that I can hand over the business in good shape and with a high degree of resilience, which we'll see it through also the current corona crisis, I'm sure of that. On the last topic, which is, of course, on everybody's mind, and Daniel will give some more information on how this could possibly impact our business, even though, of course, it is early days. With that, let's move -- okay, so you're on the first page of key messages. The important message clearly is that we have reached our guidance on all metrics. Full year reported EBITDA is up full 9%. And in the last quarter alone, we were up 21%. Eike will show you the detail of the numbers later in the numbers section. We can see strong operational improvement. I will go into more detail on that. And importantly, as you know, since 2018, we've had a keen eye for cash. We've been able to reduce our cash outgoing quite significantly. And I believe that the business is fully on track to be cash positive in the year 2020. B2C is our growth engine. So here, we always promise to see organic net adds when it comes to IT and Telephony, and we'll show you later, even though, we've already given you some information on that before and that we have achieved that. We've seen Q4 with a strong further improvement in NPS. A couple of test were out in February, they all related to the last quarter of 2019. We have been able to upgrade our results, in particular, the connect broadband test, which has quite a broad audience, has ranked us good, which is one notch better. And also on ntv/DISQ rankings, we've come out, importantly, as a price value leader. With regards to the housing industry and the B2B segment. Well, in B2B, we had another really strong quarter in Q4, with revenues up nearly 30% year-over-year, and overall, we're up 17% in 2019. In the housing industry, you will see that we've been able to keep our homes connected exactly as we guided for. We have been achieving that through also significantly reducing our churn, more about that later. And as I said before, we are continuing to focus on building out our connections, primarily with fibre, we've added another 40,000 fibre-based connections to reach a total of 360,000 FTTP -- FTTH connections. These are really connected households. These are not homes passed. This is where we actually reach the home of the customer. With regards to transformation, it's been another year of strong transformation. Of course, we have decided to open our network to further boost our growth in IP. We've entered into an agreement with Telefónica that is being executed upon or implemented. In addition, on the 29th of August, the general assembly elected a new supervisory board. And as we said before, Daniel is succeeding me as CEO per 1st of February. If we can move now to the next page, please. Thank you, Manuel. So on the top side of the chart, you can see that we are seeing results in NPS, significant effort in the organization goes towards improving the customer experience at all touch points. What you see here is the average across all touch points. We're also working on enabling our agents to provide better service through better systems. And what we're also doing is we're moving more interactions to digital channels, which is important because digital channels give us very high predictable quality of outcome. I'm very happy to see that we are now after another strong performance in the first quarter, which is nearly over, as we are on 27th of March, at around 0 NPS level for all touch points. We are clearly on a path that will take the business towards the top of the German telco industry in the next 1 to 2 years, sorry, Daniel, that's my expectation. In the middle section, you see the evolution of our IP net adds. Now there's a connection from the first NPS section. We continue to focus on NPS because our business is quite peculiar. Our customers are all tenants of the housing industry, and they always come in groups. So they naturally talk to each other about their experience. And as a consequence, a good NPS drives down churn and increases gross adds, resulting in net adds. In Q4, we achieved purely organic, i.e., with no bulk Internet subscriptions growth of about 5,000 customers. Now all things being equal, we will see rising EBITDA with rising customer numbers in high-margin IP products. Of course, in the development of our reported EBITDA is also very strongly the reduction of the nonrecurring items, which were essentially an outcome of the integration efforts over the years 2016, '17 and '18, which we've been able to reduce significantly in the year 2019. Now if we go to the next page, please, or rather, if you could go to the page that follows. Thank you. Here, we see a very important slide because this is the foundation on which we base our business. Our business is based on concession agreements with the German housing industry. And in the past, the group's performance in serving the needs of tenants led to more and more housing industries canceling those concessions, i.e., the churn. You can see that in the year 2017, we had very high churn in the beginning of the year. In the year 2018 already reduced, in 2019 even more so reduced by 25% year-over-year. Of course, fewer concession agreements means reducing the size of our network, and therefore, the ability for us to market products to their tenants. Given our operational track record over the last 2.5 years, the housing industry has again started to trust Tele Columbus, churn has gone down, and in terms of homes connected, we have overachieved our guidance in 2019. Now being the only telco competing nationally for concession agreements against the merged Unity-Vodafone, and with a particular focus on fibre, I think this puts Tele Columbus into a good position to develop this business further. We can move to the page, please. Now on the top half, you see the quarterly development of our homes connected, when eliminating inorganic growth in the first quarter, which is the acquisition of ANTEC, you still see an underlying organic increase. In Q3, we canceled, as you know, some unprofitable homes connected, where we bought the signal from -- or where we buy the signal from Vodafone at uncompetitive prices. You may have noticed also that we have filed a complaint at the European Commission against the decision to let Vodafone and Unity merge. On the bottom half, you can see the development of our homes connected 2-way upgraded. Now we have continued to do upgrade, however, at a slower pace. We want to focus the upgrade on networks where we also have distribution strength to ensure that we have a positive payback on our investments. Can we move to the next page, please? Thank you. Now on the top half, you see the development of our CATV, so linear TV RGUs. Linear TV continues to be pain point for most cable operators. We have been able to achieve the lowest churn in cable TV RGUs in 2016, but to be honest, more can be done, in particular in terms of process optimization and product. Even though, I expect to see some headwinds coming from CATV over the longer term. Now on the bottom half, you see the development of our premium TV product. Also, this is an area for focus. However, given the cost structure of delivering premium content, the margin of Premium TV RGUs is a little bit lower. And hence, as we were dealing with so many other topics, let's focus on this one, that's still an area of opportunity for the business. On the next page, please. Thank you. So let's look beyond the RGUs as the way how we deliver the experience. We see continued improvement also in Q1 for all touch points when it comes to NPS. Overall, we're now close to 0. And on the path to close the gap with the leaders in the industry, which I think is going to take some more time, but I think we have all, say, the ground work done to continue to improve here. Overall, these are very significant improvements with large sample sizes of customer feedback giving us a very robust development. And this can only be achieved by fully reengineering processes and changing the incentive system for our people. We've done all of that already in the beginning of 2018. And here, you can see that this is actually bearing fruit, and I would expect to continue to see that. There are, of course, already some touch points that are positive and also highly positive. For example, we have very early on, focused on digital channel and our e-commerce channel. And you can see here that we are very positive. And I think the experience in digital channels is very good, which, in the moment, as today is very important to us. If you'd go to next page, please. Thank you. I have continued to show you this page, essentially as a proxy for product quality. You normally only call your provider if there is something wrong or with service or the bill. The number of calls continue to drop. And even at March, is not yet complete, we will likely see the lowest number of calls on record. Our ability has also improved with the exception of -- our availability has improved with the exception of the dip in November, which was, however, quickly resolved. Importantly, also here, you can see that we have more than 20% of customer interactions handled digitally. And these are real digital interactions so not just on the telephone system in the call center, but really on digital interactions, meaning that the app or the online systems. So also here, a very good position. Digital interactions also produced, of course, less work and a high NPS. If you move to next page, please? Thank you. Now the results from a stable number of homes connected, improving process quality measured through the NPS and improved product quality, as we've seen just with the dropping of calls into our customer service centers, should be an increase in customer numbers for IP, where we want to see more revenue and more margin growth. In Q4, you can see all of this came together with 5,000 purely organic broadband net adds, meaning excluding all the bulk IP, net adds that sometimes in the quarters before were driving the development. On the bottom half of the slide, you can see that the trends in Telephony RGUs are also strongly improving. We have, during the course of 2019, also worked a lot on our product portfolio. And you can see that, that is also supporting the growth of both of those products. Let's move to the next page. So overall, we see increasing volumes in IP RGU, but we also see a trend towards higher bandwidth. Our marketing strategy here is quite simple. We are leaders in price value, meaning we give more bandwidth for the same price than our DSL competitors. And this way, we can compensate for a lack of advertising power. Over 50% of our new customers choose more than 200 Mbit per second, and since we've reintroduced the 24-month contract, 75% of new customers are choosing those. So a continued development, robust development towards higher bandwidth, which is really our strength versus DSL. And that, when you move to the next page. We can see that on the bottom half of the page, we have an increasing ARPU. So despite the fact that we're pushing 24-month contracts, which comes with stronger discounts, the movement towards higher bandwidth, not just for new customers, but also for existing customers, results in higher ARPU, both year-over-year and sequentially over the quarters. Coupled with higher volumes, this should also be the platform for growth. In terms of TV ARPU, we've been able to sequentially stabilize the ARPU. And I believe this is already a good result from that perspective. So that leaves us to deal primarily with the volume at this point. Let's go to the next page, please? Thank you. Clearly, a highlight in our business has been PYUR business. We've been driving another very strong quarter in our B2B business with growth of nearly 30% in the last quarter. Overall, for the full year, net sales have increased by 17%. And it is proved to show that we have a sweet spot. There's is significant demand in the SME segment, which we focus on. There's less pricing pressure in this segment. And there's a very, very large segment in Germany of companies who want to move to being more digital. We continue to see that robust demand for connectivity solutions, in particular, and security. As well as our data center solutions. As you remember, we have got our second data center ready for operations in the fourth quarter. In these times of home office working, I would expect that trend also to continue. We are also executing on quite a number of infrastructure projects through PYUR business, where we won the tenders for Heidelberg and Halle. So I think we have another strong area for the business that we can build on for continued growth. And with that comment, I would like to hand over to Eike for the details on the financial performance. Thank you.

Thanks, Timm, and also good morning from my side. Let's start the financial section with our top line performance in Q4 2019, where we finished the year with 2.4% year-on-year growth as revenues came in at EUR 129.7 million. Our full year revenues increased by 1% year-on-year to EUR 499.4 million, and hence, we were broadly stable as guided for. Our TV revenues were still impacted by a structurally challenging market environment. The decline was mostly driven by RGUs losses during 2019, while the ARPU was more or less stable. So -- it was even more important that the IP and Telephony business returned to growth, thanks to both low volume and price. As Timm already said, our B2B had another strong year with around 17% growth year-on-year. We had some phasing effects during 2019 but the projects were finalized at the right time to achieve an outstanding last quarter. As mentioned previously, the category other revenues was mainly driven by low-margin business construction work, which are expected to fade out in 2020, but we'll have some more touch points on this during the presentation. On the next slide, we have broken down for you the different effects that our business experienced over the course of 2019. Although the negative impact from TV amounts to EUR 11.5 million, which is a huge one, we were able to overcompensate this loss with growth in IP and Telephony, B2B and construction work. The decline in sales from program provider was the result of the analogue switch-off during 2018 and 2019, as previously explained, but this is not an ongoing trend, so no negative development expected there for 2020. So that describes the current nature of the business quite well and gives also an indication for the trend in 2020, that means further growth in Internet and Telephony as well as B2B, while TV revenues are expected to remain affected by the overall challenging market environment. Let's move to the next page, and this is another chart on revenues. In the last 2 to 3 years, our financial results were impacted by a business which we don't see as core business. The construction business inflated revenue and costs in the same way and made it difficult for you guys to fill your models with reasonable numbers. On this page, we sought the construction business out in order to provide you more transparency on our core revenues and give you also the message that these revenues in Q4 2019 increased by almost 2%, so there's no organic growth without construction business. We finished the year 2019 with overall revenues stemming from construction work in the amount of almost EUR 30 million. And as previously communicated, the large majority there will phase out in 2020. Starting with our Q1 reporting in May, we will be sharing a like-for-like comparison on revenues, including and excluding construction work for 2019 in order to make this change more comprehensible, and this will hopefully make life easier for you. On our normalized EBITDA, on the next page, we saw that in Q4, it increased by 2.2% to EUR 60.6 million on a like-for-like basis, which means excluding the IFRS 16 impact. For the full year 2019, normalized EBITDA amounted to EUR 231.2 million on a like-for-like basis, so broadly in line with full year 2018 as guided. The main driver of the strong increase in Q4 was, of course, the B2B business, [ just hit ] on the revenue side. As we succeeded in further decreasing nonrecurring items by EUR 21 million year-on-year, our reported EBITDA for full year 2019 amounted to EUR 205.9 million again, so pro forma IFRS 16. This means an increase of close to 9% year-on-year on a like-for-like basis. In Q4, our reported EBITDA even increased by more than 20% to EUR 56.8 million on a like-for-like basis. The next slide is a nice one, which speaks for itself. We have displayed again for you sequentially the EBITDA development over the past 8-quarters, which underlines with the transformation is on track. In Q4 2019, the reported EBITDA was on the highest level since integration began in Q1 2017. This makes us confidence that we'll be able to generate positive free cash flow in 2020. Key to this success was a significant reduction in nonrecurring items over the past 24 months from EUR 67 million in 2017 to EUR 25 million in 2019. But probably even more important is the constant increase of reported EBITDA throughout the quarter, which shows that not only the drop in nonrecurring items but also underlying improvements [ by symmetry ]. From Q1 onwards, we'll stop the non-pro forma IFRS 16 comparison and compare all figures along the official reporting standards, which will be including the IFRS 16 standard. On the next page, we have the bridge for reported EBITDA from 2018 to 2019, in order to understand the various effects better. The chart showed that a major contributor to the increase in 2019 year-on-year stemmed from fewer nonrecurring expenses, which are directly cash effective, so the EUR 21 million, again. The decrease in other income, the reservoir in 2019 compared to 2019 largely stemmed from the fact that 2018 was a high comparable base due to the asset disposals of certain layer foreign networks in Q1 2018. And just to remind you, this was under the previous management team. All in all, reported EBITA increased clearly in 2019, and this is the better cash proxy compared to normalized EBITDA from our perspective. The CapEx in Q4, amounted to EUR 52.9 million, which is an increase of 51.8% on a year on a like-for-like basis, so excluding the IFRS 16 impact. For further comparison, I will focus on the pro forma figures on this chart. The sharp increase in Q4 was largely explained by a very low comparable base, and tender demand for broadband capacity initiatives as well as pulling forward certain investments that were scheduled for 2020 urgently, this is important and I will come back on this -- on that table. On the full year view, our 2019 CapEx amounted to EUR 153.8 million, which means 3.3% decline year-on-year on a like-for-like basis and delivering on our comments in November about a CapEx reduction for the full year. 50% of the full year investments 2019 flew into customer projects such as digging and rolling out our network to the customers' homes, but also in commissions and customer premises equipment. With that, let's move to the next page to leverage and liquidity table. As usual, this is the last part of my section, and you can see no changes in our debt facilities funds since last time we met. The available cash by end of December amount to EUR 48.9 million, which is a -- with a drawn revolver of EUR 13 million. As said, we pulled some investment forward, which results in higher cash outs by the end of last year. But with this effect, the current cash position per mid of March 2020. We provide today to you to give you a better understanding there, amounts to EUR 75 million of available cash, and the revolver was fully available, and therefore, undrawn. This translates into leverage 6.1 per mid of March. So the liquidity position was a bit weaker by the end of December, but this was operationally driven. But now mid of March, we feel very comfortable, and we don't see the necessarity to draw the revolver in the course of 2020. With this, I hand over to you, Daniel.

Thank you, Eike. Ladies and gentlemen, let me share with you now my first impressions of the 7 weeks in the CEO seat, priorities 2020 and guidance. And I've mentioned, I'll also be talking about COVID-19 and how we're tackling it. Next slide, please? So I have been in the CEO seat now for roughly 50 days, which is about half of the famous first 100 days. But anyway, here are my first impression. First of all, and I think most importantly, how I have convinced myself very thoroughly that Tele Columbus has a very attractive business model. The long running concession agreements, the steady revenue stream, the ability to upsell IP services included in that footprint, reminds you that we're only about 25% penetrated across our footprint in terms of IP penetration. The infrastructure that we work on, DOCSIS 3.1 that enables gigabit speeds that's previously mentioned, the well positioned B2B business makes for a very attractive package. When you look at our foundation, our biggest asset, obviously, is our footprint. The long-established and strong position with the healthy associations, they are around for 8, 10 years. If you look at the contract waterfall, actually it looks such that there's a very healthy contract waterfall, i.e., we're not facing a lot of renewals in one go, but they're well spread. The IP penetration, which is still undeveloped, which provides room for growth through retail and wholesale. And I think also very importantly, the existing network and MDU focus, which clearly supports fiber to the building and home economics, and Timm already mentioned the progress that we have made, and I think there is more to come and more that should come. As previously mentioned by both Timm and Eike, the turnaround is underway and beginning to deliver results, the points have already been mentioned. I would probably add just one more point, which hasn't been mentioned yet. The one that actually, if you look at our brand surveys, the band awareness is up, so the arrows are pointing in the right direction. Having said that, there's still a lot to be done and no quick fixes. And Timm, I take your challenge on NPS, but I would also mention that if you look at base NPS, top-down, we're still way below competition. While good progress has been made a lot still remains to be done. Legacy systems and processes are not exactly helping, so there's a lot of work to be done there, that we still, despite progress on the integration, having a very complex legal structure with more than 50 legal entities, which drives effort and cost. So nothing out of the ordinary there, still a lot of hard work to be done, unfortunately, no quick fixes and no shortcuts. I would add that we could grow faster if we have more funds available. So as I said, the arrows are pointing in the right direction. But as you know, our cash situation is tight. We're running a very tight ship, which has its advantages because you are clearly thinking twice before spending. So that's a good discipline to have. But it also means that we are leaving some opportunities on the table, I guess since we are underspending on advertising compared to the competition and I am hoping that we can get some more gas in the tank over there. Lastly, of course, in addition to all the operations staff that we need to do, there's a need to clarify the strategic direction of the company and the funding of it. Obviously, I have noted there's a lot of movement in the infrastructure market. We have clearly said that we are well positioned and there's a window of opportunity for Tele Columbus to leverage its position and key assets. So after 7 weeks, I'm glad I joined. It's a great company, and there's a lot to be done. Next slide, please. Let me come to priorities for 2020. I have classified them into operational, financial and strategic. On the operations side, it also follows from what has already been mentioned, it's about growing RGUs in our growth areas, and they clearly are available, while counterbalancing them with some headwinds that we still face and will continue to face on the Linear TV side and try to address the Premium TV opportunity. On the NPS side of things, continue the good and hard work that has been done, addressing the key detractors, i.e., technical service disruptions and their customer service. We want to develop further wholesale partnerships, and the B2B business, which as previously mentioned, has very good growth opportunities available. I'm also thinking about providing backhaul fibre for all the 5G carriers that are being built in this country at this stage. On the financials, drive profitable top line growth that goes about same, deliver the 2020 guidance. And as previously mentioned, our commitment to generate positive free cash flow during the financial year 2020. On the strategic side of things, we're in the midst of the -- we have engaged in a very constructive dialogue with our Supervisory Board of clarifying the strategic direction of the company. Once you know what we want to do, we'll talk about how we fund it. And then we start executing on both strategy and funding initiatives. So that's very clearly outlined our priorities for 2020. And of course, in the last few weeks, a little challenge has been thrown at us and everyone else in the industry and the country at large, which is COVID-2019. Next page, please. I'd like to provide you with a situation update on COVID-19. Obviously, this is very fluid. This is as of yesterday. And for those of you who are not from Germany and since there are differences between countries, let me quickly remind you what the current status in Germany is because it clearly has an impact on how we operate. So public life has largely been shut down, nothing special compared to other countries. While there is no curfew in place, there are social restricting measures which have been put in place nationwide, shops are closed. Construction sites, very important for us to remain open for now. And the Federal Government is fairly busy preparing relief programs, has relaxed -- also enacting a payables moratorium for households on basic services. And on this one, we need to say that this has passed -- the bill has passed the lower house yesterday and is now subject to approval by the upper house actually today. A lot of administrative uncertainties remain as to how apply for the moratorium and the customer -- as a customer, and therefore, we're not going to speculate what the impact is going to be, we first need to look at what the actual implementation will look like. At Tele Columbus, I'm happy to report that so far, things are looking pretty good. We were allowed to reopen some shops in Berlin, others remain closed. Our retail partners have to close many of their outlets. But the good news here is that when you look at daily gross adds, we're tracking the budget. And we just see a channel shift from point-of-sale channels to online and telesales channels. So the grocers are finding their ways into our channels, just different ones. We have told about 80% of our employees into working from home. Transition went smoothly. The field technicians are still active, which is good. IP traffic has increased by over 20% over the past 2 weeks, but the network is handling the load well and call minutes are up very significantly, people have obviously an urgent need to talk more often and for longer. The network construction upgrades and projects continue as usual for the moment, and we have put in place an emergency team, which looks at the situation on a daily basis. Next page, please. So here, without going into detail, just to let you know that we've put in place what we call the corona or COVID-19 cockpit, where we are tracking early indicators that would tell us whether something goes wrong, on a daily basis, and we are very close to the situation. But as I've said, so far, everything is looking and working fine. Next page, please. I think more important than what's changing on the daily business is to take a step back and ask ourselves how resilient is our business model. I told you before that it's an attractive business model, but the question also is it resilient to the potential shocks from COVID-19. And I'm happy to report that actually, there's a lot of things at play here, which are looking good, and probably even better than in some other telecom operators. Why do I say that? One, we have a low concentration risk. I told you -- to you about the contract waterfall before, and we have a low concentration risk at the top, and we have a very long tail of concession agreements and I'll remind you they run for 8 to 10 years. So there's a very significant part of our revenue, which is pretty much backed up by these concession agreements, which are long running, and about 70% of our TV RGUs are under bulk agreements. We have a high degree of recurring revenues and we have a high refurbishment quota for CPE. So all of this gives me, gives the team confidence that we are well equipped to weather the storms which are coming our away and are coming the way of the industry. Next slide, please. So on this slide, we're sharing with you our guidance, which is pro forma for any possible COVID-19 impact. Since we've made a few changes to the guidance format, the metrics, let me first explain the framework. As you've probably noticed, we are now using ranges rather than qualitative statements to guide the current financial year metrics. We believe this will be helpful to the market in terms of clarity and modeling purposes going forward. Furthermore, we are now guiding on reported EBITDA rather than normalized EBITDA, and we are no longer guiding on homes connected, but we'll continue reporting them. The reason why we are switching to reported EBITDA, as have -- has been mentioned before is that it's a better cash proxy, and that's what we are focusing on during 2020. On homes connected, while they describe our addressable market, there is no direct link to either RGUs or financials, hence, we believe it is not really relevant as a guidance metric going forward. With this in mind, let me now come to the actual full year 2020 guidance, as you can see on Chart 31. On total revenue, we are guiding for a range of EUR 465 million to EUR 475 million, which compares to around EUR 470 million in 2019 on a like-for-like basis, i.e., adjusted for roughly EUR 30 million of construction work in 2019, and Eike has previously explained to you why the change is made here. On reported EBITDA, we are guiding for a range of EUR 225 million to EUR 230 million, which compares to EUR 214 million of reported EBITDA in 2019. And the increase in EBITDA reported is mostly driven by the significant reduction of nonrecurring items. Our internal cost structure is quite lean and doesn't provide much scope for savings, therefore, margin improvement going forward will have to come from top line growth as well as from a reduction of third-party costs such as signal fees. Just for completeness sake, EBITA normalized is expected to remain stable year-over-year. On CapEx, we're guiding for a range of EUR 140 million to EUR 150 million or roughly 31% of revenues if you take the midpoint of both ranges, which drive this ratio. This compares to EUR 162 million or 32% of revenues in the last year. The year-over-year reduction is driven by less CapEx in all areas and no specific reductions as a result of some fee. As mentioned at the bottom of this slide, we'll revisit, and if required, update our guidance for COVID-19 impact as part of our Q1 results due in May. We thought this makes a lot more sense than trying to speculate right now because a lot of things are unknown, and right now, the business still is looking stable. And this is also the reason why we have left the midterm guidance unchanged at this stage, as there are simply too many variables at play, which could have an impact in either direction. This concludes my presentation -- our presentation and we're now ready for Q&A, and I hand back to the operator. Thank you.

[Operator Instructions] We will take our first question today.

It's Nick MacDonald from Bank of America. A couple if I may. Firstly, you talked about clarifying the strategic direction of the company and also identifying other sources of funding to implement that strategy. I was wondering if you could just elaborate a little bit on that about how you think about, in particular, the infrastructure part of the business. And what sort of sources of funding you're exploring, whether it's primarily equity would that focus? And then secondly, you mentioned on the COVID-19 impact, the change in law with respect to -- or potential change in law with respect to the payables. I appreciate it's very hard to guide at this moment, and we're not sure how it's going to be implemented. But is there anything you can give us that might help us in terms of numbers for the business about how we might be able to think about that in 2020?

Yes, Daniel here. Thank you, Nick. So on your first question, look, it's still early days. Usually, you get 100 days as CEO, I'm halfway in. So I hope you understand that it's premature. But I think -- but I've given you and everyone else a few pointers when I talked about the foundation of our business and what is really our core asset and our key asset here and I think it clearly come through that. This is infrastructure, and the fact that we have a footprint, which is recognizable to FTTB and FTTH build-out and overbuild. So I think you should be thinking about that part of our business as the strategic foundation. When it comes to sources of funding, it's too early to talk about that. I mean, obviously, there are other trillion possibilities how to fund the possible investment. But the way we structured this also in the discussion with our supervisory boards that we said, look, let's first talk about what we want to do. And once you know what we want to do, we know how much it's going to cost us, and then we can talk about the sources of funding. But as I said, again, you can use your own imagination, what the options are, right? So that's how much I would like to say for now. On strategic side of things. Again, it's early days, and I prefer to talk about it when we have something firm to say rather than to speculate prematurely. But it's clearly on our agenda, it's clearly on my agenda, top priority. In terms of change of the law, look, so as I said, it's being passed actually, enacted today. So we have to look at what exactly it says. Maybe a couple of things here. If you look at the drivers behind it, the way I understand it is to provide relief, temporary relief, temporary, I emphasize, for people who are in the unfortunate situation that they are facing difficulties making payments for their bills. Now Timm has shown you in his presentation that the TV ARPU is at EUR 8.8, and the IP ARPU is at EUR 24.3 ARPU. So I would say, if you're facing a tough time, this is probably one of the things that -- one you really want to keep. And secondly, it's not a huge spend item. I think this will probably much more impact payments for rents, which are measured in the hundreds of euros rather than EUR 8 or EUR 9 or EUR 24, right? So, therefore, I've given you an indication of how relevant the release could be from an individual's point of view. But again, we'd rather wait for the text of the law, which is being enacted before we speculate. In any event, it would impact working capital, if at all. That's how much, I think I can say at this stage.

We now move to our next question.

Its Lars here from Deutsche Bank. 3 questions from my end, please. Based on the guidance, I see now full year '20 leverage free cash flow range, at least on my numbers, between minus EUR 10 million to plus EUR 5 million, once I also take into account the lease repayments, which you need to do on an annual basis. A few variables on that range, obviously, remain. The first one is net working capital. And there was a material inflow in Q4 as well in the tune of EUR 30 million, which obviously helped you guys to preserve cash. Can you walk us through the drivers there, maybe, and how will this normalize over 2020? And then the other line item I'm looking for is really cash taxes for 2020, please?

Eike, can you take this?

Yes, of course. I'll take this question. So listen to your numbers that you calculated, I can assure you that our internal model definitely show that we will be cash positive, and we'll have enough cash on hand and including all working capital effects and tax effects and all those things what you have between EBITDA reported, CapEx and also in terms of the operating free cash flow. So no worries from our side there on the cash perspective. I think you touched a couple of details and the inflows there. From our internal calculation, I can assure you that we'll be cash positive, and it will be a stable year through 2020.

Okay. What was driving then the Q4 inflow in net working capital of EUR 30 million, which was quite large, can you talk about that, Eike?

Yes, of course. This is not really a cash matter. This is only related to the infrastructure project of -- in area of Plon. I think you're familiar with this. And this is a kind of bookkeeping that we need to show it, but it's not a cash effect. So it was already part of our cash statements for the last year and before that, but now we need to show it, and it has no cash impact.

Understood, understood. Okay. The second question also related to COVID-19. In the past, you stated that churn has improved materially, but that gross adds remain an issue, especially on the IP side. I mean, now in Q4, I guess, this has improved a bit. But again, do you not expect COVID-19 to really have an impact on the gross adds side in the sense that consumers stay put at the moment, Germany is in lockdown, and it doesn't seem like a lot of people switch providers at the moment, if you can comment on that as well?

Sure, Daniel, here, I'll take that. So look, I mean, as I said, when I was talking as part of my presentation, if you look at the last couple of days, which were already on the COVID-19 influence, we're actually tracking the budget on gross adds, right? So there has been no shortage of gross adds coming in. They just came in through different channels, though there it's a channel shift when the point-of-sale our gross people are finding a way through telesales and online channels, which actually is not a bad thing for us as we want to go more digital. And as long as our field technicians can remain active and also do service activation. And I think there's a good chance that they may be able to do that because telecom is a critical infrastructure, especially in these days, and they were well prepared for that. It's -- as I said, I don't want to speculate. Right now, we're not seeing a shortage of gross adds.

Okay, okay. That's helpful again. And then the last question from my end. When it comes to the renewals with the housing associations recently. I've seen that almost all of them were linked to upgrading the network. Is it fair to assume that this is now a broader theme? So basically, whenever you want to get the renewal from a housing association, you need to commit capital in form of modernization or customer project CapEx?

No, I would not say in general. There's a mix of things. We look at these projects on a weekly basis in our management team sessions, the bigger ones at least. And we see all sorts of projects. There are some that are the ones that you just mentioned, and we've put out a press release a couple of days ago that talked about one in Leipzig, indeed with 7,000 thousand homes connected, where FTTB is part of the upgrade. But that's not recurring anywhere. We have, as I said, 150,000 concession agreements. And they come from all different sorts of backgrounds and sizes and requirements, but actually, we don't look at this as a bad thing because it really provides for even more reliable infrastructure and pave the way for higher speeds. And since we have 8 or 10 years to generate return on that capital, we invest. That's actually not a bad thing. So that's how I would answer your question.

Yes, yes. I mean, I agree with that once the funding situation is resolved, that is clearly the case. But at the moment, given you are running a tight ship, as you said yourself, clearly this is a cost of staying in business now, where you have to upgrade the network to get the renewal of the housing association concession, it would be more of a concern. But you have clearly stated that this is not the case, and it's only occasionally on a few projects like in Leipzig. So that helps a lot, guys.

We'll take our next question.

Yes, Christian Fangmann, HSBC. I have a few. One is actually on the overall competition on the housing association front. What are you seeing in terms of the overall development, so the pressure from Vodafone or from Deutsche Telekom in that segment? I mean, it's a key area for you to basically have the hook in the buildings through the TV and then basically upsell broadband services. So would be interested in, if anything changed overall, what the housing associations are asking for? What others can deliver, which you cannot deliver or vice versa, so has anything changed in that respect? That would be number one? And then the second one is, you alluded to potentially doing more wholesale deals throughout 2020. So is there more interest from other operators, I mean, without naming the guys? But is there interest? And can your network actually handle that in terms of capacity? And actually, when is the Telefonica Deutschland deal to kick off being live basically? And the last point is, do you see any impact already in terms of B2B demand for your services? Because it's one of the key growth areas and we're hearing from other operators, yesterday Versatel said that the demand for FTTH is going down, and projects are delayed, so would be interested in your view, what you are seeing right now?

Thank you, Christian. So Danny here. I'll take your questions. First, starting with the competitive situation and the housing associations business. Look, so I mean, has something fundamentally changed? No. That's I think the first answer I would give you obviously, we -- Deutsche Telekom has stated a renewed interest in the housing association business, but that will materialize over time. And obviously, we take them very seriously as a competitor as we do Vodafone. But I think what is helping us here is that for them, for these 2 organizations, it's one of many businesses, for us, it's the foundation of our business, which means we have top management attention on it, and we're really focused on it, one. Two, the previously mentioned cases where we upgrade our infrastructure to FTTB or FTTH as part of renewal actually helps us to differentiate, right? And again, for us, it is core as in cases for Deutsche Telekom or Vodafone, this CapEx obviously competes, for instance, the 5G CapEx, which is not the case for us. So I think that speaks for us in terms of competitive situation and differentiation. But has something fundamentally changed? No, I will not say. These changes will happen over time, I would say. On the wholesale side, I think, look, we're not going to disclose anything, but I can say as much as, yes, there is interest from other parties. And when it comes to Telefonica, we have agreed to -- mutually agreed not to disclose anything for the time being, and we will make an announcement once this thing actually is operational and kicks off in terms of commercial impact. And lastly, on B2B, yes, obviously, this is one of -- if you remember, the corona cockpit that I talked about in my slide is one of the things which we are monitoring very actively. How does the sales funnel look on the B2B business, HL komm and so far, it's looking good. In fact, actually, we see more interest in terms of -- from companies wanting to digitize their operations and if there's anything beneficial coming from all of this COVID crisis, I think it's a stronger and faster push for digitizing processes, both within Tele Columbus, but also at our clients. And therefore, this is beneficial to our B2B business. But so far, things are looking good.

Okay. Can I ask another follow-up question that I forgot in my first question list. Basically, I know that the government is reviewing the whole treatment of how TV service potentially being treated in the utility bill. So basically charging your TV service and your long-term contracts as part of the utility. But have you heard anything lately, any signs, any tones from the government where they are, because potentially, they want to change the [indiscernible] accordingly, so any thoughts?

Yes. So this is the same as telecom [indiscernible], and it's still in the making, one, so there's no clarity in this. And look, so even if it turned out the way you described, that would, first and foremost, impact the relationship between the tenants and the housing associations. And obviously, our contract, especially under the bulk agreement is not with a tenant, but with the housing associations, these contracts are set. So if at all, there will be a delayed impact on our concession agreements. But these are political processes they take the time. There's lots of stakeholders trying to influence. So it's really too early to speculate, but we're not holding a breath at this stage.

We now move to our next question.

This is Titus Krahn from Barclays. It's only 2, if I may. The first one would be on your CapEx guidance. So at the midpoint, the new guidance implies a reduction for 10% compared to 2019. I understand that you have brought forward some of your CapEx into 4Q '19. Just trying to understand what are the underlying factors driving the reduction year-on-year? And secondly, on your EBITDA for 2020, so you mentioned that nonrecurring items will be one of the main drivers of the reported EBITDA growth, which you're guiding for, can you give an indication of the trends in nonrecurring items for 2020?

I'll take the CapEx question, and Eike, if you can then talk about EBITDA, please. So look, on the CapEx, as I mentioned during my presentation, the year-over-year reduction is driven by less CapEx in order, there is no specific reduction as a result of something when we decided not to doing anything anymore. As we mentioned yourself, we've brought forward some of the CapEx items. And it's just a very conscious spend. And I think as I mentioned previously, one of the benefits of running a tight ship is that you ask yourself twice before you spend. And I think that's what you're seeing here that we're really channeling the CapEx into high value areas. That's how I would answer your CapEx question.

Yes. And I will take the question regarding the EBITDA development and especially the nonrecurring items. And Titus, I think you are familiar with the story, and we decreased the nonrecurring items from 2017 from EUR 67 million, then over EUR 46 million last year, now EUR 25 million. There's a clear trend, trending down. I think there will be -- always be a certain amount of nonrecurring within the telecom industry, but it will be definitely significantly lower than what we had in 2019. And I think it's not fair to assume further EUR 20 million, but I think it won't be far away from that.

We now move to our next question.

This is Simon from Hauck. My first question would be on the Internet net adds, which were quite strong in Q4, I think. Maybe you can share what your targets are for 2020, and if you see this run rate sustainable throughout the year? And then the second question would be, once again, on this whole financing topic or funding topic. I mean, the sale of those assets has been in discussions since last year. How do you see the impact of this COVID-19 situation on this option? I mean, do you see a potential risk for investors to be likely to invest into such assets during these times? Yes, so those would be my 2 questions.

Thank you. Timm, do you want to talk about Q4 net adds on IP?

Yes, I think -- hi, Simon. So Q4 net adds are the result of both stronger gross adds and also lower churn as we had already predicted during the course of 2019. Now as you know, with regards to 2020, we do not guide for net adds as such. We only guide for revenues and reported EBITDA and CapEx. But I think you've also already heard Daniel say that year-to-date, the gross adds are tracking on budget. So from a Q1 perspective, I think you will hear that, of course, at the end of May, but there is a closeness to being on budget. For the rest, I won't be commenting on guidance 2020 as this should be something that Daniel really should be doing.

Yes, definitely. Thank you, Timm. Yes. So indeed, as I mentioned in my slides when I talked about priorities 2020, so there the first bullet that said further grow Internet and Telephony RGUs by increasing IP penetration. That's what we're committed to do and indeed, first 2 months or 2.5 months, almost 3 months, are looking good, but more we can't say at this stage. More on that with Q1 in a couple of weeks. You also asked about the funding topic and the sale of assets. Look, I mean, let me not comment on funding options here. I mentioned previously, they're premature, I first want to talk about what we want to do and then about how we fund it. But on your more broad question about COVID-19 impact and risk for investors, look, I'm not an investor, but if I was one, the way I would look at it is actually, if anything, COVID-19 at the current circumstances reemphasized the importance of telecom services, infrastructure behind those telecom services. So they become more important than ever. And I think you will also see through the crisis that the resilience of these businesses is quite significant compared to others. So I could well imagine that cost crisis, whenever that is, then the -- there would be a capital inflow actually into the sector and especially infrastructure and also. If you are an infrastructure investor, maybe you would rather invest in fibre than toll roads and airports which are taking a hit these days. But again, that's speculating on behalf of potential investors, I'm not one of them. And anyway, the time that we take to figure out what we want to do and how we do it, will probably take us the end of COVID crisis until -- unless this one extent beyond the periods that one should expect. And lastly, also, don't forget what we mentioned previously, about 80% of our revenues for 2020, which we have budgeted are secured by contracts these days. So even if today, everybody, God forbid, canceled the contract that they have with us, the notice period that is in the contract, and nobody else signed a new contract, we would still deliver 80% of our -- we would book 80% of our revenue for 2020. So I think these are important elements to consider from an investor perspective, and therefore, I'm not afraid of COVID-19 impact on this potential scenario.

We move to our next question.

It's James Ratzer from New Street Research. Two questions, please, both on CapEx. Firstly, just for 2020, I'm surprised at this stage that you're kind of suggesting no real impact on the FTTH build as a result of COVID and engineer lockdowns. I mean, how sustainable do you think that is going forward? And as a result, do you actually think for 2020, if some of that activity is curtailed CapEx could come in below your current expectations? And then the second question on CapEx was actually just looking out over the longer term, given your guidances for CapEx to sales over time to come down. Are you able to just kind of help quantify that, I mean, you showed a slide with the CapEx breakdown, but what would be great is to understand how much you think those different buckets of CapEx really can come down over the longer term? I mean, is it feasible for Tele Columbus to get CapEx to sales ever down towards 20%?

Yes, James, thanks for the questions. So look, I mean, we've clearly stated on the guidance slide that this is pro forma for any COVID-19 impact. So the CapEx guidance of EUR 140 million to EUR 150 million is -- I think there was no COVID, right? Because we said we will look at this as part over the next couple of weeks when we'll have more visibility and we'll update if there's anything needed to be updated with Q1 results during May. Now just -- if your logic tells you that if indeed, construction sites would be closed down for COVID-19 reasons, of course, you can build less than or maybe possibly nothing, which we don't hope for. And that would have if you want "beneficial" impact on CapEx 2020. But we would not be too happy about that because while it would benefit free cash flow in year 2020, obviously, it would put a delay on the revenue growth in the years to come, right? So, therefore, there's always 2 sides to the medal. But again, as I said, we'll update you in Q1, if we see any impact, and therefore, we'd have to adjust the CapEx guidance. Now on the midterm guidance, I clearly said, this is unchanged for now simply because there are so many things at play, which could drive it in either direction. Of course, also, there is the question of what strategic direction are we following going forward? The guidance that you see here is for normal course of business. And therefore, I think it's premature to speculate on that. But maybe Eike, you can provide a bit more color on the CapEx breakup that you talked about.

Yes. I said for 2019, the 50% is related to customer projects, and this includes also the construction, the reconstruction CapEx but also the customer premise equipments and everything which we need to connect the customers to our network and to provide our services. Going forward, I said earlier that we expect CapEx trending down. I think the 20% what you asked for is very aggressive. And from our perspective, the issue in our case is not the CapEx, the absolute number of volume of CapEx, it's the revenues, which we were lagging behind after spending CapEx in the past. So I think the margin or the benchmark is rather in the mid-20s in our case than in the low 20s. And because of the technology of our network. So we need to rent a lot of network. We don't have a nationwide backbone right now, and there will always a clear costs which are higher than from incumbent.

We now take our next question.

Yemi Falana from Goldman Sachs. Congratulations on a successful turnaround through 2019. A quick question on B2B from me. You've helpfully mentioned some strong indicators in the B2B segment, which has been a higher-margin growth driver for you through 2019. Can you give any color on the proportion of these revenues that are contracted? And what are you -- what's baked into your expectations around further growth in businesses, taking up your services, given they may be under more pressure in the current climate?

Eike, can you take that one? Or Timm...

So maybe -- maybe I can give some information on 2019, Daniel, and then you can comment on the 2020 outlook for B2B. So essentially, on the results for 2019, we continue to see a very decent margin development. And the origin of that is the execution of the strategy that we laid out some time ago. Essentially, we've been offering a reduced product that was previously only available to part of the network to a larger part of the network. Now that has enabled us to actually go along our, let's say, our network and keep as much as possible of the service delivery on our own network and hence, achieving a very high-margin on that. We also continue to see that the segment, the SME segment is expressing strong demand for the services. As you may know, Germany is slightly behind in terms of digitalization of the -- in the SME business. And this is what I've mentioned before is the sweet spot where we positioned ourselves. And we've grown HL komm to be a more regional provider into being a more, let's say, national provider also capable of running infrastructure projects in different cities. So from that perspective, I think it gives you a flavor of how the margin is actually being kept at a higher level. And with regards to the outlook of 2020, I would pass over to Daniel.

Thanks, Timm. Yes. Look, so for 2020, we expect further growth in our B2B unit. We're not guiding specifically for that. We're just guiding for overall revenue development. That's clearly one of our growth drivers. If you look at the percentage -- the year-over-year growth that was shown in 2019 over 2018, obviously, that's a very high one. And if the comparable base becomes bigger than the percentages cannot continue like this forever, but we're clearly expecting double-digit growth. And the COVID-19 impact, again, so far, we're not seeing anything. We're looking very carefully at the sales funnel, and it's looking good for the time being. But the rest remains to be seen and if there's anything to be updated, we'll do that as part of our Q1 results in May.

Very helpful. Just more precisely on that point, what proportion of your revenue expectations to B2B are already contracted for 2020? If you can give any color on that, that would be helpful?

Maybe I can jump in because this is a number we can't provide here, but what we can say that historically, I think the recurring revenues that carry our business with long-term contracts is more than 50% of the business. And there are further more contracts in areas where we also have already signed contracts. But I think we can't provide this number. But as said from Daniel earlier, so what we see right now is a higher demand for capacity.

We take our next question.

Two additional from my side. The first one on the expected continuing downturn in TV. Can you give us an idea if you're rather worried about the number of concession agreements or about the pricing that's achievable? And the second one on corona, how is your rate of onboarding, is it 100% remote for Internet? Or do you need in parts still some technicians to get involved?

Thanks for the questions. Look, so on TV, as I've mentioned before, on the concession agreement side of things, we're doing well. Timm has shown you as part of his presentation, that we have kept the ARPU for linear TV, sequentially stable with a slight drop year-over-year. And I think that's a fair assumption also going forward. So, therefore, to answer this question specifically, we're not worried about the concession agreements prolongation. But of course, linear TV is a product which, to some extent, is under pressure. But don't forget, we also have not just bulk agreements, but we also have individual agreements, right on linear TV. And as Timm had mentioned, I think we haven't fully exploited the potential that we have there in order to promote linear TV single play. There's more that we can do there, and we're planning to do so. And also in a strange way, right, so if I look at my own families, if you give me one moment for citing my own example here, but I think this is a time where people start rediscovering linear TV because they all sit in front of the TV and want to see what's going on in the world around corona. So if anything, maybe this can actually help to rejuvenate linear TV, but that's just a speculation, private speculation from my side at the moment. And on corona, rate of onboarding, look so we do need service technicians for activation. So there's a link there. But as I mentioned, there is no limitation from our service technician at this stage. And I would still hope and assume that since this is a critical infrastructure that they would be allowed to go out and go about their work even if there is a special situation. And also lastly, don't forget, we don't go into the apartment. We have to go into the cellar, which is where you don't usually meet people. So, therefore, we're protected in that sense. And also maybe -- I'll say that from a peer comparison, don't forget that technicians are also needed for DSL connections, right? So, therefore, I don't think this is something where we have a disadvantage.

We don't have any further questions.

Okay, great. Then, Elaine, if I may, take over directly. Thanks to all of you this morning for your questions. This was actually a very long call, 20 minutes longer than expected, but we're happy about your questions. Looking forward to further calls over the next couple of weeks. And yes, this time not to probably meet you in individual meetings, but have that virtual and speak to you on the phone, if there are any further outstanding questions, please get back to Daniel or myself. And Daniel and Timm, I would like to thank you and also Eike, and to all of you, stay safe and healthy and have a good weekend later on. Bye-bye.

Sorry, can I have the last word, please, Leo, sorry, or maybe Timm and I'll [indiscernible]. But I wanted to say thank you to Timm. What you have done over the last 2.5 years, really appreciate it. You've provided the strong foundation. Thank you and all the best.

Thank you. Thank you very much, and stay well, all of you. See you soon.

Bye-bye.

Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.