Earnings Call: Q4 2020

Feb 25, 2021

Thanks for the introduction. Hello, everybody, for our today's call on the preliminary results of the year 2020. I think we've all experienced an extraordinary year in many types of things. During the presentation, we will also relate a little bit to some of the learnings and some of the actions we had to take. But overall, for us, most important is that our omnichannel strategy worked out really well. As you can see on Page number four of our today's presentation, we were able to grow the subscriber base across all subscriptions with a significant increase of plus 243,000 net adds. So we're very happy about that. That also shows the sustainability of and the robustness of our business model and of our fragmented distribution structure. The EBITDA ended close to EUR €426,000,000 which is very well in the guidance. Ingo Arnold will explain the major drivers. There are certainly a couple of savings from the corona crisis, but we believe that the savings that we've had there or the subsidies that we have gathered there will be replaced by a recurring cost effectiveness in the future. On the cash flow side, there we ended up with EUR $237,000,000 as well within our guided range. What were the key drivers and the key achievements during this past year? We've split it as always in three chapters. One is on mobile communications, and I think you've learned all that before. I think if I look back, there are three major three major things that have been driving our abilities here and our performance. One is that we have not only launched a base portfolio, but we have also based on the learnings and based on the system architecture that the colleagues have built up for that portfolio, we were able to optimize a couple of our legacy processes within the company. So the effect of these tariff plans is not only the number of subscribers, but also the impact on our digitization of legacy systems. The second one is certainly that we've been able to start a couple of new corporations such as Netflix bundles with our product portfolio. I think the success in numbers is a little less than we thought because when we started it, which was late in 2020, it was obvious that in the first lockdown, Netflix has already gathered everybody, all the couch potatoes into their into their subscriber list. But still, I think it is one more innovation that and one more good signal that we've been able to join forces with such a global brand. And certainly, the finalization of the LTE migration was a substantial effort. And having seen a couple of ARPU deteriorations the year before based on this migration and transformation, we have seen a more stable ARPU in the etcetera expirables from the corona effect in the customer base, and we're very happy that this is now finished. On the TV and media side, once again, VOD bundles, couple of new channels joined, a full set of Turkish channels for the Turkish community, A successful price increase with SPREENET TV bearing the fact that we have lost a couple of customers, goal was to increase gross margin EBITDA, which works perfectly well. And we have started founded and started our new activities with five owned channels on the DAB plus multiplex. Those have been launched in October And from April 2021, we will not only run our own five channels, but the full multiplex is now up and running, and the external partners are also paying the technical fees to media broadcast. On a group level, I think in general, as I said in my introductory sentence, I'm happy that the omnichannel strategy works out well, and we see also that the transformation that goes along with it within the within overhead and back office is is doing pretty well. We will engage more into the subject matter during the first six months of 2021, leading to leaner processes, smarter treatment of the customer and improvement of crossover customer experience. We've also launched a number of initiatives on the key modern topics such as ESG diversity. We had also learned to adapt the, what I call, the new normal, the the way everybody like you are yourself now working more from home and finding the right way to do so, not losing efficiency and effectiveness, keeping things lean and smart. I think this there is a lot of small things that we have not anticipated, and the learning curve was extreme, but it was implemented pretty well, and I'm very happy about the entire organization. On the more corporate side, Ingo will go into a couple of details, but certainly, the sale of the Sunrise shares and the follow-up impact on refinancing, etcetera, was a great success. Having spoken about corona, I hate the word, and I think we're all fed up with it, but still, we have to live with it for the time being. I think I won't go through all the through all the topics. We obviously had to adopt all the rules. We have implemented it. It's a site information. Maybe we had in total 68 cases so far across the 4,000 people. We have had no real damage damaging case so far, and we know that we have not have have had any infection coming from within the company. So we're very proud of that, and people are very happy. We had to close the shops. We had we have also partially closed all shop related functions and put them into short term work. The strategic focus of the company, and I think that goes along with a trend in the entire industry, certainly gross adds lost even more in their importance, renewals, customer base development is in an accelerated mode. Even more important, we have seen churn intake or termination intake slowly going down but continuously going down over the full year. And for your information, none of our employees had to accept any pay cuts. I think that is important. I think that keeps Morrell at the at the at the very, very high level, and our shop staff is still in the shops. They are still working from the back office, and they are talking to the customers. They do video conferencing. They do all kinds of things. We do click and collect. So I think they the the learning curve in retail was exceptional and seeing that not only with the mobile shops, but also with Gravis. I think that was a real step forward, and we think that the sustainability of our retail chain has shown proof of concept during this past year. On the dividend, a quick one. You know that we have suspended it back then in the for the EGM. I think that was a very wise decision. We have had then room and freedom to do the refinancing. And if we include the extra dividend, which we're going to pay out this year plus the two share buybacks, we have shown to our shareholders that we keep our promise to make them the owner of 80% of the free cash flow. We have had a lot of positive feedback on how we did it and how we treated it, so not only from institutionals but also from retail. So I think that was the right decision at the right point, and we've also shown that we need to adapt to new information and to latest updates. If we are doing really well, we should then keep the promise as we made. And Ingo will also explain the new financial policy and guidance in a minute to share with you what our overall thoughts are. On Page seven, I think it's a very nice illustration of where we've ended up, right in the middle of what we've planned in EBITDA on free cash flow, little lower. Ingo will talk about working capital impact in a minute. Certainly, the second shutdown in December was gave us a bit of trouble over the Christmas period, but he'll explain it. Page eight, the details on the net adds. As you can see, postpaid, as we guided and as we continue to guide a slight increase, FUNK and FLEX almost doubled, certainly on a reasonably small level, Viput EV with a strong year and a net add of almost 170,000. I think that is really great. Still, we are waiting for the kind of like hockey stick adoption rate in Germany of IPTV, we saw we know that the legacy and the tradition of the well learned and well known remote control for cable and satellite is a is a hurdle here, but I think the numbers speak for themselves that we're getting better and better, and the entire and the entire, let's say, segment of IPTV is gaining even more trust within the German community. On FreeNet TV, we have to accept 10%. I wouldn't even call it churn. I think it's people that have then decided that given the offer or given the quality of the offer combined with the maybe a different pricing, they stopped the service for a period of time. But if you increase prices by 25% and lose 10% of the customers, then obviously, I think it was the right decision and the right move. And we will certainly continue to seek for a smart price increase every now and then. I'm not saying it's going to happen in 2021, but given the learnings from the last year, not only on Finiteb but also on WIPO, we feel comfortable that price elasticity need to be used in order to maintain or improve gross margin. On Page nine, I think that is some of the statistics that we have shown with Q3. If you compare 2019 to 2020, it speaks for itself that non brick and mortar channels gained in importance not only on gross adds with now a share of 55%, but even more on renewals. This equals to a challenge in our shops. Our retail chain must generate even more sales in hardware accessories and other services and in all those categories. During the open times, if we compare them on an index, they've done record record year on accessories, on etch rates, etcetera, etcetera. So I think that is a very positive message. I think that also, by the way, goes for our partners, the free retailers, but also MediaMarkt and Satton. Even though the as you can see on the right hand side, the channels that we have full control of are now have now a substantial a substantial volume of 70% of all transactions, which also means that over the past number of years, we have increased the share. And so the part of the value chain that remains within our control and within our pocket is constantly increasing. Here is there is, on the next page, even more detailed look at the postpaid development and the both new tariff plans, I think they're both doing really well. We have had some improvement on performance with the product itself, but also with the campaigning. And these days, we focus our campaigns. We are under the review of how we spend TV money in the future if we do it more on the mobile on the, let's say, the tariff brands, whereas in the past, we've put the money more on the retail brand. I think that is one of the key strategic decisions that we have to take during the course of the first six, seven months of this year. At this very moment, we do not spend any money on TV. We will we have pushed that into the second quarter because of the current lockdown situation. Page 11, I think that the the curve clearly shows, and we have also explained that already twelve months ago, I consider FreeNet TV becoming a long tail business. We have significantly reduced the the team there. We have taken the opportunity to replace them from Cologne to Hamburg, where in Hamburg, all the competence in online and distribution and sales is located, whereas in Cologne, it's the pure TV technology. I think that has taken has given us significant benefits. We are able to use synergies across brands and across products. We have, as I said, we have we have reduced the headcount in the pure team by about 60%, and the numbers on a EBITDA and gross margin level proved that this was not only the right decision, but also that the small and very flexible team can do much better in these long tail aspects. Then on the next page, kind of the last one from my side, on the past year, you can see the overall curve on the subscribers of Vipu. We are now positive with a monthly EBITDA contribution since May. We will turn into a positive annual EBITDA in 2021. This is kind of a breakthrough, not only for us, but also for the team. We will also most likely buy some of the old shareholders out of the company so that we have we increase our share, which is, I think, a very logic step if we turn into positive and want to consolidate as much as possible. Overall, we can clearly see that we are market leader, and we have extended our market leadership during the course of 2020. Our growth is significantly higher than the one of SATU or the pure IPTV magenta of Deutsche Telekom, not including the legacy T Enter tain, obviously, but the pure IPTV. So for me, the the 2020 is obviously the real path. What are the things that we are working on in 2021, churn reduction and optimizing of the customer experience in the customer base. Certainly, of the goals, the increase of captive channels, the extension of service levels, and types of services in the shops is one of the key targets. We're still in the lockdown. Only a third of our shops is is open, not public open, but open for click and collect and repair. I mean but all the new technologies such as meeting or scheduling of of of meetings with our shop staff, video and telephony consultancy from our sales reps with the end consumer, All these things have been implemented and become now operational normal and are subject to even more optimizations. We are about to launch our first five g contract. We are not expecting we are not expecting huge uptake, but in terms of branding, in terms of proposition and perception, it is a very important step. My personal view is that if we reopen the shops that we will see a flood stream in any of our retailers, I think people are desperate to go back to the shops. We are preparing for that, not only our staff, but also in terms of availability of SKUs and product in the shops. On the TV and media side, free net TV, obviously, going into a long tail, which means renewal, no significant innovations, no significant investments into new customer acquisitions. And in parallel, as I've said, we are starting our new we have started the five radio channels. They are now not only available on DAP, but also on podcast and on streamings. We have, with our partner together, even founded a media agent to sell the inventory, and we expect this to not contribute significant profits and revenues during this year, but a positive contribution moving into a significant business in the course of the next couple of years. And on Vipu, I've already mentioned that we most likely will extend our shareholding to take more of the benefits and the profits and hand into credit and also making it available for our shareholders. Having said that, I'd like to hand over to Ingo for a more detailed look at the financials of the past year. Thank you, Christoph. Good morning, everybody, from my side. I would like to start on Page 14 with the financials. So I'm very happy with what we reached here during 2020 and even with the fourth quarter. I read in the comments this morning that some of you were disappointed by the figures. I was a little bit surprised by this. So I try to clarify the things and hopefully get some color into it. On the revenue side, in the fourth quarter, we reached EUR $670,000,000. Yes, definitely, this is lower than what we reached in the 2019. But this is based on the shutdown here, what we saw since the December 16. And for our gravis stores, the period from December 16 to the end of the year or even to the January, this is the most relevant period in terms of revenues. It is not so relevant for our groups in terms of profit, but in terms of revenues is very, very relevant. And therefore, yes, we lost some revenues in the fourth quarter here, but without any big effect on the profit side. All in, what we see is that it is a relatively stable revenue. On the gross profit side, if we look into the adjusted figures here without the regulatory topics, then yes, it is it was down from $8.97 to $8.82. But I think you have to put into consideration here that in the fourth quarter, yes, maybe on the first view, it looks a little bit disappointing because if you compare 2019 with 2020, you see a loss of something like €7,000,000 here, but €5,000,000 out of this is FreeNet Digital. This is the company what we sold at the September. And so the biggest effect is resulting from a business, which is non which was not core before, but all in, which was not generating any EBITDA. On the EBITDA side, we all in generated an adjusted EBITDA of nearly $446,000,000 without the differences from Motion TM and from the international call effect. And if you see look into this adjusted figure, then you see that we increased EBITDA on a year to year basis by something like EUR 9,000,000. Moving to Page 15 to the mobile performance. Yes, on revenue side, you see what I already mentioned that the close of the Grabber stores in the December had a negative effect here. This is what you can see in the fourth quarter. But all in, if you see the whole year figure, this is nearly the only effect what you have, the difference from the fourth quarter. In the gross profit, and I think this is very important to mention here because it is for a long period the first time, and therefore, I'm very happy about this, we it was possible for us to increase the gross profit on a quarterly basis between the fourth quarter of 'nineteen and the fourth quarter of 'twenty, it was possible to increase it from 174.8 to 175.4. I think this is the best proof of concept what we could give that it is really a very resilient business what we have here in mobile. On an EBITDA side, yes, correct, not all of these positive effects from gross profit are transmitted into EBITDA. But there is one reason for this. What we did here was we built some provisions for bad debt. You could call it conservative, but what we do here is we do on a regular basis, we do a lot of analytics about the macroeconomic trends, what we do expect for the future. And if we look into it at the moment, we see some signs here that the economical situation out here could go worse during 2021 after the pandemic based on unemployment rates and so on. And therefore, I read it in one comment this morning, yes, maybe it is perfect to call it preventative. This is something what we did here. And I think during the year, we will see if it was really necessary to build this provision or if there will be a chance to release it again. I would not do so today because we do not know all the effects of COVID, but I think we will see during the year. Moving to the KPIs of the postpaid business on Page 16. The peak intake of postpaid customers make me very optimistic for the future because even with a quarter where we lost nearly two weeks at the end, it was possible for us to increase the number of postpaid customers by 74,000. It was a very, very strong quarter. And without the lockdown, it would be even better. So very good intake on this side, Again, a sign that the mobile business is worth a lot, that it is resilient and that it is very strong. On the ARPU side, yes, this is something which looks a little bit negative because the ARPU went down in the fourth quarter by $0.50 But still, you have some roaming impact here as business is not running as it was before. But without roaming, it is nearly stable, what we see here in the ARPU. On the digital lifestyle side, we see a decrease in the fourth quarter. In the whole year, even with all this pandemic effect and with the closures of shops, what we saw, we see that the revenue out of the digital lifestyle is nearly stable with EUR 189,000,000. And the reason for this, and it's also some positive message from my side, what we reached during the last year was that we moved the revenues from a reselling base to a subscription base. So much more of our digital lifestyle revenues today is in subscription models, and therefore, it was getting more and more sustainable by the time. On Page 17, I move to the TV and media segment here. What we see in the revenue here is yes, it looks very stable. We see increases from the growing subscriber base from waifu.tv. And so it's a very stable revenue situation. On the gross profit side, here, again, you see if you compare the quarters, what you see here in the gross profit, if you look into 2019, there was, in the second quarter, something like €42,000,000 in the third quarter, dollars 42,000,000. And then in Q4 twenty nineteen, there was an extraordinary effect of $5,000,000 Therefore, the gross profit in Q4 twenty nineteen was 47,000,000 Without these extraordinary, it would only have been 42,000,000 So average level in Q2 to Q4 'nineteen was something like 42,000,000 And what do we see in 'twenty? We see a level of 45%. Therefore, the figure of 44.6% in the fourth quarter, in my eyes, it's not disappointing, but it's a confirmation of the gross profit, what we saw in the last quarter. Moving to the EBITDA. Here, again, we saw an EBITDA of €86,000,000 in 2020, which is nearly €6,000,000 higher than in 2019. And all in, it is something 20% of the EBITDA of the whole group. So it is a very relevant part of our business now. Some details on Page 18. From the I only would focus on the middle boxes. There is the media broadcast B2C business, which is Freenet TV. Here, you see there was in the delta to last year was an increase of 1,400,000.0 in the EBITDA. On the other side, if you look into the media broadcast B2B business, here, you see the effect, what I was already talking about in 2019. In 2019, we had a very positive effect of €5,000,000 which were shown that time in the B2B business. And therefore, now it looks much weaker than in the other quarters. But it's only this extraordinary effect. In the X-ray business, we see that and Christoph was already talking about the positive monthly EBITDA, 8 figures. This is something what we see here. So all in, the EBITDA of 20,000,000 is €7,000,000 higher than the EBITDA of 2019, and it will be definitely positive all in in 2021. Moving to page 19, maybe here on the first view, another disappointing figure, but also here I think this needs some clarification, because on an adjusted level or a normalized level, I would say the free cash flow was $249,000,000 because with the closure of the gravel stores, there was a negative phasing effect from working capital. And this negative phasing effect in the last weeks of the year brought us this decrease by 12,000,000 to $2.37. So there will be a positive effect in 2021 definitely out of this because it is only a phasing. And therefore, I think on the first few, negative. But if you look into it, we are much higher in the range of the free cash flow. And we are also here very successful during 2020. Another success is shown on Page 20. I do not want to discuss all the figures. I think the most important one is below the tables. On the one hand, at the end of 'nineteen, we had a net debt of €1,550,000,000 and now we do have a net debt of €269,000,000 bank net debt. So we optimized our balance sheet very, very it was very important to optimize it, and now we have a very, very healthy situation. This is something what you can see on Page 21 in the result because what we see here is that now we have an equity ratio of 40.4%. We have a leverage of 1.7. And so it's a very, very healthy structure and totally different to the figures what we showed at the end of 'nineteen. Then moving to Page 22. Christoph was already talking about the suspended dividend. I agree totally that it was a correct decision. What we took last year on the information, what we had, it made a lot of things on the capital markets possible for us to refinance. And it was a onetime suspension. This is what we already announced some weeks ago. This year, we will pay again very high dividend with a good dividend yield what we grant. So it would be perfect. But it is important what we show on Page 22 that for the shareholders, the payments, what we promised to give to the shareholders, they really happened a different way, but we stand to what we promised. On Page 23, we show the new guidance. First of all, the subscriber guidance in postpaid, we still see the possibility to increase the customer base further with a moderate increase. On the freenet TB RGU, we expect a moderate decrease, a further decrease. But what is important for us here is we report this RGU, but our priority and our focus is the gross profit of that business, and this is what we did with the price increase in 2020. Yes, if you only look into the RGU, maybe this looks disappointing. But if you look into the profitability of the business, this could be increased dramatically. And therefore, I think this is also the idea for the future. We do not know when it will be possible to do another price increase, but we definitely will focus on the profitability of the business. And it's only a second priority to focus on the RGU. VipuTV, here we expect solid further growth. It's growing month by month, quarter by quarter. And so there is no sign that something could change here in 2021. The financial guidance and revenue, we expect a stable revenue here. In the EBITDA, we expect an EBITDA between $4.15 and $435,000,000 million dollars Why this range? We did, as everybody do at the moment, we also did some worst case scenario calculations on COVID-nineteen. We calculated how long the shops could be closed, and so on and so on. But in all the worst case scenarios, what we calculated at the moment, we did not end below $4.15. Therefore, $4.15 is the lower end of the guidance range here for the EBITDA. If you ask me today, yes, I would expect in the I would expect to end up in the higher end of the guidance, but we are at the beginning of the year now. And I think we have to wait what will happen during the year. Something similar with the free cash flow, it is lower than in 2020, and it has to be lower because we will not receive the dividend from Sunrise, which was €46,000,000 in 2020. And but we also paid some more interest. So all in, there will be something like €35,000,000 what we will lose at the end of the day without the Sunrise stake. And therefore, now we have the range here between 200 and $2.20. But with the phasing effect, what I explained before from gravid, I would also say here, what I do expect today with all these uncertainties, because now we are only in February, but with the uncertainties what we have at the moment, I would say, yes, I do expect to reach the upper end of this guidance. This is what I would say today. Moving to Page 24 for a detailed free cash flow bridge here. What we see here is that on the net working capital, we see something like minus $25,000,000 here. What we do expect for 2021 in 2020, it was something like minus 35 So here, we see a lower value also driven by the phasing effect, what I explained before. In the tax payments, 40,000,000. There are still some postponement of payments here. If the authorities ask us to pay or request the payment, 40,000,000 could be possible. If not, could also be possible only to have 30,000,000 But in a normal way of doing, euros 40,000,000, I would expect 40,000,000 CapEx, 45,000,000. We still do have some investments into digital radio. It's something similar to what we did in 2020. Christophe already described that in the first half of the year, the second multiplex will work 100%. So there is still some work to do and some investment to do. And therefore, we will see these investments during 2021. On the leasing side, here we see minus 70. It is similar to what we saw in 2020. It was slightly higher than in 2019 because there was worthy investment into digital radio, and there were some new rent rent necessities out of this. Then the interest payments, 35,000,000, euros 10,000,000 lower than in 2020 because of the reduction of the bank debt. The quarterly breakdown on the right hand side, what I would say today is, I think, in '20 if you look into it, the third quarter was something like too good because there were some phasing effects because we got some money from the network at the end of the third quarter, which I already mentioned in the last call. So it was something that was too good. Therefore, the fourth quarter was too low. What I do expect for the next year without any big phasing effect, I would expect something between 4560% per quarter. Page 25, our financial policy for the next year. On the leverage side, yes, our leverage now is below two, but we would like to have some room for maneuver. So we do the share buyback during 2021. This could lead to something like two point zero or 1.9 during the year in the leverage. And therefore, we thought we do need some room, and a leverage of three in the industry is something which is really normal. Today, I would not expect us to see something above two point zero during 2021, but we would like to have the room for maneuver. But I I today, I do not see anything which could which could increase it above two point zero. In the equity ratio, we left it on a level of 25% here. Today, there is a lot of headroom because we actually, we do have an equity ratio of 40.4%. And what we do expect during the next month is even to increase it. And on the dividend policy, we stick to our policy. It is linked to the operational performance, which is reasonable for us, which makes a lot of sense in our view. And therefore, we left it on a level of 80% of the free cash flow. So also in the future, we will be a company which will be which will deliver and grant a very high dividend yield. And I think this is will be still part of the story to invest into our share. Saying this, I would like to hand over back to the operator and ask you to start the Q and A. Thank you. We've been our question and answer session now. If you have a question for speakers, dial 0 and 1 on your telephone keypad. If you want, your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And we already got a few questions coming in. The first one coming from Christian Fangmann from HSBC. You're the line is now open. Yeah. Thank you. Good morning. I have three questions. The first one is on your statement regarding XERing and that you may extend your shareholding. So just trying to understand, you know, what meant you to so how much I would you would you be buying or what what is, up for sale? What could it cost in terms of investment of cash outflow for that? Then the second question is on the mobile business. So you had a very strong net add performance, but the ARPU was kind of weak. Can you maybe explain, you know, first of all, how you generated these big amount of of subscribers? And then are these, you know, really low ARPU customers coming in? So trying to understand the momentum here. And then lastly, on the TV side, the Q4 EBITDA was down year over year. You mentioned a bit the one off effect in the previous year quarter. But still, I mean, Vipu is is growing. It's it's now positive. FreeNet TV should at least generate a little bit of incremental EBITDA year over year. You know, why are we not seeing a bigger uptake in EBITDA year over year? Or is maybe the legacy B2B media broadcast business the issue here? Maybe you can explain a bit more the moving pieces within the TV EBITDA segment. Yes. Thank you for your questions. First one on ExaRing. There is still, as you know, more than onethree of the shares with founding members. And there is one of the, let's say, maybe not founders, but early participants that let us know that this institution would be happy to sell their shares because of they have some other investment opportunities, and this is why it's a it's it's it's not a family office, but it's a it's kind of a family it's kind of a family investment. It has been a family investment. They have told us already a year or two ago that they would be ready to sell a couple of their shares. We have now, only last week, agreed that we will have a deeper look into it. I think the total will be maximum investment of 10,000,000 and the share price that we would buy to them is below the one then that we have invested. So it's taking an opportunity because one of the original founding shareholders wanted to step out. I think that is just but I think it's a smart move because we're getting them rather cheap based on a specific situation in the environment. As I said, it's about 10,000,000. Not yet agreed finally, but highly likely. And we have not agreed yet on the payment terms, so I'm not sure when the when it will be when it will hit the cash flow. It will be, I'd say, somewhere around 10% of the company. So we will increase close to 70%, which I think is, at this point of time, a very intelligent investment. On the ArQ side, well, I could not remember that question for many years, but I think it's it's a it's a very it's a very good question. I mean, what we see there is the entire way we do customer acquisition is not based on ARPU but on life cycle result. And that leads every now and then to things that look a bit weird. Yes. The ARPU overall, the the the ARPU of new customers only recently was a bit lower than the customer base overall, but the life cycle results that we have per gross add last year was better than the year before. So the when and I'm not talking about euros, but, like, cents and over lifetime, we talk about euros. So this but I'm trying to to let you know that we are not when we when we think about is there an opportunity, how we would fit it, what is a good campaign, which campaign do we extend because we're successful, it's not so much the RPO or it's not at all the RPO. It's the life cycle result. So we have two curves that not always correlate into the right direction or not not go in parallel. It's ARPU and margin. I can assure you that the margin of those customers is even better than the one on the customer base, But we have accepted it's a lower ARPU effect. To give you flavor of it, the share of SIM only that we have sold in the second half of the year in our own shops was increasing. And SIM only tariff plans typically have a lower ARPU, but the equal absolute and obviously, a relative better margin than the subsidized contracts that include hardware. That is the driving force. Also, on SIM only, entire credit scoring, etcetera, is much more relaxed because you do not hand out a hardware to the individual customers, and the potential damage if one of those customers go into bad debt is much more much lower than than with with with the subsidized hardware based contract. That is that is basically the driving the driving force into that. And for sure, in a year or in a phase where we have a higher online share, ARPUs tend to be a bit lower because of that specific fact that the proportion of SIM only is higher. Christian, concerning your question about the profitability of the media business, I already tried it before. If you look into the quarterly figures, then you see in 2019 from Q2 to Q4, there was something like an average of 42,000,000 without the extraordinary effect. And if you look into Q4 Q2 twenty twenty to Q4 twenty twenty, you see something like 45,000,000. So it is something like 3,000,000 a quarter. It would be 12,000,000 a year, and it's something like an increase of 8%. And you could do the same math also on the level of EBITDA. I think the only thing what is disturbing at the moment is the one off effect from Q4 twenty nineteen. This is disturbing the view. But if you leave this out, then you definitely see an increase, and there will be further increase in 2021. Okay. Maybe just one follow-up on Christoph's point. Obviously, we are still in a lockdown scenario right now in Germany. Can you say a bit on kind of the momentum you are seeing during the first part of q one? Yeah. No surprise. It's it's it remains with a similar structure we have. Obviously, the the online and direct channel is the one and only right now. The SIM only share is even higher than it was in q four. That's the driving force. Once again, it I mean, the good piece is that we save a bit on fixed cost in the shops. The good thing is that we have low we have lower hardware sales and subsidies, and the life cycle results of the of the SIM only is equal that equation out. The damage is coming from lower attach rates and up sellings and also from a lower digital lifestyle activities and accessories. I think that is it. I would say right now from a bottom line, I think these the the positive the negative effects that I've just described and the positive ones from cost savings equal out. We are not expecting a real opening before mid or even March. I think the first quarter will certainly show some we will show some rounds. But as as Ingo said, all our simulations show that overall, we will even under a very negative assumption. Overall, we would still remain within the guidance that Ingo has just explained. Okay. Thank you for the update. Thanks, Christian. The next question is coming from Jonas Blum from Warburg Research. Your line is now open. I got three, please. Firstly, just following up on Christian's regards to your guidance for ARPU. I mean, you're guiding for flat ARPU. So we shouldn't expect roaming to come back in 2021? Or is there some other parts included in this guidance? That's first. Second, around a comment that was mentioned yesterday in Telefonica Deutschland's conference call since they expect Drillisch to migrate data traffic away from their network and consequently, try to leverage also partner business. Is that something you also expect to benefit from significantly perhaps, or are you more looking into offering a balanced portfolio in terms of networks for your customers going forward? And then finally, just on your Wipew TV growth trajectory. I was just wondering, Mr. Willennek, you once mentioned that you were eyeing for 5,000,000 customers by 2023. I guess this is not up to date at the moment. But what do you think is fair market share for a product in the medium term, and what's kind of, like, a fair assumption for a customer base by 2023? Thanks, Lars. Yes, Jonas. Thank you. Well, on the I think on the ARPU, we expect flat I think there will be some roaming coming back, but we do not expect it to return to the original level of 2019 yet. I think that the German news in the morning was that most likely they're gonna allow international traveling in summer, but nobody's booking yet. So I think we did not incorporate any of this potential upside, and we see how it's gonna happen. So that is assuming a slight uptake but not a return to than the old the old status. On the Telefonica statement, Well, I mean, at this very at this point of time, EINS and EINS one and one and Drillisch do not run their own networks yet. We will certainly benefit from a competitive environment with four networks, be it either that Drillisch will give us very favorable conditions in order to enlarge their market share or the other three to defend their market share. So think under under any assumption, the whole development is a positive one to us. We have also done analysis on what we have learned about the national roaming agreement. And so far, we still believe that our conditions on data with Telefonica remain competitive and will allow us even in the future to compete any offer of Drillisch. So in that sense, I think from a competitive mechanics, we expect a benefit, and we do not foresee somebody being in a position to undercut our pricing significantly on the network. I think the third one, I can't remember whether I said 2023. I think I said 2023 to 2025 be on the safe side. But you're still putting the finger into the right point. And I said that in my introduction, in my statements on 2020. I think we're really happy growth rate in Vipu. We compare it to SATU, if we compare it to others, we have seen Tifa spilfilm going away. We have seen MAGINE going away. We see that the high investments and with with full respect, the the great progress that Deutsche Telekom does with their own IPTV. If we do a one on one comparison, we still grow much faster. So I think our market share on the IP should remain at a high level, and it's a matter of definition. But I think I always said, like, 20% of the market should be the right number. And I was assuming that whether it's 2023 or 2025, approximately 30,000,000 will, in a way, consume IPTV. And if we assume that there is a couple the majority of them paying in in any of these matters, it is important for us that we include VOD services and we bundle VOD services with Vipu in order to make the people also take our linear offering and then pay for it. So I think I would still I I think that it it it's it's gonna be slower than than today. And I think there's maybe one part of my statement was, how would I say that, not precise enough. I am I don't know whether all these 30% that move into IPTV, whether they will they will really quote cut and really use it exclusively, or is it an add on? I think that is the big uncertainty. When we do customer research, we realize that those people that switch it or they switch off, it it takes a real while. People say, well, now I cancel my cable TV. I cancel my or or I take away my satellite dish. This is still uncommon. And in that sense, the uptake is slower. So if you ask me today, I think to to to have more than a million subscribers is definitely reasonable for going by the 2022, early twenty twenty three for us, but the 5,000,000 is not gonna happen in 2023. That's for sure. I think there, the market is just lower. I think the the ultimate question remains to be answered whether there is a turning point where suddenly people fully understand that their convenience, and then suddenly the uptake might go super steep. Yeah? But I may be, in terms of timing, less optimistic today than I was before. I'm happy that we are highly profitable with if we go to if if I assume a million subscribers, whenever we know that this is a a very significant contributor to our total EBITDA in the 2,000,002 number. So I'm happy about that, but we have to accept that this is going less aggressive than we thought. It's very helpful. Thanks. Your next question is coming from Jamie Polana. Please go ahead, sir. Thanks for taking my questions. Just a couple from me. Firstly, on cost control. It seems like you took 8% of the fixed costs out of the business this year. Is that something that you think you can continue to do? Do you expect to still be able to cut costs in this kind of way and that and of this magnitude, or do you think some of those costs will come back as the COVID recovery begins? And then secondly, just focusing in on ARPU again, could you potentially elaborate on some of the specific headwinds that you see given the fact that you're guiding for stable? I presume that there are some headwinds that you see offsetting the potential for a COVID recovery and roaming recovery in the 2021. I'm just kind of framing that with the fact that Telefonica have also said that they expect a stable pricing outlook in in kind of both the value and high end segments. Finally, if I could just squeeze another one in. Your freenet Funk product is starting to show show real customer traction. Is it still the case that that's a similar ARPU level to your postpaid mobile base? Thanks very much. Yes. Thanks for your questions. Maybe I start with the with the cost question. I in a way, I'm still it it is still not 100% clear if all or or what part of the cost which were reduced in 2020, will be recurring in 2021. I think, yes, there are some learnings from what we saw. And therefore, definitely, part of the cost savings will be recurring. But there are also parts like this short the money what we get from the government because the time of work was reduced, this is definitely nonrecurring. And this was $3,500,000 last year. So now we have, again, a quarter where we will get this money. So therefore, in 2021, will be recurring. If you had asked me three months ago, I would would have said not. So, yes, make the long story short, I think biggest part of the cost savings will be recurring, but there will be some costs which will come back. For example, marketing will get higher again because we will invest again, but we had a lot of learning. And then there is one part of the cost which is not in our hands, and this is why we built the provision of something like $6,000,000 at the end of last year. We do not know how the payment behavior of the customers will develop. And it was very, very fine during the crisis, but we do not know what happens after the crisis when maybe the unemployment rate, for example, will be higher. So all in, it's there will be recurring part, but also parts will be come back. So what I would say is, from best guess from today, it's something like 50 to 75% of the cost savings will be recurring. For the Yeah. I think the the the other one I mean, on the RPO, I think my answer is the same as before. I mean, we have to see the acquisition mix. I mean, you said on FUNK, our the average on FUNK is lower than the average of the base, but the the the the purchasing model behind it allows us to create a very attractive margin. I mean, having said that, you might also ask the question, why don't you do more Funk? Well, the Funk thing is not pushing the the shops because it's app only. So whenever we do whenever we decide on where we put the money on, we have a, I would call it a sophisticated model how to optimize. I mean, was clear to us after the lockdowns in the firstsecond quarter last year that we need to push retail a bit and give it more potential to do to win customers and do the renewals, obviously, because you could consider our brick and mortar business as fixed cost business. So log by logically, we have said, well, don't do a lot on funk these days because you can win on the others. Now vice versa, if the shops are definitely locked down and we have no possibility, we might be moved into pure online, and pure online is then funk, flex, and SIM only. So we balance this out, and that is part of the job that we do internally with our category management and our sales planning. So it's a multidimensional optimization with a lot of drivers. Maybe once again, I mean, I can only do an illustration and not give you all the numbers. But let's assume while we have had that situation in q four, we were saying, okay. In order to reach some of our volume bonuses with the network operators, we're still missing and just for the sake of argument, we're missing 100 units of new customers. And then we sit down and say who of which is the right and the best channel to generate those within the next four to six weeks. So you have one dimension, which is the life cycle. We have one dimension, which might be any kind of fixed cost or variable bonuses with with our channels, and the third one is Upshur, and the fourth one is the type of contract. So you can easily and the fourth the fifth one might be even investment into marketing. But at the same time, we'll talk to hardware manufacturers and say, well, we have an overstock here and there. We would subsidize the handset. We would give you an extra marketing fund. So, I mean, they they they really jog it with five or six variables all the time. So this is when we later on, Ingo and myself need to answer questions on like what has happened, then we certainly remember the decisions we've made and also the reasoning, but it is something which we do on a monthly basis. And the the side effects of this, this is I mean, if this was not the case, I guess we could run the company with 40 people instead of, like, 1,500. Yeah. I think but I hope I can at least give you a flavor of what really the sophistication is than to say, okay, we can do it with MSH, with mediasertone. That's good because they will they will be happy, but the the the short term margin on mediasertone is lower, but the long term is good that we have another partner. Our captive channels, we cover some part of the fixed cost and so on and so forth. So it's it's kind of a consultant consultant answer. It all depends. Thank you. Much appreciated. The next question is coming from Titus Kron from Barclays. Please go ahead, sir. Yes. Good morning, everyone, and thank you for taking my questions. Just two topics, please. The first one would be on ViperTV. And just could you maybe elaborate a bit more on what has been the main drivers of the kind of strong net adds in Q4? And to what extent have customers taking up the new tariffs, including Netflix? Just trying to find out what the subscriber mix has been over the last year and the last quarter. And what impact do you think that should have on ARPUs for the segment? And the second question, just a very quick one on the free cash flow. Given that the stores remain closed so far in Q1, what impact do you expect on working capital flows after we have seen the impact in Q4? Is the reversal probably likely to happen at a later point in the year? Yes. Teitur, thank you for the question. I love the first one because now I'm opening the Pandora's box. The driving force was the price increase. The price increase that we have that we have announced for the for the big for the big product, for the perfect product, was becoming real in January. So we knew that any customers that would hook up in November or December would basically be automatically part of the price increase. So the marketing team created a campaign which included which included a significant number of bonus month because which was refinanced by the price increase, which was not in place at the time of the customer seeing the offer. And that campaign was the most successful that we've had they've ever had before. So we could offer the customers a price reduction over a period of six months, which paid back because implicitly, they have already accepted the price increase. And that so, basically, it was a very smart idea on a campaign, and that and that was done with and without Netflix and became even more effective. This, let's say, concept was and mechanics was discovered anywhere early November. We've tested it, and early indicators showed that also the the customer the attrition pattern, so the loyalty remains on the same level as the normal. This is what they've pushed. So smart campaigning is the answer. Concerning your question about the free cash flow, I think the situation in the '21 is a little bit different than in the 2020 because we had to order all the hardware and all the stuff already in November, where it was not clear that there would be if there would be a lockdown at the end of the year or not. So it was not a surprise, but we had to prepare ourselves for the business in November, and therefore, we already ordered the stuff. Now we have a much longer period in the lockdown, so we optimize our ordering and so on. So what I would expect that a counter effect of what we saw in the 2020 should be possible in the 2021. This is what I do expect at the moment. Okay. Thanks so much. That's very helpful. The next question is coming from Francesca Shears from BNP Paribas. Please go ahead. Hello. Good morning, and thank you for taking my question. Just one for me, please. So regarding what you were thinking about customers about employees being made redundant maybe at some point sorry. Not not employees. Sorry. I'm really confused here. Not related to the company, but to do with people in the wider sector. What was the amount of bad debt provision that she took in 04/2020? And what was the rationale behind this in terms of perhaps people in the economy losing jobs? And have you seen any change in customer behavior or invoicing, which suggests you might not be able to collect the cash, Or is this simply based on a high level macro view? Will you need to take any more provisions next year as well? And sorry for the jumbled question. I hope you understood that. Thanks a lot for the question. I think, first of all, I would like to start in 2020 because what you normally would expect is if you have a crisis, you would expect that the payment behavior would get worse. So this was the first very positive surprise, what we did have during 2020 because the payment behavior was as good as it has never been before. Now it is the question, what will happen after the crisis? We have currently having technical problems with the speaker line. We will go into a quick pause and answer your question after that. Thank you for holding. Okay. Sorry. Now we are back. It was what I heard. It was a small technical problem. I do not know what you get of my answer, but the payment behavior in '20 was was very fine, surprisingly fine in 2021. I think we have to see what happens after the crisis if the unemployment rate will be reduced. I think there are a lot of patterns from the past, and we use these patterns to calculate or to pre calculate what could happen. And on these pre calculations, we build this provision, what we have done at the end of last year. We think that from today's point of view and what we do expect is that this provision will be high enough even if the payment behavior would be worse. If it would not be worse, which could also happen, then there could even be something like a reserve in our results. Thank you. Very clear. As a reminder, if you want to ask a question for our speakers, dial 01 right now. Looks like we have no further question available. For closing remarks, I'll get back to the speakers. Yes. Thanks, everybody, for joining today's session. We look forward to the next one early May in q one. And as always, very happy to take even more questions and more detailed discussions with our investor relations team. Have a good day. Stay healthy. Goodbye. Goodbye.