Tele Columbus AG (TC1) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the Q4 and Full Year 2024 Results Presentation for Tele Columbus. My name is Lydia, and I'll be your operator today. [Operator Instructions] I'll now hand you over to your host, Carmen Becker. Please go ahead.

Thank you, Lydia, for the introduction. Good morning, ladies and gentlemen. This is Carmen Becker speaking, and it's my pleasure to welcome you on the name of Tele Columbus management team to today's conference call following the release of our fourth quarter results and full year results for fiscal year 2024, which ended on 31st of December. This call is limited to 120 minutes. In case of any follow-up questions, please let me know. I'm here today with Markus Oswald, Chief Executive Officer; and Nicolai Oswald, 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 markets participants only and not for press representatives. If any journalists are on the line right now, we would highly appreciate if you were leaving the conference call now. Press representatives are welcome to call my colleague, Sebastian Artymiak, to discuss any outstanding questions. Having said that, it's my pleasure to hand over to you, Markus, the floor is yours.

Thank you, Carmen, and good morning to everybody on the line. Welcome to our Q4 and fiscal year '24 result presentation. Looking at the table of content, it is the key messages, as usual, operational update and KPIs. Then Nico will take over on the financial performance, and then we have enough time for your questions. So when we look at Q4 and the year '24, on the operational side, really happy to see our Internet sales continuous growth here. So significantly growing on the Internet base. This is our -- this was besides the TV migration, one of our biggest topics to make Tele Columbus fit for growth on the IP side. So we are still -- and now it's quarter-over-quarter-over-quarter, the fastest-growing Internet operator in Germany. Compare it on a year-on-year basis on the revenue side, it is in growth as well on service revenue side, 12.3% and compare quarter Q4 to quarter Q4 the year before, it's 18.5%. The complete year was on the IP side, a very good year. When we look at also our structure inside IP sales, it is also on the one hand side, what -- when you look at our gross adds, what are the megabits customers are choosing, it is mainly 55% are choosing 500 and more megabits. And also, we are happy to have a 3P share with TV on its side with along our expectation, but it is also near to 50% right now. So fit for growth on the IP side, very important. And this is also our base for this year and the outlook for the coming years. TV migration, second biggest topic on operational business. We are in line with our expectations, near to 50% retained customers and now working above 50% for '25. Revenues, and this is impacted by the bulk migration. Revenue on '24 was EUR 426.3 million. So bulk migration has a big impact. And besides the IP growth, there was a slightly growth by B2B. But nevertheless, there was due to the bulk migration also then coming to normalized EBITDA, a slightly downsizing of our EBITDA by 3% on a year-on-year comparison. Reported EBITDA down to EUR 138.5 million, but this is completely linked to the A&E transaction, which happened in March last year, the TV migration and of course, again, fit for future, NetCo/ServCo transformation and split of these companies, a lot of work was done on this project. I will also give an update on that, and Nico can add to that as well. CapEx, excluding leasing, increased by 18%, investing into the future, into our network and into customer growth, most -- of course, consumer growth, which comes with CPEs and commissions. On the other side is a network infrastructure, which is the heart of our infrastructure and the heart of our future growth. Cash wise, the cash position on December 31 was near to EUR 60 million. In addition, the remaining undrawn shareholder loan of EUR 85 million was there. So liquidity position slightly better than originally planned, but also due to selective capital allocation and network capital management, which we did over the year. Coming now to -- I think I already mentioned it on Page 7. What is -- what was our focus and the most impacting topics of '24. It is -- it was our -- it is our strong Internet performance. The bulk migration of the TV business is in focus. We have done the NetCo/ServCo separation and now looking to Phase 2 and 3. And we also want to give you later on, again, a footprint in-market footprint, what is going on, on our FTTH deployment because looking at IP growth, it is, of course, mainly driven by our network on the DOCSIS 3.1 network. But at the same time, we are making our company ready for acceleration on FTTH rollout. And I come later on to that completely in line with our expectation, what IP growth is coming out of the growing FTTH footprint. Next page is exactly what I mentioned before, fastest-growing Internet operator in Germany. Here is a comparison also with our competitors, double-digit growth, now fifth quarter in a row and a perfect development on the IP side, exactly what we are looking for and also bringing the company into shape to deliver that further on. A comparison, so we actually managed to nearly 80,000. So it's something around 77,000 net adds on the IP base, which is 30% growth compared to the year before, which was already achieved above 90% growth. So on a high level, a growth of 30% again. Coming to not only subscribers, but also to revenues. And here, you see what I mentioned before, Q4 compared to Q4 in '23, 18.5% growth and in line with year-on-year comparison, 17.1%, so revenue growth in line here as well. Here is again, so also you just continue with work, but we reached a milestone by reaching individual RGUs who really bring revenue into the company of EUR 700,000 now, compared to that also the telephony growth, which is exactly what we are looking for. And here also the second bullet point on that slide is what I mentioned before in our footprint of near to 200,000 FTTH networks, it's 188,000 exactly. We have roughly 80,000 RGUs, which is a penetration of 44%. Compare that to the overall penetration. This is exactly underlying our strategy. We have a perfect DOCSIS 3.1 network, which high capacity, perfect segmentation. People can take 1 megabit out of it, exactly what also the demand of the housing association is. And when we are looking then on that comparison, we see exactly that uplift of 44%, and we will progress, and I will come later on to the housing association business. We will progress on upgrading housing associations with FTTH to underline that strategy. Like I mentioned before, we managed over the last quarters to bring up also the gross adds or the share of high bandwidth products in gross adds, the inflow and also coming with inflow ARPUs and with higher ARPUs, the 500 megabit coming from numbers from 40% the year or '23, managed to do that in Q1, Q2 and Q3 with something around 45% than 50%. And in Q4, also supported by Black and Cyber Weeks, we managed now a number of 56% of 500 megabit and more, which is great. When we are looking also at our bundle rate, which is then related with 3-play offers, so net sales with TV, for example, we also are well established on around 50% like I said before, the peak you see in Q2, which was more normal and estimated and also that we are going down back to something around 50% was also driven by the bulk migration in Q2. So here we are on that topic, bulk migration. Again, just to remember, 42% of our footprint was on bulk. The other footprint already was on individual. So we know where we have to transfer to. 48% is the customers. We are now looking at 50% to 55% for the year of '25. How we reach that? We have different measures in place. Biggest channels are here also our direct sales approach with door-to-door agents, which we will ramp up in addition. There are some factors in. So we have an SD switch off, which supported our TV business to get in touch with the customers. HD is progressing here in comparison. And now this is also the year of hard disconnecting our customers. We set up several projects with housing association in that kind as well, but looking also for external support, so external capacity for blocking or disconnecting activities. Related to these here are the numbers. So we have a loss of 38%, 38.7% on our RGUs on the TV business. Our expectation a little bit higher what remained in -- it is not TV Access bulk like it's named, it is bulk similar. So there are still over 200,000 customers in a kind of bulk contract, which is good. And compared to that, also a stable performance on the premium TV business. Third biggest topic for -- yes, first of all, operational excellence was also the split between ServCo and NetCo. So this is done, implemented. And we are now heading into Phase 2 and 3 of that project, done and implemented means that all employees are also by lift and shift and reorganization topics are now in the company where they have to belong to. So part of it is going into ServCo, part of it is going into NetCo. We are preparing the carve-out accounts for ServCo as well for NetCo and also the contractual separation between both companies and third parties. So thinking out of a NetCo perspective, we have a variety of ISPs in Germany who will then have access to our network. One of these ISPs is in the future or right now ServCo. We have Telefonica on our network as well. And I think today, it was just announced that partner [ vitroconnect ], we signed a contract to have more opportunities and possibilities to sign other ISPs on our IT platform to add to our performance on IP, what you saw before, wholesale contracts and wholesale contributions and net adds to that. Next picture is, again, what is -- what is, was and will be our strategy. Again, here, you can see on the left side, the normal building of today. No, actually, both possibilities we are now looking at. So we have on the most -- on the left side, DOCSIS 3.1. The green part here in that case is the Tele Columbus network, which is in more than 2 million cases and households a case a DOCSIS 3.1 network. Here, you can see our net adds coming from the share of more than 500 megabits and the relationship since decades with housing associations. Same time, Deutsche Telekom is in with DSL and other ISPs on the DSL network. In comparison here, also Telefonica is on our network on DOCSIS, but they are also on the DSL network of Deutsche Telekom. This continues until the point housing association is coming to us or we are going to a housing association, both possible ways and saying, okay, what is your future perspective of your network? Two answers, oh, we are still in progress of thinking about it, because we have several other topics. You know that from beginning of next week, the new Chancellor and a new coalition in Germany is stepping in. We have a new heating law. We have several other topics, which are, in some cases, for housing associations, more important than the fiber network because they are running on a 1 gig ready network. So this is a good part on the existing one because we are getting our growth out of that. On the other side, you have housing associations who are saying, especially because of heating changes, isolation of or renovation cycles, oh, it's a good time, Markus, to talk to you because we think about our network. It might be also that they are -- have an approach by Deutsche Telekom or by some other of our competitors. After that, it is normal, they call us and say, "Hey, guys, what's going on? What is your fiber strategy? We are thinking about it and good to have you on board. If you just an example that we just signed also with such a housing association, a contract funny enough because we announced it also in our Internet. This was, I think, the fourth contract in a row with this housing association. First Level 4 wiring in that building take place by Tele Columbus 35 years ago. So a big relation, a deep relationship with that housing association. And when they look for future networks, they approach us and saying, okay, what's going on? And this is the respect also to the waterfall, but coming back to the FTTH network, like I mentioned, we have now 188,000 FTTH networks already in place. So the green line again. And here, we are as well as on the other green line looking for -- so open access and offering open access and accelerating it now step-by-step over the years. But -- and this is a difference, DOCSIS 3.1, 1 gig ready. FTTH, 1 gig ready or whatever, 5 gig symmetric in the future. But the DSL network, DSL network may be still remains the same. And this is what underlines our strategy. There will be only one network operator who is offering FTTH in the future. There is an open access question by the housing association, which is completely fine with us because it completely contributes to our storyline, retail business together with wholesale business moving, bring our network penetration up. And this is what we also see in our plans, and this is exactly our strategy. So there will be one fiber operator in a network in a building. Because it will be only one, it is also the ask of the housing association in that case, open up your network for other providers, which is completely in line with our strategy, have long-lasting contracts. A fiber contract is 10 -- in normal case is 10 to 15 years. Normal case is, it is followed up by another 10 to 15 years follow-up, like I mentioned before. So we already signed 35 years ago, again, 15 years contract. So with this housing association, the relationship is then 50 years half. And yes, when you look at our churn rate on housing associations, it is marginal. It is 1% to 2% on a annual basis. And this is then linked exactly what we are doing. We have now 188 already built FTTH networks. We have contract in our pipeline, in our role for the future, 395,000 signed and not in negotiations, but also it could be or it is often the case, we signed a deal and upgrade will take place when the wish of the housing association is it they are now -- the contracts are lying on the tables. Planning is done or will be done because it might be only an upgrade in '28 or the upgrade starts in '29. We are customer approval 100,000, and we are in process of 70,000 left to address is for me a little bit hard to say. It is EUR 1.6 million, but left to address you could also understand, oh, we have to go to the customer. No, that means that we are in constant talks with customers, of course, but they are in the middle of that process or we have to think about it and please wait. We have to decide and find our strategy. And to be honest, other topics like heating system, like whatever are more important for us. Let's talk in 2 years because our current left side of the picture contract is still running 5 years. We have a DOCSIS 3.1 network, which is completely fine for us because it's delivering for us 1 gig. And this is the storyline of our business on the housing association business, which underlines our strategy. Worth to be a little bit more precise on that because in the last quarter, we get a lot of questions on these topics again. And for that, it was for us a normal that we put it in that presentation and take the time to explain it again in that round. But happy also to discuss other questions on that. Okay. That's for the time my part. And now I hand over to Nico.

Thank you, Markus, and good morning to everyone. Just looking on to the financial performance a bit more detailed. First, Page 17, we look at the quarterly development of our revenue and the revenue composition. It's clearly seen on the top that bulk migration had a big impact on the revenues. If we exclude the bulk revenues, we do see a stable performance compared to last quarter after a pretty decent growth. We had the push down basically from Q2 to Q3 on the bulk, and that is slowly decreasing as we can see. We are now down to roughly EUR 3 million on a run rate quarterly basis as of Q4. And as Markus mentioned, we still have the EUR 230 million left on bulk-like contract, and we'll see how we can level this off. And hopefully, these will remain as a portion going forward. On the other revenues, excluding the bulk, we see a, unfortunately, a flat development compared to last quarter, but that's clearly explained by certain one-offs we have seen in Q3. IP growth, Internet growth underlying was still strong, up to almost EUR 2 million growth on the IP side, which was then slightly offset by construction revenues and then some cleanup on the pass-through fees, which are related to Marienfeld maybe a recap on Marienfeld, what does it mean? There was a reduction on non-2-way upgraded foreign signal footprint where we took a strategic decision to disinvest on this one because there is basically no EBITDA contribution. It's a wash on the revenue side and the signal fee costs where we said there is no strategic value to us because we do not or we cannot sell IP, Internet and phone, the strong ARPU-driven products, there was only a TV-only product available. So therefore, we decided to get rid of it last year, and that is the full year impact also shown later if we look at year-on-year revenues. That's one I comment on the next slide. But here, first, there was also some cleanup activities in relation to the pass-through fees in regards to that. Therefore, we had basically a one-off situation, bringing us to the EUR 98.3 million in Q4 for the total, excluding TV Access revenues. On the bottom, if you look at the revenue composition, I think it's pretty straightforward, continuous development on the raising Internet and phone share. We're now well above the 50%, have reached 55% in the revenue composition. TV slightly down and the greenish ones impacted by the one-offs. Therefore, I think the importance of the wait on the Internet and phone business continuously going up is the positive sign on that. If we look on the Page 18 in terms of EBITDA bridge a bit more closely, what's the impact year-on-year coming from the EUR 193 million, slightly down to EUR 187 million. Basically driven by operating revenues down in total, the first block, EUR 26 million. And while TV was down EUR 45 million, I mean, we've discussed it extensively. We still see a strong uplift of EUR 30 million growth on the Internet and phone, simply from the higher RGU base and this growth continues. And it's very important that going forward and we come to, let's say, outlook on '25 and '26. But once the TV disconnection has been washed out, there will be a full annualization impact in 2025. But as of '26, we do expect this growth to then impact top line and bottom line on the IP side because that is what we prepare for and have basically developed the company into. So Internet, strong, EUR 30 million up. And the other part is some EUR 11 million down on the other topics, which is basically related to Marienfeld, as I mentioned earlier, and also one-time construction. Both have basically no or very limited EBITDA impact. So on the revenue side, this is the main drivers leaving to a EUR 26 million decline. On the other operating income, we had some various one-offs. I think we discussed all of them in the quarterly calls, also partly Marienfeld up some network fees, some leasing impacts, some deals here and there, some settlements where we could release provisions. So all in all, a positive impact of roughly EUR 5 million. Direct costs heavily impacted positively on roughly EUR 20 million. Similar, again, signal fees strongly impacted by the Marinefeld churn and also by the construction revenues on -- if we do not have them on the revenue side, we obviously don't have construction costs on the cost side. And all this basically improved by EUR 20 million. The rest personnel increased due to more FTEs on payroll and the salary increases, we will come to it later, but I want to reference it here. Markus mentioned operational excellence. We've already signed and communicated a restructuring program in December. So therefore, also on the nonrecurring expenses, which we come to on the very last page. There, we've taken a EUR 6 million restructuring accrual, which was booked in December, but this is also then referring to operational excellence working on the personnel costs going forward to make this company fit for growth and put it into a slightly better position. The remaining other small deviations on the marketing side, we did have some partial reclass into non-recs due to the bulk migration and so this was shifted into the nonrecurring expenses, which will hopefully go away then once this is fully completed. And then on the reported EBITDA, we already mentioned it's, of course, year-on-year slightly lower. We have the non-recs are mainly in the relation to the A&E transaction, TV bulk migration and transformation activities, and there will be some more details coming later on. If we look on the CapEx levels for 2024, it's an 80% increase. We just focus on the yearly development here today. You will find quarterly detailed information in the toolkit, which is uploaded, which is including and excluding leasing. So a lot more information available for anyone who's interested in the details. But focusing on the yearly development here, we see the uplift now reached EUR 216 million. Basically, yes, the continuous increase we've seen quarter-on-quarter in the past 3 quarters, up EUR 23 million in the network investments, which were significantly higher than in 2023, driven by fiber rollout. And also in line with the increasing net sales, we've seen a EUR 12 million increase in the end customer-related CapEx, so basically commissions and CPEs. IT and operations, not too big, not too many changes in total, but we've seen slightly more projects and therefore, a higher capitalization ratio on IT costs. One example is the preparation and implementation of the wholesale platform. Markus mentioned it, NetCo is getting ready to have more players on the network, and that is one prerequisite that we needed to work on, and that was just one example, but these projects obviously help to shift costs also into investments and have yes, a better share in terms of total spend on IT. A summary on the 12 months performance, which was in light of the bulk migration and transformation. We spoke about the revenues, which were down, impacted by the TV losses. But as I mentioned previously, we've had growth on the IP side, on the individual IPs and also shifting bulk customers to individual customers. Again, full year impact to be expected of the TV migration in this year. And once this is washed out, we are going back to pure top line growth, driven by the higher Internet and phone customer base. On the reported EBITDA, slightly down based on the operational performance. Gross profit was pretty flat compared to last year in absolute terms. We've seen basically the slight improvement on the non-recs, but still nevertheless, on very high levels. This going forward to be substantially smaller, looking into that in just a minute. On the CapEx investments, we've spoken in details. Please have a detailed look at the toolkit, which gives you much more information. And then on the operational cash flows, a strongly improved uplift, basically 2 sides to it. We had a selective capital allocation and we're conscious in terms of where and how to invest. And we've done a lot on working capital management, had improvements on inventories, on receivables, had also an impact from our direct debit, the way we work with our banks. A lot of detail is also available in the toolkit in terms of cash flow performance. Coming to Page 21, just basically 3 topics. One, on the prognosis for 2025, we do expect stable revenues with Internet and phone growing and compensating the TV losses that we still see from an annualization impact. We do expect a low double-digit million growth on the reported EBITDA also on the reduction or driven by the reduction of nonrecurring expenses, obviously working also on improvements on reported EBITDA, and we might come up with a bit more details in the Q1 call, which already takes place in 4 weeks' time. On the investments, we do see a significant lower investment compared to '24, which would be a decline in mid-double-digit million range. And yes, that's one thing which is important that as we expect to come back into stronger growth mode in 2026, top line and also then impact on bottom line. I think that's the current situation that we are just managing also cash. The long-term projections are still valid. And I think it's important, as Markus mentioned, that growth is possible on the DOCSIS 3.1 network. So fiber a bit later here and there is not hurting the growth story at all. And as we mentioned, we are in close contact with housing associations to decide on the best possible point in time when each and every project needs to be done. In terms of financing activities, I think we've mentioned this plenty and almost in every call that we are from time-to-time looking and considering to raise additional financing opportunistically. This would be an additional funding in terms of accelerating on our CapEx program. There is nothing decided, nothing agreed. It's just an information because there are always rumors in the market. And today, there is nothing that we can disclose. We will disclose information if and when this becomes relevant. As always, because the question always comes up, and I pre-anticipated this time, the bridge on non-rec because it is a big bucket in both years. Just to give you some overview and slight ideas, it was roughly -- it was EUR 49.7 million in '23 and EUR 48 million last year. It was a bit higher than we previously communicated in Q3, but that is mainly the impact as I mentioned, as we signed the restructuring deal with our works council late in December, it was agreed that the restructuring accrual, roughly EUR 6 million needs to be taken into the books in December, and that was basically an increase compared to our last Q3 communication, where we weren't sure if the deal would be signed in December or January. But as we mentioned, as we managed to get it done, that is also included now in the light blue bucket of personnel and other. But basically, what you can see is '23, we had the A&E and refinancing project and then personnel with interim and other provisions on the other side. Those were the 2 main topics. The green one, bulk migration was just preparing and not really meaningful, while we had 4 serious topics in 2024, basically the remainder of the A&E, which was signed in -- on 19th of March. We had then a lot on the TV bulk migration topic and then a lot of work into support, external support, consulting lawyers for the NetCo/ServCo separation and of course, then personnel topics and restructuring topics that I mentioned. That basically concludes our presentation today, and we would open up for question.

Our first question today comes from James Ratzer with New Street Research.

And thank you for all the information you've given, I mean lots of questions I could ask, but I will -- I'll try to keep it to 2 at this stage. So you've talked in the presentation about progress you're making on the ServCo/NetCo separation. Just be great if you could share any more comments specifically around what your intentions are for potential corporate activity with regards to either division? Are you interested in selling a stake or the whole of either of these businesses, in particular maybe on the ServCo side. So anything you can say on what your current intentions and kind of plan A would be when the separation is fully complete? And also any comments you can give on the EBITDA split between the 2 divisions would be very helpful. And then the second question I had was just regarding your Internet performance. I mean, obviously, you're putting up extremely strong KPI numbers at the moment. But interested to hear about the kind of competitive dynamic because the blended ARPU has been gradually slipping through the year. I think in Q4, it was kind of down 0.7%. You exited 2023 with that figure growing closer to 2%. So I'd just be interested, are you kind of finding that there's more competition from some of the other broadband players. How are you thinking about the pricing dynamic going into 2025 and '26?

On the Servco/NetCo, we don't want to comment on any speculations here at that point. Like we mentioned before, we want to be able to have optionalities for potential refinancing coming up. And this is -- to this, we stick because this split, first of all, gives us or for us, it's also a program for running for operational excellence to be prepared for the future. First of all, this is the influence into the company and also contributes to process optimization, IT optimization and end. And on the other side, and this we already said is exactly that, optionalities are important for the future. And this is it, James, that I want to comment on that topic right now.

And maybe if I can add on your question on EBITDA split. I mean, that's what we put down. We're working on the carve-out sections basically to truly get this into our books. There's still some clean-up and homeworks to do. Once this is fully ready, we will disclose as soon as we can, information to the market on the performance and this company and then as long as ServCo and NetCo are still under one roof, this will be more towards the segmented report in terms of ServCo and NetCo, but this is not where we are today. So please, I have to ask you to be patient a bit more until we are fully ready and able to have consistent numbers going forward. And on the second point on IP performance, I mean, IP market in Germany has always been very competitive. That is not something that is completely new to us. There have been, obviously, with the turmoil on the TV side and bundles and everything, people have been aggressive and we have seen that competition is fierce. It's still hard to make people move, but that is, I think, what we do quite successfully with our product offerings, with our tier splits, with our bundles and also the pricing strategies. We've had good weeks in November, Black weeks, Cyber Weeks where we obviously see a pressure also on promotions. But all in all, I think it still works that we can move people from any other competitors to us. We have great market shares and win ratios in the footprint where we are available. Keep in mind, and hopefully, we'll see this in 4 weeks' time that in Q1, we had a price increase on quite a substantial portion of our subscriber base that started -- took place and was effective beginning of February. So we should already see a first impact in Q1. And then hopefully, also going forward once this is for the quarter fully not annualized, but fully functional. So we do see measures with upsell, cross-sell and also price increases to bring ARPU up. Also over time, we expect that the FTTH penetration will drive higher tiers and also with that higher product pricing and ARPU uplift. But that will gradually improve, hopefully, full ARPU on the full company on both technologies, coax and FTTH.

Nicolai, on that last point, are you able to say what the weighted impact is of the price increase from February across your base?

Yes. I think we mentioned how many people would be affected. I think it was out of my head, 150,000, 160,000 customers by a couple of euros. Let us disclose this in 4 weeks' time, if that's okay for you.

Our next question comes from Vivek Khanna with Deutsche Bank.

So a couple of questions, if I may. First, with regards to NetCo separation. I was just wondering if you could give us a sense as to what -- when you think that process will be completed? And the other thing I wanted to just tackle, I'm assuming you would consider to raise debt financing once the NetCo is created even before the fiber rollout has progressed materially just based on the fact that NetCo would clearly have an existing cable wholesale customer base for which to potentially fund some of the interest payments. So thinking about how you're thinking about that and from a timing perspective. So that's my first question. The second question is on CapEx. I was wondering if you could provide some little bit more color -- additional color on the guidance with regards to a double -- mid to double-digit decline to provide some sort of range, that would be very helpful. And then the final question is on broadband churn. I mean, clearly, you're doing very well. But I'd be just curious to know whatever little churn you have, what are the customers saying for the reason for their churn and who are they going to, if that data is available, that would be very helpful.

On the first one on the NetCo completion, I mean, we gave you an update and said NetCo/ServCo separation is Phase 1 completed. Everything is in place. Contracts are in place, master service agreement, anchor tenant agreement, that's all in place, and that's already been lift. We said that we lifted and shifted the people in the respective companies. So that is all prepared and up and running. Phase 2 basically means also that there is some more activity around subsidiaries, which were neither fully controlled or not on our own footprint that had not been migrated. That's Phase 2 of some smaller legal entities that we still want to migrate and bring into NetCo or ServCo. And that is basically Phase 2 of the current discussion, what we are preparing, hoping to achieve the next milestones here. But the big chunk is basically done, and now we are focusing on processes and operational excellence to bring this up to life and improve performance first internally and secondly, in terms of further separation, preparing contracts and everything that we said, there is still certain contracts that sit in the topco holding, for instance, that need to be pushed down into the respective ServCo and NetCo organizations. So this is the next steps we do. It's currently done via intercompany contracts, but this should be clearly be shifted and pushed down to improve separation even further. That is in terms of the organization where we stand. And in terms of timing and debt financing, again, this comes also to the financing discussions that we've always said. We're in a stage where we basically prepare and do the homework to have optionalities. And one was to have NetCo/ServCo in a separate way, which gives you opportunities to either finance or sell stakes or the full thing on equity or -- and/or do a refinancing in terms of debt going forward. There is nothing that we can share. It's still on the working level that we do the homework to have these opportunities. But opportunistically, if market is right, if the timing is right, we would then continue, obviously in close discussion with our shareholders, our main shareholder, how to proceed and when to proceed. So there is nothing new, nothing new to announce, and there is simply us focusing on preparing that we are in good shape to use any opportunities that may arise. In terms of CapEx and guidance, Vivek? Let me finish on the other 2 questions, and then we'll see. In terms of CapEx guidance, again, I mean, that's the guidance we can currently set out. I'm happy to have a look in 4 weeks' time how this will develop going forward. But as of now, I think it's the closest that we can disclose to the market. I would leave it with that, if that's okay. On the IP churn, we do see obviously, churn as everyone else in the market, but they are on slightly lower levels compared to one or 2 years ago. So we are constantly improving churn still as we speak. That's one of the main focus areas also from the customer base management team. We did have very little churn, which is good news on the price increase that we had seen. So it was lower than anticipated, which is a good news because there was already an increase for the second time for these customers, and we weren't sure how they would react. But in the end, that was very good and gave us a decent proposition in terms of service, pricing and portfolio. So this is good news going forward also with looking us at the next price increase for the next cohort that will eventually join. So this is what we see. We are constantly analyzing, obviously, churn reasons. One is off-net moves, one is [ never payer ] and then you also have people who die or disappear. So there's a lot of churn reasons behind. Out of my head, I do not have specific reasons from the product churn itself. But I think we can follow up, Vivek on that with the product team, if that's helpful.

No, that's very helpful. Can I just ask you a quick follow-up question? What can we infer from your guidance on reported EBITDA to adjusted EBITDA, if I may ask?

Also, again, I mean, let us push this a quarter forward 4 weeks from now, and maybe we can share more information on that. In terms of -- reported EBITDA, it was a clear guidance. We also aim to have improvements on the normalized EBITDA, but I'm not in a position to really give a clear guidance with a very precise amount here today.

We'll move on to our next question from Polo Tang with UBS.

I have 2 questions. The first question is just on MDUs. So in Slide 15, you make the point that you have the rights to upgrade one-third of your Level 4 footprint to fiber. However, there's still 2-thirds of your footprint yet to be upgraded. So from what you can see how much traction is Deutsche Telekom getting with MDUs? Just asking the question because at the Deutsche Telekom Capital Markets Day in October, Deutsche Telekom was suggesting that they were seeing increased success in being able to access MDUs and deploy fiber. So I'm just interested in your perspective. And also just connected with MDUs, you talked about being open to open access and a willingness to wholesale. But what is the wholesale rate if someone does want to access this Level 4 infrastructure that's been upgraded to fiber? And second question is really just a different take or a different perspective on competitive dynamics in German broadband. So looking at Slide 8, the whole market seems to be slowing down in recent quarters in terms of net adds growth. So what's your perspective in terms of what's happening here?

Yes. Happy to take these questions, Polo. First of all, this is what we can say when we are in conversations with our customers is that we don't see big churn or other topics with approaches of competitors looking at our customer base. Like I always say, of course, we are losing contracts, 1% to 2% on a yearly basis right now, but we are gaining contracts at the same time, that leads then to that 1.2 percentage or no, not to that 1 percentage to 2 percentage because when I look at the end of the year, I think there was a slightly growth also here that is just churn rate, sorry for that. So the relationship to housing associations is very constant, knowing that we are now rising our penetration in these buildings, it is also change a running system where you already have 1 gig product is not the biggest favor of housing associations. This is all I can say to our customer base and experiences with competitors. Sorry to make that point, what was your second question on that?

Open access wholesale rate.

Yes. Yes. Right now, we have on the wholesale platform, Telefonica, but this is related to our DOCSIS network. And what I said, I think we are now working on the Vitroconnect platform, also on other deals to bring customers on. So the weight is right now limited. But this is a path of growth of the company for the future to underline that again. We will see the annualization effect like also in our prognosis of TV in this year, but we see on the other side, the IP growth. So for me, then TV, to be honest, after this year is washed out, and we are on a stable business on that side or also with the growing sales activities, maybe also in the growing mode here. But then the growing story or the growth story of the company comes in line with DOCSIS 3.1 performance on IP growth and fiberization of the network, which will accelerate this and acceleration point 2 is then as well the wholesale platform, but this is work to do in the future as well.

And maybe if I may add, Polo, the -- I think you were referring to any rate cards for wholesale access fees. And we just have to be -- I'm sorry that a bit of a -- this is not a regulated market. So it's purely up to us negotiating with players in the market, and we are in discussions and negotiating with certain and several players. This is not an information that we can give out publicly because otherwise, it would obviously harm our negotiation strategies with the different players. Therefore, I would ask you -- I mean, I cannot disclose any information. To give you an idea, I think as from a NetCo perspective, we would say in terms of gross profit and EBITDA margins that we expect, it is basically -- it doesn't matter if the customer is on a ServCo -- basically as a ServCo today as a B2C customer on our network or on a wholesale contract on our network. So we -- I think it's a competitive offer that makes it attractive for any current DSL player who is on the telecoms network to switch over to a fiber contract on our network because we think that we offer competitive pricing and give them an advantage to actually move their DSL customers from Deutsche to our network. That is as much as I can disclose today. Please accept this as it would not -- would harm our position in terms of discussions with any player in the market for now. And then your last question, I think, was on the competitive situation in terms of what's happening in the market and the differences. I mean, we can -- basically, as we mentioned earlier, it is a very competitive market in general, and we can only comment on our performance. And I think we grab quite a good share in our footprint of what we can do. In terms of the performance explanation on the other players, it's hard for us to comment. I mean, we know some players had issues in their node sizes and network sizes, network performance on coax. That was one issue where we've seen a lot of churn on one player. [ Detac ] currently being the only one slightly growing, but that growth is continuously also going down. It's hard to really comment on the other players. Again, it's a very, very competitive market. Prices hopefully tend to go up again once these bundles and bulk TV for free offers are hopefully washed out again and every player is going back to normal pricing and product portfolio positioning. That would be my comment.

Yes. But also putting Page 8 and 15 together, when you look at that, I would say, when you look at the other competitors here also in the market who are looking -- who are on the DT DSL network. So our competitors in the building, for example, or in their portfolio, in many cases, have to compensate DSL churn by DOCSIS or fiber growth. And if the DSL churn is higher than the DOCSIS or their fiber growth, they are losing customers. The good thing is in our position, Tele Columbus is on the winning mode on the IP sales because when DSL is shrinking, and this is what the competitors are facing in the market, our network in the building is growing because either on DOCSIS, 1 gig ready or on fiber, this is where customers from DSL are trending to. And this is, I think, the -- again, the underpinning of our strategy that also with the split NetCo/ServCo, but also with our thoughts about CapEx for the future, investing into consumer growth and fiberization. This is exactly what we want to see that customers are moving from DSL to our networks. And for that, our network right now has enough space to grow. So coming from 27% or 28% penetration, this is exactly what we want to see to see a 4 or even higher number in front of it and compared to wholesale then because Vodafone 1&1 or Purenet, whomever will join our fiber network is doing that as well because they know that when customers and that will take place in the future looking for high-speed contracts in that building on the right side, they only have one partner on their side in that building, and this is open access by FTTH by Pure or Tele Columbus, and this is what we are aiming for.

Our next question comes from Mark Chapman with CreditSights.

Mostly, I just have some housekeeping ones left. The first is just, obviously, there was a large working capital inflow. Can you just confirm that you still don't expect that to reverse or should we expect a reversal this year? The second sort of relates to Vivek's question in terms of backing into underlying EBITDA. But just looking at the nonrecurring, is it fair to assume that roughly half of the nonrecurring should fall away this year because you don't have the refinancing and the migration pieces of that? Anything that I'm missing there? And then the last is just, could you confirm if the remaining portion of the shareholder loan has been drawn down in the first quarter, which is the deadline.

Thank you, Mark. Let me take these questions. On your first housekeeping question on the inflow net working capital impact, as normal, the only impact we see from seasonality is basically that we have higher payables in Q4, which will be paid out in Q1, and that seasonality will be the same in this year as we did have very positive impact on net working capital last year based on inventories, receivables and the impact that we had a different direct debit performance with our banks that we see the cash, we draw the cash a day earlier. This will not be reversed. But I would not assume significant positive additional contribution from net working capital this year. This will be more to the normal pattern that we do not have tremendous impact. So inventories are on much better levels now. There might be small numbers still coming out of inventories as we manage continue going forward, but the rest will more or less be broadly the same in terms of the Q4 payables increase that will then be offset in Q1 2026, which will be similar. That's one on the housekeeping. On the non-res, I probably say, yes, it's roughly fair to say. Ideally, this is even slightly lower than what you said. But for a rough idea, I think that's fair to assume. And on the shareholder loan portion, that is a clear yes. We have obviously drawn the full EUR 300 million before the first anniversary of the shareholder loan -- sorry, of the A&E contribution by 18th of March this year. So yes, it has been drawn.

Our next question comes from [indiscernible].

I just had 2 questions. On the -- firstly, on Slide 15, on the 1.6 million of the customers left to address, how many of those have contracts that are expiring in the sort of next 12 to 24 months? And are they -- and I guess I'm just trying to get an understanding of what the time line. Are these customers, for example, that they're very long contracts, therefore, there's no point discussing them because maybe they don't expire for another 5 to 10 years. Anything you can kind of add there to give a bit of color would be quite helpful. And then on the decline in CapEx, can you give -- sorry, for '25, could you give any kind of guidance as to -- I expect the fiber, the network infrastructure section will stay quite similarly. But the other segments, where is the kind of decline coming from? Anything you can give on that would be helpful.

I will take the first question, which is the 1.6 million. I think the average duration -- so like I said, 10- to 15-year contract, we have to add -- I'm not now exactly knowing the number how many contracts are running out in the next 1 or 2 years of that 1.6 million. But what I know that the average duration remaining duration, this time line we have in mind and that was over 3 to 4 years. But just to make you aware of our sales approach, where a contract is running out, it is normal to be in negotiations with or in contact with these customers at least 2 years before. Nevertheless, there is another topic because also our housing association, key account managers are responsible for campaigning. What I mean with that is that, for example, door-to-door approaches in housing associations and so on are negotiated or in line with housing associations. So during that annualized contact we already have with our housing associations, it is -- we are very close to them. This is also a big differentiator to the biggest 1 telco in Germany that we then know how they are trending or whatever. So first of all, coming back to more detailed information later on, [ Charlotte ]. And on the other side, I think more than 3 to 4 years, and we are very close, not seeing any danger out of here of missing hundreds of thousands of contracts here, for example.

Yes. Let me take the CapEx question. I think what we said earlier, maybe a bit more detailed in the next quarter. What I can share is that we, on the network side, will have less investment on less DOCSIS 3.1 upgrades because we're almost done. We have less investments in capacity measures because we've prepared most of it. We've done the OneNet project, which increases a lot on the capacity side. We will have some less slower fiber rollout in line with discussions with the housing associations. And then on the consumer side, it's basically in line with growth, but we did have some one-off impacts last year on the TV side, on CPEs and commissions, and all this will be in line with the further expectation of 2025. So less on the TV side, a bit less on the IP side with CPEs. So that is what we currently see. And then basically on the remainder, IT and B2B and other, that will more or less be broadly stable. So that is maybe some additional guidance I can give.

The next question comes from [ Zen Mahmud with Fidera ].

Just a question on just understanding some of the KPIs. So the 395,000 figure that contracted wins, that's remained stable from Q3 to Q4. My question is that 395,000 customers, does that relate to the number of customers within those housing associations, which you've signed a contract to roll out the fiber and you're ready to do that or is it number of contracts that you've signed with individual customers? And the context of the question is, the 395,000, how does that relate to -- how do I estimate the amount of CapEx spend associated with that? I think -- and that comes on to my second question, which is what is the current spend per installation that you're projecting? I think previously, it was said that it was around EUR 1,000 per connection. So does that 395,000 relate to roughly EUR 395 million of CapEx spend, which is contracted? And of that, is it all -- is the 395,000 customers which you expect to have a contract or is that -- that's the total -- that's the maximum amount that can be signed if only 50% sign up within a building, then only that would -- you would only expect 200,000 fiber customers to come online. So just a clarification on that, please.

Yes. Happy to take that question. First of all, the already built-in FTTH number was before 150 or 155. So this is a rolling forecast or a rolling pipeline. So the number stays stable. But nevertheless, from that number, roughly 30,000 shifted into already built. So it is coming down from these other numbers. So we are filling up the pipeline step-by-step. Very important, already built in FTTH because this is a complete discussion in the German market, what is homes passed, homes connected, whatever. These are connect -- sorry, also to your question, these are connected households. So 188,000 FTTH built households connected to our network. When you look then at the penetration of -- here in that, I think I mentioned it before, more than 80,000 customers are in -- we have right now a penetration of 44% in these households -- [ twice ] over the time because when we -- I think we just added 30,000 households. Here, the penetration because this is -- when they are coming out of our stockage we're coming with an average penetration of 27% here, then we have a migration concept to FTTH, and we see the uplift over one year of 10% or whatever. This is the math. And this is -- but this is the biggest advantage with Tele Columbus because looking at our FTTH numbers, we speak about connected households. So if we are in or a wholesale partner and wins a customer, the customer is connectable in 10 days, average 10 days, 5 days, if he said, oh, I want to be connected in 2 months, then he will be connected in 2 months. This is a complete difference, and this is also the feedback which we get out of wholesale negotiations right now to homes passed because in the case of homes passed fiber rollout with different other companies, I just was in a conference in London 3 weeks ago, there was other CEO of a fiber company. He speaks about changing from homes passed to homes connected in 6 to 18 months. And this leads to customer churn and because customers don't want to wait. This is a complete difference in the Tele Columbus footprint and the attractiveness of our network. Here, we speak about customers ready to sell and to be connected. He is connected and then out of a connected customer, we are looking for contracted customers. I think this is -- yes, I think this should answer your question.

And maybe in addition, your question on the penetration. Yes, these are 100% connectable customers, but then we look at penetration, currently 45%. The estimation is that this will go up to 70%, 75%, 80%. Eventually, over time, that will probably take another couple of years. But latest, when we talk about DSL decommissioning, there's only one remaining infrastructure in the building where they can move to. So over time, B2C penetration, our own retail penetration from our own ServCo at the moment plus the wholesale penetration over time should add up to something depending on, let's say, where the building is. But if it is in Berlin and Hamburg and Munich, you would probably assume that 100% of these flats are used and tenants are in the buildings. And therefore, probably a very, very high portion of these customers will also sign up to broadband because there isn't any other options unless you stay on mobile or go to whatever. If you want to have a fixed line connection, that is basically the only network infrastructure that can deliver that speed and then it can either be on a retail or on a wholesale customer.

Sorry, you want to make.

Yes. Just in terms of the average cost -- yes, that was the last point I was going to make. We definitely never said EUR 1,000 on average. What we did say in all these presentations, it depends on the situation where you are, and they are -- upgrade costs are whatever from EUR 300 to, let's say, EUR 1,200, but it depends. On average, we've always said that we will be in the range of EUR 650 to EUR 700 going forward, labor cost increase in 5, 6, 7 years. But that is the broad range that we've given, roughly in a split 50-50 on Level 3 and Level 4. The Level 4 costs are pretty similar for all the players in the market. What makes us different is the cost on the public distance that we have to dig and build. The distance is much less, and therefore, the Level 3 costs for us getting to a building connection, basically the first step to the fiber to the building is the one where we have the competitive advantage. And that is what we roughly assume. So EUR 650 to EUR 700 is the average that we currently see, and that is what we are planning on going forward to achieve.

But also very important to address in comparison to other numbers you hear in the German market. These are the numbers for Level 3 and Level 4. And this is the biggest topic also in the business in Germany Tele Columbus is the Level 4 experts. And very important, if you compare it to other CapEx numbers, the fiber connection point, which is called the ONT costs roughly EUR 80. This is in these numbers. So when you hear about CapEx costs, homes passed, for example, this is without these costs on the Level 4 side because homes passed only means the fiber lies in the street. Here, the fiber lies in the living room, and this is the difference. And compare this EUR 600 to EUR 800, I would say, because in the size of the building, if the building is higher, you have some -- what is the English word -- fire protection. So if the amount of buildings which are higher is in one month higher, the average cost will be higher. And this is -- the good thing is we are far below EUR 1,000 and we speak about connections, connected households, which is very important comparing to other competitors, and it's Level 3 and Level 4. Thanks for that question to be more precise on that.

Yes, that's understood. Yes. Because I think when we look at other players likes of CityFibre, for example, in the U.K., it's a completely different business model. So you're connected -- you essentially on the monopoly in that one building. But then penetration, just a quick follow-up, if I may. So then once you have installed into your -- this block of flats with 200 people, for example. At that point, do you -- the customer, if I'm living there, if I want to compare pricing, I just have a -- the pure network, which I don't really care about. I just care about the end pricing. Are you the only one who will offer the contract or for example, do you by law -- because I think I was talking to another analyst, by law, do you have to open up that to others, so Vodafone and Deutsche Telekom on the customer side. As a customer, do I have a choice to go with Vodafone if they offer it in the building, but the network is your underlying network? How would it work?

Yes. Let's take Page 15, and let's assume you are in the top of the building here. Can you switch to -- and here exactly what you see and finding the FTTH rollout here. You are sitting in the third floor here. And here exactly is what you can choose. You might be in Germany, a DSL customer coming with 100 megabit or 250 VDSL megabit. You're a customer from Deutsche Telekom. You also could be a Vodafone customer, for example, who is wholesaling or the wholesale partner from Deutsche. Now you want to choose, and this is what I explained before for open access. By law, we are not forced to offer open access by strategy, yes. We love open access because on the one hand side, we are offering by ServCo as well the retail stuff. And on the other side, we will step in with wholesale partners. So our aim is that in the future, it might be possible if you have a Vodafone DSL contract, you might change, if you love Vodafone and whatever, you might change when Vodafone signs a wholesale deal with us with Vodafone fiber contract in that building or you say, oh, I type in my address. And I see on the page of Tele Columbus, they offer for EUR 40 1 gig or 2 gig symmetric in the future. And so I want to change from DSL 100 megabit for EUR 50 maybe or EUR 45 to 10x faster access. This is the game we are playing in.

Sure. Because then ultimately, you just care about penetration rate for your NetCo.

Exactly. Exactly. And you as a customer in the building because we also get the question when you compare your prices for fiber, for example, with fiber prices from these or that competitors. It is very important to know that in that network on the right side, FTTH, for example, you will be -- if you are -- if we are rolling out the FTTH network, you always play with our network. So you are a retail customer by Tele Columbus or you are a wholesale customer with ISP, but using the Tele Columbus network. And the same we offer on the DOCSIS side here already also, and this is where we are gaining our customers from right now, changing from 200 megabit from 100 megabit to 500 megabit or 1 gig on DOCSIS.

And that is basically the long-term infrastructure game on the NetCo side, which makes it interesting because eventually, for NetCo, it doesn't matter if it is a retail customer today, which is on ServCo, still under the same roof or if it's later on simply on the NetCo side because NetCo will receive the infrastructure fee for providing the network services either to ServCo today or to any other future wholesale player than going forward. And eventually, if we talk about DSL decommissioning once fiber is available in the building, that discussion has started. It will take a couple of years, that's for sure. But eventually, the customers will have to decide where to move. And their provider will have to decide, do I want to lose that customer forever or am I willing to at least keep the B2C retail revenue share and simply lose only my infrastructure fee, which I cannot provide due to the inferior technology. That is going to be the long-term game, and that is what we are aiming for.

The next question comes from Laura Homsy with MFS.

Sorry, can you hear me?

Yes, we can hear you.

Sorry, just a housekeeping question. In terms of the term loan outstanding, could you maybe just provide the figure because I can't really reconcile the number that was in the Q3 report, which was around EUR 561 million and then now in the Q4, it seems to have declined to EUR 492 million, given this is obviously accruing interest.

Yes. Maybe if I can refer you to the full annual report that is being uploaded to the website, there should be a section with detailed information on all the developments. There is also some instrument derivative, which is included in the financing instruments, which has values that are floated or fluctuating around quarter-by-quarter because they have to be reevaluated at every single closing point. So please have a look. If you do not find the information, then please follow up.

[Operator Instructions] We have a question from Martino Santicoli with Tikehau Capital.

I just had a question related to the fiscal year '24 performance versus the business plan that was shared following the A&E and the Capital Markets Day. So I understand the driver behind the underperformance in TV. But I was wondering if you could comment a bit on the underperformance in the IP side of the business despite the very strong results that you have achieved.

Thank you, Martino. In terms of comments, I think what we have seen is we've had headwinds on the top line, and I think we've discussed this in the last quarters already. And at the same time, we obviously adjusted for costs and investments in order to offset. So in terms of operational performance and cash and liquidity, I think we are in line as we've basically adapted any capital allocation, as [indiscernible] mentioned on the very -- on first summary page. I think that is what we can share. I mean, obviously, TV was a bit difficult to predict, and we know where we are, and we are working against it and hopefully see improvements going forward. And then on the IP side, I think the performance is strong. Could it be better? It could have always been better? Yes. But I think we are in a good position to continuously show this growth quarter-over-quarter. And yes, and further impact, I think we can discuss throughout the year.

We have no further questions in queue. So I'll turn the call back over to Markus for any closing comments.

Yes. Yes, from my side, thank you again for your participation and for these questions. I think what for us is important in this year, focus topics is really operational excellence. We are now focusing on. It is, again, the IP business, the growth to continue that story to make Tele Columbus, yes, ServCo as well as NetCo efficient, more efficient, and these are the biggest topics. Looking for the future, for me, it is really the washout in this year of the TV impact of the business. And then the IP growth continues and then having from '26, really the perspective to grow quarter-by-quarter in different other steps than in the past. And this is really underlined by our rollout strategies by the -- and this was also very important for us, the OneNet project to align the networks to bring them in shape, to bring them acceleratable and also that with planning capacities, with building capacities in Germany to be prepared for further rollout. And then this is also what we are looking when we speak about CapEx, investing that in growth in fiber, but also in improvement of processes, IT and sometimes. And this is what we are looking for, and this makes the story of Tele Columbus so interesting for us as a management team, but of course, also for you as lenders, investors and analysts. Thank you for that. Have a good day and speak to you soon. And Nico also wants.

Yes. Just thank you all. One question. I mean we hear each other in roughly a month. Just to remind you, we will release at the end of May our first quarter results. In the meantime, if you do have follow-ups after this call, happy to take your questions, sign up on the IR website, send questions to our IR e-mail or contact me directly, and I'm happy to have any specific follow-ups if needed. Thank you all.

This concludes today's call. Thank you for joining. You may now disconnect your lines.