Earnings Call: Q4 2019

Feb 28, 2020

Hello, everybody. Thanks for joining, and good luck to everybody in corona times with DAX going down 2,000 points in a week. We don't take it personal that our stock price also fell a little bit. We take the opportunity to lead you through our view on the past year. And I'm starting on Page four. I can say we are if I look back to for the full year 2019, we started it with a proportion of respect for the year, also with some doubts on how we would perform. And we have all seen that the first half year on postpaid, we also saw that the market reactions, we cannot cope immediately with significant changes in the market. But for the full year, I think we can, with all confidence, say that we have met all the targets, and we have delivered one more time on our promises. Overall, revenues, euros 2,900,000,000.0. The EBITDA was €426,800,000,000 in the middle of the corridor. Same goes for the free cash flow. And the subscriber base overall was growing beyond or more than 200,000 over the full year. When I look at the next page, here's a summary of the key points which we have focused on. First, let me start with the traditional mobile business. I think at the beginning of the year, we were all a bit worried about the potential outcome of the frequency auction, and the outcome is a very favorable one for us. We have achieved everything that we wanted. We have, once again, the service provider privilege is protected by the BNAT A. We also see that in many other aspects, the regulator delivers on what they claim to be in the future a referee. We have a couple of many more meetings with those guys. And we they are very close to what's happening even on the LTE as well as on the five gs penetrations. So we think that was really a game changing auction in the first half year of twenty nineteen. As a consequence, we also have immediately started to fully migrate our customer base, the postpaid, on LTE, and we are almost done on all three networks. It will still be a leftover of a couple of percentage points of customers due to the fact that they have old hardware, etcetera, etcetera, but this will be finished during the 2020. As we never really discussed in detail, we had similar to our colleagues in with Drillisch, we had some arguments with Telefonica over the past two years, which has never directly impacted the relationship. But it was clear that there's a couple of things that need to be sorted out, and we found an agreement with Telefonica, a long lasting agreement only during this year of 2019, which delivers us and secures us long term very favorable and competitive conditions on any of their plans, but also on our tariff plans facing the customers. One of the milestones more on the technical side than on the commercial side for us was the implementation of FreeNet Funk. It's a complete new architecture alongside the entire customer journey, including new payment methods, new ways of billing, new ways of fraud management. So it's a role model for any of our future tariff plans. It was I have to say that when we started, we were a bit overwhelmed not by the success but by the way users reacted on it, by the usage points, etcetera. And with a very close and intense work with the network operator Telefonica, we've been able to sort it out, and I'll talk about some changes on the product in a couple of minutes. On the TV and media side, I think the there is a couple of negatives or actions that we have had to do on the cutting side. One was that we stopped the satellite business. We had to accept that market interest and consumer interest on HD via satellite is not big enough in order for us to make this be a long term profitable business. So this is why we have stopped it. On the positive side, Waipu has been able to establish itself as the market leading and best performing IPTV platform for linear content in Germany. We have been able to fully enter now Android TV and all other major TV operating systems. There is a relationship and the cooperation with Samsung as well as with Apple. And most importantly, Telefonica has decided not to do their own platform but to resell ours, which we think is a big breakthrough success for the platform as such. The Telefonica volumes, which we do not disclose, but they have they are still in an early mode because they only bundle it with a couple of their top end tariff plans. They have not yet deeply started to work on their fixed net base. And certainly, with the upcoming cooperation on the cable network side, this will be get much more momentum on the Telefonica side. Last but not least, we call this here active shareholding. We all have you all have been witnessing the situation with Sunrise. We have decided not to support the potential transaction. The transaction did not happen because a majority of shareholders was against it. We are extremely happy about the development and the refocusing of Sunrise for the stand alone strategy. We consider the team of Andre Krause and Uwe Schiller as a very, very strong team with an absolute conviction on that stand alone strategy. They have shown us in the latest strategic workshop a number of very good actions. And I think the latest results also have proven that the team and the company is doing really well. On the Mediamark Zartorn side, even though the stock of the economy is still on the lower end of the scale, The cooperation with MediaMarktSaturn has intensified. The main thing there is that they need to shift significant parts of their business to the online channel. And we've been able to, with them, to also move our parts of or significant parts of our postpaid business, which they, in the past, only held on the at POS, shifting to online during the year of 2019. And there's also a number of tests being executed on their club platform, and we will continue to do so in 2020. And finally, I think that also was communicated beforehand. We have sold back our majority shares with Motion TM back to the founders that and managing directors of the team. I think six years ago, the acquisition was a very strategic and reasonable one. We have done a lot of hardware and online business together. But over time, the hardware component got less interested interesting for us. And the in total, euros $203,100,000,000 in revenues did not significantly contribute to our bottom line. So we took out the risk and resold. Think Ingo will explain a couple of details in a minute. So on next page, Page six, here is a reflection of our core guidance and the outcome. On the upper graph, you can see the EBITDA. We are with €426,800,000 in the middle of the corridor. If we would include Motion TM, we would be straight at the basically at the middle of the corridor. And the same goes for the free cash flow. So I think this is why we have, once again, for the upcoming year, decided for a range. We need a bit more flexibility on this market influences like recently the days. We have not been impacted from corona yet, but we also see that these kind of things get closer and these kind of potential scenarios need to be reflected and give some flexibility in our financial guidance. On Page seven, you will you can see the development of the total subscriber base. This subscriber base is the core asset of the company. It is the symbol for a sustainable and recurring ongoing business. The total subscriber base grew just beyond 200,000 subscribers in the course of 2019. In postpaid, it is certainly minor, but we have guided that we will only grow in a small scale. I'm very happy that the Q3 and Q4 overcompensated the downside on the first two quarters. And I'm also happy to state that we have told you what happened. We have told you that there will be measures taken, and those measures have delivered. So I think it shows how we can react on changes in the market and compensate. The free net FUNK is added here. By definition, we don't count it as postpaid. We do this, the 34,300 is actually the ones that have been active and not in a pause mode at the 12/31/2019. There is about approximately double of double the size in terms of subscribers, but we only count actives here. Finet TV customers also grew just a bit but stayed beyond the 1,000,000 hurdle. And the significant growth comes from Waipu with 100 and plus 157,000 over the year compared to 100 and plus 120,000 in 2018. If we go now on the next pages, one level down, I won't read all this to you. I think on postpaid, for me, the major activity was, and this is under my personal leadership, that we push retail and captive channels. The total share of transactions being new customers and renewals overall are more than 60% are now in captive channels, so fully steerable, no money to the outside world. I think that is ultimately a big step forward and a major initiative continuously also for the year 2020. What are the specific elements that drove this number? Well, the new marketing campaign pushing the retail channel and the md.dechannel as our core transaction channel delivers a very good performance also in terms of typically marketing KPIs such as recognition, brand awareness, etcetera, etcetera. We are have tested a concept, which we call the local hero concept in our shops in one out of three regions. This concept gives more freedom to the individual shop owner to do social media. We have changed recruiting methods and criteria. We have brought fluctuation in the shops down by almost 30%, and this pays back. You might say, well, why aren't you growing then even faster? Well, I think these measures are necessary to keep things at a stable level. And you also have seen that our colleagues from Vodafone and Telecom in Germany work hard retail performance. We see that the way we do this is very successful. The digital lifestyle had its strongest performance in company history. This is a segment which we purely do in captive channels. And to give you a flavor, I mean, own shops, any of these shops have sold more than €45,000 in terms of accessories over the past year. This is a growth rate from previous years, more than 30%. There's one page once again on Finet Funk. I mean the key messages I've given to you, there is a lot more activations than active users at any given day. This is due to the allowance of a pause function. We have had right after launch or in summertime, we had to realize that our top 500 customers had usages beyond 10 gigabytes a day. This is definitely either technical or commercial use. We had to shut those down, which was allowed according to the terms and conditions. But we have also learned that some of the extra features that we have built in are damaging the product profitability and lead to misuse. And we have changed some of those features with no negative impact on current users. But in accordance with Telefonica, we have not pushed hard on the marketing side, and this will be restarted only now at the end of the first quarter. On freenet TV, as said, we have stayed beyond the 1,000,000 RGUs. I think overall, we can state that, I mean, there is about 10,000 satellite users that will drop out or 15,000 dropouts over the next six, seven months. But even if I reduce take them out, we are still beyond the €1,000,000 hurdle. Overall, I think things are doing well. We get more accustomed to this kind of business. We professionalize the CRM, etcetera, etcetera. On next page next two pages, on Waipu, I think there was also some skepticism on how the market would react or what whether we would see a reaction from the market when joint or the ProSieben internal IPTV application starts. While we have seen that we could not go onto television because both big channels, RTL and ProSieben, they push hard on their own product. So it doesn't make sense to do TV advertising. But even not doing TV advertising, you saw a significant growth rate. We have very loyal customers. We have not seen an increasing churn. And we got with about 60,000 we ended 60,000 subscribers higher than we originally guided. So by the end of the Q4 twenty nineteen, the number of paying subscribers amounts to 408,000 subscribers. Well, I think it's also fair to make some self critical assumptions or statements. We were the big Turkey TV package is not yet adopted by the market as we thought. There is a couple of thousand subscribers, but we have not found the right trigger to make this a big thing yet. There is a number of tests going on right now. But I would say this is one thing where we were not as successful as we thought. The other one is that we add a lot of our new TV channels. Two, three of them are listed below the chart. These are working really well, but the overall reach and consequently, the income from advertising was a bit below our expectations. We're still talking small numbers. But these, I think, are the two learnings of 2019 on things that have not worked so well. On the other hand side, we are optimizing the entire system. We are still handling the entire company with only 38 FTEs. We work on a very cost conscious scheme right now. We think we are ready for the big hockey stick as soon as it is the adoption rate will increase over all households. And we aim for a breakeven in the fourth at least a quarterly breakeven in fourth quarter twenty twenty. So I think everything is going the right directions. But certainly, there are elements where we need to continue to work hard to improve. Having said that, I would like to hand over to Ingmar Arnold for the financial part. Thank you, Christoph. Good morning, everybody. I think I would like to start to confirm what Christoph already stated. Also from my side, it was a very successful year. And even with the headwinds, what we saw during the year, we managed it to reach all the goals which we set in our guidance at the beginning of the year. Starting on Page 13, what we see here is on the revenue side, we see slight increases in revenue during the year, but all these increases mainly caused by the mobile segment and thereby the low margin hardware businesses. So without this, it is nearly stable development in the revenue during the year. On the gross profit side, something comparable, relatively stable if you leave out the special effects like international call regulation. And so it is stable. And also in the EBITDA, if you leave all the separate effects out, you see an EBITDA of four zero four million euros in 'eighteen, which is $4.00 €3,000,000 in this year. So it is a stable year, and this is what we promised at the beginning of the year. So I'm very happy about this. Moving to Page 14, just to ask you to remember what we already showed you during the last analyst conferences. We had the negative effect from the analog radio in the first half of the year because we stopped this business, as you know, in 'eighteen. So we had a negative effect of €5,000,000 during 'nineteen. And then we have the negative effect from the international call regulation, which started at the May. And so we saw this negative effect of €12,000,000 And there will be another effect of €8,000,000 in the first half of 'twenty. I just want to ask you to remember this when we talk about the guidance later on. Moving to Page 15. You see the performance of the mobile segment. I already mentioned revenue is slightly higher because of low margin hardware business. In the gross profit, we see a stabilization if you compare it quarter by quarter. It is without regulation and the other special effects. So the adjusted EBITDA is very, very comparable to what we saw in 2018. In the EBITDA, something very comparable. I think what we saw here, if we look into the quarters, we saw in the first quarter of 'nineteen, we were a little bit underinvested into our growth in postpaid. Therefore, the EBITDA at the first quarter was a little bit higher than expected. In the last quarter of 'nineteen, the EBITDA was slightly lower than in 'eighteen because we invested in the growth of the postpaid business. And what we try to do is we try to prepare ourselves to have a good first quarter twenty twenty. So we already put some measurements in place in the fourth quarter 'nineteen to avoid a situation what we saw last year, where we started with a negative development in the net adds. Moving to Page 16, postpaid customers. Christoph already talked about the moderate growth. On the other side, the ARPU, it was slightly down. In my eyes, I would still say it is a stable development because in a percentage view, it's only slightly down. But and this is correct, if you look into the split of our revenues, the service revenue based on this is slightly down. But what you can see is that it is not negative for our profitability. Digital Lifestyle revenues slightly increased, and the best quarter what we ever saw was the fourth quarter of 'nineteen. Moving to the TV and Media business. I'm very happy that we stabilized this business. And I think in all dimension, you see that it is a stabilization. We had a lot of changes during 'eighteen, during 'seventeen. But what we can see now here is, in terms of revenue that it is in each quarter slightly above €60,000,000 So it's a continuation what you see here. And I think this gives some more reliability in this business. On a gross profit side, without any special effect, it's something around €40,000,000 every quarter, starting slightly lower in the first three quarters with a very good end in the fourth quarter of 'nineteen. And if we look into the EBITDA, here, again, it is a relatively stable development, increasing quarter by quarter. Here, I would like to mention also the line intersegment allocation. What you see here and what I told you at the end of last year or at the end of 'eighteen already, there was some mess in these intersegment allocations in 'eighteen, and we changed it now. So what you can see during 'nineteen is that it is something like a stable development. The intersegment allocations are relatively low in comparison to what we saw in 'eighteen, but they are also on a relatively stable level. On Page 18, we look into depth into the figures of the Media segment. What we see here first, I would like to start with the media broadcast B2C business, which is the freenet TV business. There was, in comparison to last year, a lower gross profit, but on the other side, a higher EBITDA. This is based on the marketing agreements with the private channels. So in 'eighteen, a lot of marketing, what we did was refinanced by the private channels. But in the accounting, on the one hand, it was marketing cost. On the other hand, it was revenues for the commissions what we get from the private channels. So we have lower barter deals here inside this B2C business, and this makes it looking a little bit strange here, but this is the reason why. All in, the EBITDA is €2,000,000 higher out of this business than in 'eighteen. In the B2B business, what we see here in the gross profit is the missing analog radio business. Therefore, it is minus €10,900,000 But on the other hand, here, the EBITDA is slightly increasing because we took a lot of measures like reducing the personnel costs drastically and also reducing a lot of other SG and A, which led us to the €500,000 increase in comparison to last year. ExaRing, here, we see a higher gross profit on the one side and on the other side also a higher EBITDA. So this is, I think, a very positive development because we could grow the business as fast as in 'eighteen, but we could also increase the EBITDA. And Christoph was already talking about the outlook So what we do expect for 'twenty is the first quarter with a positive result in the fourth quarter 'twenty. Moving to the cash flow on Page 19. I think we are in the middle of the range, what we guided at the beginning of the year. What we see here is that the tax payments were relatively low. Therefore, what I do expect is there are some postponements. So I do expect a slightly higher figure in 2020 out of tax payments. This is what you will see in the guidance later on. But it was relatively low with €30,000,000 in 'nineteen. So we reached the guidance here. And therefore, I move to the financial KPIs. Here, we see that the total assets increased because of IFRS 16 from 4,600,000,000 to €4,800,000,000 But the equity ratio stayed relatively stable, and it was just reduced from 27.6% to 27.3%. The IFRS 16 shows on the other side in the leverage an increase of something like 0.6 from 4.2% to 4.8%. But this view on the leverage does not consider the assets, what we have, the economy and Sunrise. So what we still do on the right hand side is that we also reduce our net debt by the assets what we have. And then you can see that the leverage is only 2.5. And I think the 4.8 is the conservative view. And I think on the first view, it is okay to use it. But I think it is important to see the 2.5 because these assets, we have, have to be put into consideration. Then on the next page, there are some detailed information about the business, what we sold. The company was called MotionTM. It was mainly a hardware seller, a distribution dealer out there in the market. So the margin of this business was very low, but the risk was very high. And it was very difficult to plan the EBITDA because it was a little bit flipping around because sometimes there was bad debt out there and so on. So at the beginning, when we invested there, it made a lot of sense. But in the meantime, with the low margin, the risk profile was much too high for us. And therefore, we were very happy that the founders and the managers of the business accepted to buy their share back. We received €7,000,000 These €7,000,000 are not part of the free cash flow and not part of the EBITDA in 2019. So they do not have any influence on our guidance, what we reached. Then I would give back to Christoph for the operational goals. Yes. Thank you very much, Ingo. Now from the look back, we go now into the outlook of 2020. And in the same logic of the summary of 2019, here are the key operational goals. I mentioned before, we will transfer the last percentage points of customers to the LTE network in the during the course of this first quarter. We are about to launch new tariff plans based on the Finet Franc platform, which will allow us a completely fully digital customer journey, including the service handling, etcetera, etcetera. Most likely, in FreeNet Funk, the kind of like a limitation of roaming is also about to go away. We are, as any other watching and absorbing the five gs, we do not expect any relevancy in during the course of this year. But we will also list the we are already listing some of the five gs devices, but there is no real demand. And as I said before, we will continue to work on the extension of our local hero shop concept and mainly focus on our captive channels. This is gets us more independent and is strategically highly viable to run these shops. There's also some local phenomena where we closely watch Deutsche Telekom and Vodafone where they close their shops. This immediately leads us to extend our marketing expense in those area in order to become the local hero in any of their white spot cities or smaller cities. On the TV and media side, we will we are about to launch a small price increase on DVBT2. I think the respective customer information will go out in the first March. We have done pretesting. There is some churn expected from this campaign. But overall, it will drive a positive EBITDA contribution. So it may well be we are risking to drop below that 1,000,000 line. As I said, there is satellite customers to be switched off, and there will also be a bit of churn. But financially, it's the right move to increase pricing. We hope that this will go smoothly. Finally, after 1.5 of battle, we will also we are building up the digital the audio broadcasting national multiplex, number two. There is a lot of preparation these days. We have a good interest on those new channels. And I guess that the with the go live will be either in Q3 or Q4 with no positive contribution during this year, but with positive contributions from 2021. And on the waipu side, we are working on bundles with some other nonlinear content providers. You may have enough fantasy to think about some of those without mentioning them by name. And as a consequence, we also, for the first time in ever since the launch, we expect seven digit numbers on the revenue side for cross and media selling in Waipu. I think this will also be a significant contributor to P and L in the near future. On the shareholder side, we're, as said at the beginning, very excited about what Andre and Hubei execute there in Sunrise. We have you might also have seen that there's a new president coming in. This is for me, it's really a new start with two new managers in charge with four out of eight new board members. We were lucky to have Thomas Meyer, the current CEO of Accenture in Switzerland, to become the President. It's well, it's a bit of more youth, yes. On the one hand side, he is the digitization expert of Accenture across Europe. So I think that's going to be a benefit to the company and hopefully also to the share price. On MediaMarktSaturn, I think that is continuation on the execution. And last but not least, we will continue to work on cleaning out and optimizing internal processes, think about how we handle things. I made one example here to illustrate that the Freenet TV business, so that the B2C arm of media broadcast used to be located in Cologne with their headquarters. We have now decided that during the 2020, this unit will move to Hamburg in order for them to take benefit of all the internal specialists and internal competence centers, which are located in Hamburg here. I think these there's also two or three other smaller companies which we have under review. All these measures will not significantly change the picture of the company or the financial profile. But I think it is worth mentioning that we still go on working disciplined on any cost and revenue areas. So having said that, Ingo, would you please introduce the new guidance? Yes. Firstly, I start with the operational KPIs. So it is something like an outflow of what you just said. So we guide on the postpaid customer a moderate increase with a stable ARPU. We guide on the freenet TV RGU, a stable development. And we guide on the Viper TV subscribers a solid growth. So it looks a little bit comparable to what we saw in 2019. And so therefore, it's a continuation of the business what we did in 2019. Then when I move to the financial KPIs, what we guide on the revenue, I think on the adjusted revenue without Motion because there was a revenue of more than CHF300 million in 2019. And we definitely will not do a hardware business in a size than what we did in 2019. So we reduced it because of the risk what I just discussed before. So on the base of this adjusted revenue, we guide a stable revenue in 2020. On the EBITDA, we reached €426,800,000 in 2019, which was including Motion of €2,600,000 So I have not adjusted it here, but the starting point is more the €425,000,000 than the $4.27 And therefore, with the new guidance range, what we published here with €415,000,000 to $435,000,000 we are totally in middle of the range with the result what we received in 2019. On the free cash flow side, we have we saw a free cash flow in 2019 of €249,000,000 Our guidance is $2.35 to €255,000,000 And here we have some explanations to the bridge for the free cash flow. The next page, what you can see here, why is the free cash flow guidance a little bit lower than the EBITDA guidance. If you compare it, this is because we increased the tax payments to €50,000,000 because it was relatively low in 2019. I'm not sure if it will really happen in 'twenty because we saw all these postponements in 'nineteen. And it could also be that we see that we will see the same postponement in 'twenty. And then definitely, the minus €50,000,000 will be too high. But I think we have to wait and see what happens. I think we are here on a conservative side to forecast minus €50,000,000 for the tax payments. If you look into the CapEx, we saw we see a figure of minus €40,000,000 What is already part of this minus €40,000,000 is the investment in the digital radio multiplex, what Christoph was talking about. It is not that big investment what we have to do here. It is something like 4,000,000 to €5,000,000 what we do have to invest in 2020, and this is part of the CapEx guidance already. Then I move to the financial policy for 2020 and for the midterm. On the leverage, we reduced the target on the leverage slightly from 3.5 to three point zero because what we think is for a company like FreeNet, three point zero is totally acceptable. Every leverage up to three point zero is acceptable. And if you compare it with the adjusted leverage, what we have today, which is 2.5, we are fully below this level and this target. Yes, correct, 4.8 is definitely higher. But this is what I said before, we have to put into consideration that we do have these assets on the balance sheet. Then for the equity ratio, currently, we have 27.3%. We have not changed our limit here. It is 25% as a lower limit. And then for the dividend policy, we already decided to propose a dividend of EUR 1.65. What we will propose to the Supervisory Board here and to the AGM for 2019, which has to be paid in 2020. And what we promise for the future is that we will pay at least 80% of the free cash flow. So we linked the dividend again to the free cash flow, what we did in earlier times, but we stopped it last year when we started with a new free cash flow guide with a new free cash flow definition. So it was something like a transition year here where we made some experiences with the new definition of the free cash flow. And now we are we fully confirm that we pay at least 80%. On Page 27, it's something like an attempt to make it a little bit clearer what this mean to you and what this mean to our shareholders. What you can see is that in 2018, we paid 80% of the free cash flow, which that time was something like 165,000,000 In 'nineteen or what we pay out in 'twenty is now that we can then say we will pay out 165,000,000 And what you see is 80% of our free cash flow would only be something like 199,000,000 of a minimum dividend. And therefore, what we decided this year is that we add €12,000,000 to it and pay out €165,000,000 So in the upcoming years, we will decide year by year what we do add to the 80%. So it is every time it will be a question of opportunities, what we do have in the market. If there are opportunities, maybe we would like to take them and to reduce the dividend slightly. But from today's point of view, we do not see these opportunities. So but it will be a case by case decision year by year. And but we definitely see the potential to pay a stable dividend in the future because we believe in our free cash flow guidance and the free cash flow would be definitely be high enough to pay €1.65 also in the following year. So saying this, I would close here and I would ask you to start the Q and The first question is from Christian Fangmann, HSBC. Yes, a couple of questions. The first one is on the dividend policy, which is obviously a new development. And linking it to free cash flow, think, is generally understandable. So it's fair to assume that if you don't see any real M and A opportunity that investors can still expect you to pay €165,000,000 And just in case there is something, you will deviate from that idea. The second one is on your plan with your Sunrise stake. I mean, you put out this new slightly adjusted leverage ambition. Realistically, I think net debt can only go down to those levels if you sell Sunrise. So what's your strategy now going forward on that one? I would be interested in your views. And then on the operations itself, it's my third question. On the free net price increase that you are evaluating right now, mean, under my estimates, it looks like it could add 8,000,000 to 10,000,000 of EBITDA, at least on an annualized basis, so obviously not fully impacting this year. So what do you expect in terms of financial net impact from that potentially? And is my math right? And then secondly, also, think, Christoph, you already alluded to the churn that you're expecting. So what is the risk if you do that? So maybe you can elaborate a bit on that. Yes. Thank you. First one, I think your interpretation of dividend is right. So if I was asked, I said, well, under normal circumstances, we will continue on the current level of 1.65%, but we want to make sure that anybody who invests is aware of the fact that given opportunities, we might deviate from that. On the Sunrise, once again, you're right with the leverage. At the same time, we see that they will continue to increase the dividend. We're taking a net after interest and financing interest of plus €40,000,000 So I think it is a very solid investment and a very risk free investment at this very moment. So we have also communicated to the management team in Sunrise that we are not at all reviewing our position right now. We are not planning to review it. We feel very comfortable with it. And we see and I think this is the underlying assumption of ours. We see a significant upside on their share price when the new management now delivers on what they promised. So I think that is a given. And also, our big shareholders support this position, same as our nonexecutive supervisory board. On FreeNet TV, yes, well, the intended increase is net approximately €1 which would then annualized pile up to €12,000,000 if there was no churn. But in parallel, there's also an increase in content cost, which eats up about onethree of it. So we would end up with, let's say, around the €8,000,000 that you have calculated. I think the math was right. Well, if you assume 55% extra churn or then this eats up half of it. And if it's 10%, then it eats up everything. This is how it is. It is but we still believe well, our assumption is that it's closer to 5% and more, but it's too early to say. We have done testing with existing customers, and we were below the 5%. So this is why it would, net net, on an annualized basis, contribute, at least on a gross margin level, anywhere between 4,000,000 and 6,000,000 And then we also need we need to see how we cope with other costs in the unit. So but it should have a positive net contribution on annualized basis in 2021. The next question is from Stephane Beyazian, MainFirst. Yes. Thank you. A first question on shops. Is it possible just to update us on the proportion of customer addition from shops versus online and whether you've seen any sign of shift or change in activity levels lately? And could you also update us on the total number of shops in the market because you mentioned that MNOs are reducing their number of shops. So whether you can give us an idea of, in proportion, what is that change you're seeing in the market? And I have a second question, and if that's possible on five gs that could be coming at the 2020, as you mentioned. Can you say a little more on the revenue share for the five gs customers versus the four gs customers? I'm just trying to see if there is any difference in contracts in the sense that Telefonica Deutschland has to put a lot of CapEx for five gs and is probably trying to monetize that as much as possible. So whether contracts for five gs customers would be relatively at same sort of margin percentage than four gs customers? Yes. Thanks for the question. I'll start with last one. Now the rev shares are the same for us. So there is no change to four gs. Currently, you can see that DTE is trying to charge a premium. We don't think that the premium on five gs is a sustainable model, first of all, because short term, we will not have enough coverage. I mean at the stage where coverage is there, then it's going to be a basically a commodity. And we also see that the Telefonica tariff portfolio, the new one they have launched with heavily increased data packages, that's more the trend of the market than the five gs as such. On the shop side, we are currently running five fifty locations. Out of those, approximately 200 are franchise, but we hold the lease contracts. And the franchisee has very limited freedom in choosing other assortment than the one that we have included. So we would say we control all the five fifty. DT has said that they would close down 200 of their 1,400 shops. We have now the final list of those. They offer it to their franchise partners. But we have also learned that they have and that's different from us. DT obviously has significant drops in the at least in some regions, significant drops in footfall. I was told that footfall in the fourth quarter was lower than in summertime. So I think their reaction is obvious. They have gone they have done they have speeded up their online business. They have speeded up their app based business. And as a consequence, they clean out the shops, which is, I think, a pure rational move. Vodafone has reduced the number of shops last year about 100. So we feel comfortable with our current number. We do not disclose the split in captives between shop and online. But I think I've said before that if we then look at total transactions across all our brands by channel, and that would also include MSH, we are around 50% online. Even in MSH, historically, it was 99% off line. But even in MSH, once again, I cannot disclose because they're listed company as well, but they have gained or they have moved or migrated a lot of their activities into online. The consequence for us is rather simple. It's same price in both channels. It needs a bit of discipline not to dilute your offers on in some of the online portals. But thanks to the fact that we have not one but 10 different brands or branded reseller brands, we are able to cope with that challenge. The next question is from Joshua Moos, Exane. Three questions for me, please. The first is just a slightly more strategic one. So you've talked on the call about potentially investing more and looking at this local hero strategy for the offline channel. But also the fact that you're pushing more into the online side of things with your MediaMarktSaturn contract. So for you right now, which of those two is the most important area of investment? And it would be great to get some idea of how you can take up the opportunity on the off line side in terms of buying more stores, renting more capacity and what that could mean for your future investment side there? And the second question I had was on the TV business. So obviously, going into next year, there's quite a few moving parts on EBITDA with both the B2B business, the freenet TV side and then the waipu aspects. It would be great to get an understanding of which of those EBITDA lines is going to go up, which are going down? And then specifically on Waipu, whether or not we will see overall EBITDA breakeven next year? And then finally, I just wanted to check on the MediaMarktSaturn partnership. Do you have exclusivity to sell DT and Vodafone products on the online channel? Or does exclusivity partnership only extend to the offline side of things? Yes. Thank you, Josh, for the question. The exclusivity is cross channel. So that was the last question. On the TV and media side, I think the broad the overall media broadcast will be a stable EBITDA because we need to invest into DAB buildup, etcetera, etcetera. The price increase is only happening in May. On the vouchers, it will only have half of the impact even from the second half of the year. So it will be minor. So overall, flat and WIPO significantly improving over the year with, as I said, a breakeven by the end of the year and certainly the projection that in 2021, Exeling will have a positive EBITDA contribution overall. What I was referring to on the shops, maybe I was not clear enough. We will not I mean, let's take whatever a high street or let's take a little city. And today, we have a DT shop or two DT shops and one shop from us. So since we know now who is which of those DARE shops will shut down, We basically what we we review our marketing plans for local marketing. We are not planning to extend locations. But as long as I know that Vodafone, Telefonica and ours and DT, we are competing in one and the same little area about the customer. Investment is different from, oh my god, in an ideal world, I'm all alone by myself. Yes? And we have a shop in a little really little city in Neuerupin in Mechlenburg Vorpommern, and we are all alone there. There is no other telco with an own shop. Certainly, this local shop gets much higher marketing funds from us because they can really basically absorb the entire potential, whereas a high street shop in Munich, which is door to door to Deutsche Telekom, local marketing will basically, it's wasting money. So this is I mean it's more an operational methodology than a difference in investment. The next question is from Jonas Blum, Warburg Research. Yes, good morning. Thanks for taking the questions. Just three follow ups from my side. Firstly, I was just wondering, since you obviously got a pretty decent stationary sales exposure, if you see any risk upcoming from the current political discussions about the length of mobile tariffs and the terms of notice? I mean, know you are partially anticipating such a trend with your free net fund tariff, but it's not significantly growing or it didn't significantly grow in Q4 twenty nineteen, that's the first. And second, just around digital lifestyle revenues, I mean, pretty decent move in Q4 twenty nineteen. Could you just explain a little bit more about the drivers behind this business? And is there any risk of your current deconsolidation of Motion TM? And thirdly, around your Media relationship. And obviously, as I understood correct, you are trying to move more of this business into the online channels of MediaSaturn. So do you see any risk here of now more competing with no frills brands and perhaps also see some pressure in pricing then coming up from a higher online exposure? Yes. First one, yes, twelve months contract risk, while we I don't know if this is applicable or if I say I still do not believe it's going to happen because the original intention of the politicians is to make life easier for the customer. And it's the opposite because, well, obviously, the subsidy or the payment on the phone will go higher. And there is tons of lobbying, not only from our industry but from many industries. So I still don't believe it's happening. But nevertheless, we have prepared all our processes into that direction. And maybe I can refer to the concept of Telefonica. They have they offer today as a company to their to the SIM card, they offer hardware, and the end consumer can then decide whether they want the lease twelve months, twenty four months, thirty six months, up to forty eight months. We and we know from our market research that this is very successful and highly accepted with the customers. So basically, we copy we would copy paste there My Handy offering. So overall, we do not think it's going to impact the business. It's going to we need to change incentive schemes. We need to change our churn management. But overall, we think we are well prepared. But once again, we do not believe it's going to happen. The digital lifestyle, I think the driving for so the Motion TM is totally out of digital lifestyle, no impact at all. The major drivers is, well, you need some hit products. If you're lucky and discover the one hit product, then you're doing better. Give you a flavor, there's all these Bluetooth headsets, cordless headsets. The big brands like Samsung, Sony and Apple, they or Jabra, they have products from €150 to €500 Together with our partner, we have developed one which was €99 And this was a breakthrough because suddenly, people that before that had paid for a cord compound headset, 40, they were ready to move. So these are the kind of like simple innovations that drive it. And the Christmas quarter was really strong. That was driven by the accessories. While I'm looking for examples, where we have in about 100 shops, we offer an individually printed cover. It's called My Design. And in those 100 shops, the sales of covers increased by 40%. So it's I mean, this is all I mean, this is retail is detailed. It takes you need to be lucky once every now and then, and you need to work on the details and you need to make sure that you do not expose to any high stock or overstock write downs and things like that. And this is why we have outsourced the entire handling of this to a third party. Finally, on MSH. Well, the good thing on MSH is that even if they move online, the majority of their online transaction is click and collect. So they do not compete on the SIM only area but on the subsidized handset area. And this is why it does not damage our margin and ARPU on their side when they move online. The next question is from Usman Ghazi, Berenberg. I've got three questions, please. The first one was just on your reference the reference you made right at the start of the presentation on Benitsa playing a more active role as a referee or taking their referee roles seriously. I mean, could you perhaps give an example of what you're seeing differently from them relative to the past? The second question was just on, again, the SHOP strategy and the leverageddividend kind of policy that you've laid out. So you've said that minimum, you're going to pay out 80%. If there's an M and A opportunity or something, then you might not pay the $165 But you've also said that, well, there doesn't seem to be any big M and A plans on extending the shop footprint. So I mean is your comment around M and A and the dividend, is this just I mean, what are the M and A opportunities that you see potentially? I mean, it in the TV area? Is it something else? And then just finally, on the comment regarding an OTT partnership on Waipu. I mean if, let's say, a big name partnership was to happen this year for Waipu, I mean could you lay out for us what that could mean in terms of brand or commercial momentum or margin accretion or anything? I mean just if you were to see an announcement tomorrow, I mean we would know, okay, well, this is the potential upside from it? Yes. Thank you, Usman. First one, well, you will be surprised that I mean, I have not had a meeting with the regulator. My first meeting, I think, was in 02/2009. It was kind of welcome coffee. And then I have seen them again in 2016, and I was sent away with, could you please fix it with the network operators? This is our relationship. And since we have last year had the auction, my colleague, Riekmann von Blatten, had a dozen of meetings there, and he is now seeing the regulator almost every month for a hearing. What's going on? Is there anything we need to double check and so on and so forth? So from being totally absent and being no, please don't involve us, we are now in, can you please tell us what's going on? Is there anything we need to look at? That's the difference. On the M and A, I think what Ingo was trying to say, he was trying to illustrate the conceptional thought on the 80% plus. So the word M and A is not meant as a yes, it's only about M and A. It's about the conceptional idea. If there is anything special, it could be, hey, guys, suddenly, the hockey stick on IPTV is coming. We would like to invest more. And then we do not deviate from our idea, yes, by doing this. So there is no M and A plan or matrix right now in place, which would do that. And on the Waipu thing, well, I think it's two things. I think it will not materially change the financials of the product. But if we had a partnership with a significant third party, that might have an impact on customer loyalty, That might have an impact on cross selling in both directions. That would cause, hopefully, a word-of-mouth marketing message. So I would more consider it as a, well, marketing and CRM impact than an immediate financial impact because the real big names are not known for giving third party big margins. Okay. Great. Could I just perhaps have a follow-up just on the pretty interesting comments you made on the Binette's interaction? I mean what, if anything, is there concern that has made them more engage more frequently with you now? Well, I think it was actually the story lining during the auction. When the first draft of the auction rules came out, it said like there is nothing to we do not need to do anything. We do not need to protect because competition is making the match anyway. And then we gave them for example, we gave them lists of our conditions, how they have impacted with the change of data, etcetera, etcetera. And he said, well, but obviously, there is a need for us to go in. So we have for the first time after years, they were ready to listen and to review some of the problems we have. And then they suddenly, oh, we have underestimated it. Sorry for not being active before. The next question is from Henri Schrater, Jefferies. Also three questions from my side. First one would be in your at the very beginning of your prepared remarks, you sort of talked about the guidance for 2020 saying you need a range. Could you maybe talk a bit about what scenarios would get you to the bottom end of the EBITDA range and what scenarios would get you to the top? Is that more a question of the competitive dynamics or how you see the opportunities evolve or do you see the maximalities, which you alluded to already? Second question is on XLRing. I understood previously you sort of thought about this because of its strong growth as an investment area that could maybe be 50,000,000 or so a year of investments and that would grow very strongly as a result. Now you're saying they're turning to profitability. Could you sort of explain at what point you decided that it's better to drive this into profitability rather than have a continuing invest into growth? And my third question is, again, the dividend. Let's now talk about the guidance. Let's look this decision to keep it at €1.65 I think there were sort of discussions in the market that you openly discussed the gives and takes around that. There was a possibility in the internal considerations to cut the dividend at this point, as I understand it. What has made you decide to hold it at this stage? Is it simply the issue of no opportunity in the way that the guidance is now framed? Or is there other reasons? My understanding was previously, particularly in Guarnard, you sort of described the leverage situation as something that you want to use the leverage really. That was sort of one of the issues you talked about quite a lot initially. Could you sort of describe the decision for this year in those terms? Yes. Yes, we can. On the first one, on the range, I mean, to give you a day to day example, we have now been informed, and I cannot name the brand, but we've informed we've been informed by two brands that their supply chain is stuck right now. And the market will run out of specific hardware over the next two or three weeks. And we do not know when it's recovering. So it may well be that there is delayed adoption of new hardware, and immediately, this might have an impact of a few million euros up and down. And I take just that day to day example to tell you, well, this is why we want to have a range. There is no concrete ups and downs right now, but we have seen last year that those things happen and may impact. And this is why we my comment was I feel more comfortable doing again a range than in couple of years ago where we were like super precise. On the AXA ring thing, well, we did not change our mind. But the fact is that we have we've been able to grow with a net add of more than 150,000 in the course of 2019. If the which I think is satisfying and fulfills what we were planning. But very honestly, when we started to go into that business, we thought that the adoption rate might be faster. So the sustainability of the old courts of the satellite is much stronger than we thought. This is why, at this stage, we do not see an opportunity to grow financially reasonable and to 800,000 or 900,000 next year. So if this was the case, then we would go back. If one day, it turns over and we realize suddenly, oh my god, now the market's coming, then we will certainly invest, and then we need to review many of our elements. But we'll make very clear to the market why we do so, why we might be on the lower end of the range, why we overinvest into a certain area. But right now, it feels that a growth of 150, 200 net adds a year is the right move, and we prefer to do that reasonable unless and not to overinvest and do a pay a check or do a bet on later paybacks. And on the dividend, sorry, yes? On the dividend, yes, you are totally correct, Ulrich. So for me, it is the leverage is very important. It's still very important. And therefore, I reduced the target, the leverage target to three point zero because what I think is that for the company, in the midterm, it is important, and therefore, it's a medium term target. In the midterm, it is important to show a leverage which is below 3%. And it is still one of the most important targets what I have here. But on the other side, what I see is that I have a Sunrise investment, which is very, very successful, where I get a very high dividend and I pay very low interest rates. So the carry what I get out of it is very good. So I do not like to be in a hurry to sell the stake even if it is only a financial investment. But at the moment, it is a very successful financial investment. And therefore, at the moment, we have not taken any decision to sell our stake there. And therefore, I think it is important to see if we would sell it, then we would have a leverage which is 2.5, which is totally fine for our company. But in the meantime, as we have the good investment, we accept a 4.8%, even if 4.8% on a without putting the Sunrise stake into consideration would be too high for our company, but putting it into consideration, I'm fine with it. So I think it is and therefore, if I would reduce the dividend, and I think this is simple math, and I'm very, very honest here, if I would reduce the dividend by €0.20 or whatever, This would not change the world on the leverage side. And this is what some of you said earlier in the call. If we would reduce, only reducing the dividend would not lead us to reach the medium target of the leverage. So the only possibility, earlier or later, will be to sell the Sunrise stake. This is correct, and this is obvious. Perfectly clear. If I may add one comment there. I think we were ready to discuss during the course of last year with many of you and but also with our bigger shareholders on how the dividend policy should look like. And we could not find a good reason, an investment in five gs or something like that, to cut the dividend. And at the same time, we see that we are still a heavily cash generating business. So we have been sound walling for a number of months and came out with that decision that Ingo illustrated here. We feel extremely comfortable with it. The next question is from Wolfgang Spech, Bankhaus Lampe. Mr. Schpecht, we can't hear you at the moment. Maybe you put yourself on mute. Yes. Follow ups from my side. First, on the free net dividend. In your free cash flow bridge, you have a value of €40,000,000 that's even below last year's payout or this year's payout, while Sunrise is guiding for an increase of dividend. Do you open up there some headroom for beating your free cash flow target? Or how can we look at that? And the second question on the midterm plans for free net TV. Are you expecting that you will be able to migrate a lot of these customers to your IPTV solution over time once the license runs out? Or what are your long term targets for Media Broadcast? And the third is just for housekeeping. The leverage target of below 3x, is this on adjusted terms or reported terms? Well, I'll start with the free net TV. I think the I mean, from the detailed analysis and market research and customer research, we know that there is the free net TV is kind of a long tail business. There is a proportion of those customers that, for whatever reason, they will not change technology. And we also monitor how many of those have connected devices. And for sure, if we have any indication that any of those customers is moving from DVPT to IP, then it is our duty to move them to our internal IP product. So internal cannibalization is certainly the much better alternative than to leave them to let them go to anybody else. On your leverage question, I already tried to explain it early on. Yes, it is on a reported leverage. This should be below 3% because otherwise, we would also already have reached it. And on your dividend question on the Sunrise dividend, yes, you are correct. On the today's FX rate between euro and Swiss francs, this would be more than €40,000,000 but we do not exactly know what the rate will be in April. And yes, it is around it, euros 40,000,000 here. We could also use it. It would not be wrong to use €45,000,000 and it would be even nearer to reality what I expect today. But I think this is not the big difference. And therefore, we have a range in the cash flow in the free cash flow guidance also. So yes, let it is conservative, let me put it this way. We have a follow-up question of Usamigazi, Berenberg. Just two follow ups, please. Firstly, just on the mobile segment, you said that the and we can see it from the EBITDA, I guess, I mean, there has been more marketing money spent in Q4. Just wondering if you could comment on how trading is looking like so far in 2020 on the back of those investments. And then the second question was on getting more out of the assets that you have. I mean, I guess, you have with ExaRing, you have that fiber network, which presumably in this current environment should attract more interest from infra funds. You have the assets from media broadcast, the equipment that's sitting on the towers. I mean is there any when you think about maybe taking advantage of interest from in passive infrastructure from various parties, is there anything that you could do to extract a bit more value out the passive infrastructure that you're holding on to? Well, on the yes, we are reviewing potential co investors. We are reviewing other businesses to be managed with that infrastructure. But so far, we have not did not come to a significant and long lasting solution, I would say. But we're certainly looking into all this. And on the first question on the postpaid, I mean, think, well, January and February were good, and I don't think that we will have the same problem as we had last year in the first quarter. That's as much as I can say. We have no further questions. So I would like to hand back to the speakers for some closing words. Yes. Thanks, everybody. Thanks for your patience and for your high interest. I think it was one of the longer of our calls. Thank you very much. I wish you all the best, and I wish you all that you stay away from the famous disease.