Morning, ladies and gentlemen, and welcome to the freenet conference call regarding the preliminary results of the fiscal year 2022. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Christoph Vilanek. Please go ahead.
Morning. Thanks for the introduction. Good morning, everybody, ladies and gentlemen, to our today's conference. In old tradition, we immediately start with our presentation. You've all seen the documentation that has been published yesterday night. We will give you the opportunity to discuss some more detail. Going into it, on the financial guidance level, you've all seen that revenues have been stable. This is kind of our old way to look at the business. Within these revenues, there's still approximately EUR 300 million hardware revenues in there which are not really contributing margin. Nevertheless, we are on the stable level. Even more important or very much more important is the development on the EBITDA.
We have been very successfully increasing the EBITDA in both key segments of the business. I would say across the board, even the small companies have done a great job. Their contribution to the overall picture is not significant, but it is a very good feeling that given the difficult circumstances the entire macroeconomic and microeconomic environment has given any company, we have been able to increase EBT by EUR 31 million or 7%. Overall, our return is now 18.7% after 17.4% in the previous year. I think that is a substantial increase, and the guidance that Ingo will talk about later is reflecting that also for the starting year, 2023.
Free cash flow also went up by 15% to close to EUR 250 million. By definition, from my individual perspective, the operational KPIs are even more important because they show the substance and the resilience of the business. We are happy, and that was really something that has a meaning also for the identification of all the 4,000 employees that we were crossing the 9 million subscriber line. I'm trying to translate this for the staff that almost 9, 11% of all Germans have a paid subscription with freenet, and I think that is something to be proud of.
total subs increasing by 260,000 or 2.9% to 9,042,000 in postpaid. A small increase, but a more significant one on freenet FUNK and FLEX. Overall mobile net adds 120,000. On the TV, things that we have seen and predicted is the fact that waipu.tv is starting a steeper trajectory, whereas freenet is going down. Also in the TV, the net adds amount 136,000.
Given a bit of a deeper insight on mobile services, you have seen that over the past quarters of the year, we had +15, +25, +29, and now +40,000 subscribers. There is a positive dynamic, and I think current trading in the 1st quarter of 2023 indicates that we are going on a similar level as Q3 and Q4 of the past year. What were the key things that have contributed to it? Once I think the consolidation under the umbrella brand freenet has eased internal processes, has given the opportunity to exploit some synergies, and some reduce some spendings.
The real positive effect will come in 2023, and that is a part of the things that might overcompensate or at least compensate the one-off effects that have helped in 2023. The brand consideration, and that is the indicator for the migration of the brand, has won 5 percentage points. That is on the visibility side. The unvisible piece, because it is one by one for the individual consumers, is that we are stepwise implementing the customer lifetime value concept, not only in renewals, but also in new customer acquisition. It has a significant impact on the mix of SIM-only and subsidized handsets.
I think Ingo, once again, will give you a bit more insight on how the good mobile result has occurred, but that is one of the fundamental pillars on which we have created the better gross margin. More specific individual offers, creating more value on our side without the end consumer perceiving a price increase, but a better tariff. There's 2 things that we have also communicated during the year. We have prolonged exclusive contract with MediaMarktSaturn till 2027, and we have also now in January, finally signed the deal with Capita for another 7 years on our customer care. It gives us a solid planning framework, and prohibits us from any surprises on that end.
We're very happy about the cooperation, and I think both companies were happy to sign the deal. The thing that we have launched in 2023 is our freenet TV freenet Internet offer. The offer, and we have told you that, is basically limited to a app, to an app. People can hook up to the app, check whether what kind of connectivity and what kind of bandwidth we are able to provide seamlessly from the technology. There's one single price, and that also indicates that during the lifetime, we might be deciding that changing technology or access technology for the end consumer is an option for us. For EUR 29.99, people get full access. We have started with the pure LTE.
We are now doing from February, actually, the DSL on copper cable or copper line. We are in progress to add cable, and we have also agreed now with the first regional providers of fiber to do their services. I think it was a long process to access or re-access the broadband. business, but it certainly will contribute to our bottom line and also to the quadruple offers of the company. No wonder we are very happy and proud of the team in Munich of Exaring AG. These are the 68 individuals that have generated or created and the waipu.tv and generate the traffic and the consumers.
By the turn of the year, we had 970,000 subscribers. This is an increase of about 250 from previous year. You also indicate on the chart that we have crossed the line of 1 million subscribers. My guesswork, current trading for Q1 will be 1,040,000, 1,045,000. This is prior to any migration with Deutsche Glasfaser. Deutsche Glasfaser currently holds 100,000 active TV subscribers. We have agreed with them to migrate them straight to waipu.tv. Due to management changes and a couple of technical questions, this has been postponed by the Deutsche Glasfaser. This will kick in anywhere in Q2 or Q3. It's just a postponement, but we expect 100,000 from them.
Well, if you add that to the current development, my personal feeling is that this year, if all goes well, we should go beyond 1.4 million towards 1.5 million. Some of you have already asked, 2025, what is the critical size? Well, I have chosen that terminology because it's hard to actually predict a 3-year trajectory curve. Critical size means what is a number of subscribers where content providers are knocking the door or giving us the license? You have all seen that Disney+ is already drawing back their pure exclusive subscription and giving their content to third party.
I think, if you have Germany around anywhere between, well, I would say 2.5 million-3 million subscribers, then you're suddenly so important that none of the content providers will let you aside. That is what we're aiming for. Difficult to predict a clear date, but I think that should indicate that we are self-confident on a very positive development, thanks to an excellent product, and thanks to a super satisfied customer base. The mid numbers on the lower end, I think, they are for your modeling. On the next page, we give a little overview on the total TV and media. I already spoke about waipu.tv.
Freenet TV, we have increased the prices. Subscribers go down, EBITDA is stable. In Media Broadcast, I think everything that they have created over the past 18 months is now paying back, very solid midterm perspective, a very stable EBITDA projection for the next 2, 3 years. We're very happy about that. The radio, the owned radio business with our 4, 5 radio channels on digital audio broadcast, up and running, doing well. We're still in an investment phase. This is a 50/50 joint venture with another German media company. You won't see the results anyway in EBITDA, but in financial results.
I think it's worth mentioning that they really will still have a negative contribution this year. Most likely turn into positive in 2024. Finally, on the past year, and then I give you a quick outlook, I think ESG or CSR has one in perception within not only the board, but also with the individual staff. We have set a number of goals, explicitly the green electricity, and a couple of other things in our so-called company goals. The company goals, we have the same goals for any individual in the company. Obviously, the executive board is measured at 100%, on 100%, variable level on these company goals, but also every individual in the company is measured.
We have put a green electricity into that. We will have most likely this year things like individual participation in development education. I think these things have created a momentum and a positive attitude across the board. We are working hard on gender balance. On the non-executive, we are doing really well. We are both, Ingo and myself, very happy that Nicole Engenhardt-Gille is our Executive Board Member for HR and ESG. I think the fact that finally we have somebody, a lady on the board is a good signal to the entire company. I can also say that on the second level, if I look at my direct reports, I have a 50/50 range. I think diversity is gaining momentum as well. What are our key ambitions?
We want to decrease the CO₂ emissions to zero within the next seven years. We need to work on the increase of employer attractiveness, and we want to improve the learning culture and the skills development, given the fact of social demographics in Germany. For me, and I hope you will also follow that thought, these three sound like goals that are made for ESG, but in fact, they are all also paying back in returns, EBITDA, and bottom line. I think that is something that took a little while for us to make these things congruent so that they contribute to any interest of shareholders, dividend expectation, internal measurement, but also on the pure ecological side.
To finish that off, looking into 2023, I think there's the obvious developments that we have already mentioned in the looking back. I expect moderate growth in post-paid subscribers. I expect a strong development on waipu, and we will continue to lose on freenet TV. Let me give you one more hint for the TV side. We have a final product now, a Hybrid TV Stick that can contribute or can make both technologies available to individual customers. The product is now in a testing phase and should be available from mid-summer. We will then start to actively cannibalize ourselves.
I think it is fact that we're losing freenet TV customers to the market, is something that is, well, technology-driven and was expected from our side. Now the name of the game is to make sure that they stay within the group and switch to our technology, and I think the Hybrid TV Stick will be a good tool to secure that. Having said that, I'd like to hand over to Ingo and for the deep dive into the numbers.
Yeah, good morning, everybody from my side. I start on page 12 with the group view. I think based on all these positive operational developments, what Christoph already described, I think it is not a surprise that in financials, we have seen a very strong year 2022 from my point of view, and especially a strong Q4. On the revenue side, already mentioned, it is a stable development what we have. I think good news is that low margin revenues decreased and a high margin or better quality revenues increased. On the gross profit side, a very strong quarter, driven by mobile, definitely. Also in TV, there is an increase in the fourth quarter.
But all in for the whole year, a very strong development in gross profit. I think this is the good part of the story, that on both sides, we grow the EBITDA on the one side from increasing gross profits and on the other side from decreasing SG&A. From my point of view, a very, very good development. I think we increased the guidance already during the year on an EBITDA level. Now we are even on the high end of the new guidance, what we already changed during the year. I think it's a very good development on the group level. Moving to mobile. Teah, I think the story on revenues is the same.
I think here you do see that we do more SIM-only contracts in the business. Therefore, less hardware revenues, especially in the fourth quarter. As already mentioned, what you can see if you look into the service revenues, the share of the service revenues increased further. Therefore, we are even with the development here of the revenues, we are happy because we focus on the bottom line. As already mentioned from Christoph, we do not focus that much on the top line. On the gross profit side, there is a growth in the in 2022, and the margin improved. I think, yes, it looks relatively strong, what we see here with an increase of EUR 12 million.
Maybe this is, maybe I give you one insight in the contracts or in the targets, what we do have, especially with the MNOs, but also with all partners. Some of the targets, you do not exactly know during the year if you do reach the target. It is difficult to do an accounting during the year. When you reach a lot of these targets in the fourth quarter, then the fourth quarter looks better than the whole year. What I think up to now, we do not have another possibility to show it. I would say it's definitely a one-off in the fourth quarter, but it is not extraordinary for the whole year, what we show here.
I think this is important to mention. We really showed a good performance during the year. Now this is the outcome out of this good performance, that all in there was an increase of the gross profit of 3.2%. Moving to the EBITDA, here I think what helps here is that the Q4 2021 was relatively low because there we have built some provisions in the fourth quarter 2021, which we have not released yet, but which are still there, but there were not built new provisions in the fourth quarter 2022. This explains the increase on the SG&A side.
All in, from my point of view, a very, very stable picture in the mobile business. We are of very good mood for 2023 here. Moving to some KPIs in the mobile business. Customer base was already discussed. ARPU is stable. Therefore, I think, not surprising, if there is an increase in customer base and a stable ARPU, then all in you have an increase in the service revenues. What was really successful and what makes me especially happy was the Digital Lifestyle development in the fourth quarter. First, what we saw during the year was it was difficult to increase it quarter by quarter. In the third quarter, there was the first small increase in Digital Lifestyle revenues.
The fourth quarter was relatively strong now with an increase of EUR 8.4 million or 16% in the Digital Lifestyle revenues. We were especially happy about this development in the fourth quarter. Moving to TV and media. On the revenue side, here is an increase of the revenues by EUR 12.6 million in the fourth quarter. I think here a part of it is that we sold some waipu.tv sticks already to Deutsche Glasfaser, even as they have not started to use these sticks as described earlier. We already sold these sticks to Deutsche Glasfaser, and therefore we generated an additional extraordinary revenue here.
Even without this revenue, there would be an increase because I think it's logic that with more customers, we generate more revenues, and this is something what we do see here. Moving to the gross profit of the TV and media segment, starting maybe with the freenet TV, decreasing customers but stable gross profit because of the price increases, what we initiated during 22 in the B2B business of Media Broadcast. Again, an increase on the gross profit side because of the digital radio business. In waipu.tv, a very, very strong increase of the gross profit during the year with the increase of customers here.
Moving to the EBITDA, again, in freenet TV, a slight increase because on the one hand, there was the price increase, on the other hand, there was a reduction in marketing costs. All in, there was an increase of the EBITDA in freenet TV, even with the decreasing number of customers. In the B2B business of Media Broadcast, there was an increase of EUR 9.8 million on a yearly basis. On the one hand, again, from the gross profit side, the digital radio effect, but on the other hand, we were very cost optimized here, and we reduced costs wherever it was possible. I think the whole team did a very good job here.
In the waipu.tv, yeah, maybe on the first look, a little bit disappointing what we do see here with an increase of the EBITDA by only EUR 2 million on a yearly basis compared to the strong increase in the gross profit. Here was one special effect in the fourth quarter because the employees there, they do have some phantom stocks, and because of the very, very good success, the value of these phantom stocks increased, and therefore the EBITDA decreased by something like EUR 2.5 million. What we also did during 2022, and I think we discussed it very often, we increased the marketing cost at waipu.tv to accelerate the growth. I think we see the acceleration, and in the long run, the profit would also increase.
Basically some additional marketing invest of something like EUR 3 million-EUR 4 million in 2022 were necessary. If you would leave this out, also the waipu.tv EBITDA development would be very, very strong. Moving to the free cash flow on page 16. I think we reached EUR 249.2 million. At the end, there was a decrease in the working capital, because I think what is normal is the payment to MediaMarktSaturn, which is shown here for the exclusivity. On the other hand, there is, again, a reduction of factoring during 2022. Our outstanding factoring at the moment is only EUR 25 million on handsets here. As you may remember, some years ago, it was EUR 100 million.
Step by step, we could reduce the outstanding factoring. At the end of the day, the factoring is off balance, but it is to make the balance sheet more healthy, even if it is outside, and to reduce the interest costs. I think explainable development in the networking capital on the tax payment side, it's something like EUR 30 million. I think this is something what we used to have. With the increasing profits, there will be an increase in tax payments in the following years. In CapEx, a little bit higher this year with the EUR 60 million, which was already anticipated during the year because we had the renovation of our headquarter building, and this was an investment of something like EUR 10 million in 2022.
Therefore higher CapEx in 2022. Leases, I think on a similar level than 2021. Interest payments, definitely lower because the outstanding debt is lower, and so therefore a lower interest figure. In 2022, we received from Ceconomy a dividend of EUR 5.5 million. All in, the EUR 249 million. As promised, and as part of our financial policy, now, I think we have to pay out 80% of the free cash flow, which is EUR 1.68. This is something what we will propose to the AGM in May. We will wait and see what happens. Moving to the balance sheet on page 17.
I think what is, what is important to say here is all the figures are under control. It's a high equity ratio, a low leverage. The bank debt leverage is only 0.8. If you look into the future, may be important to know that we still have a revolving line with banks of EUR 300 million, which is not used. I think earlier or later, we will have to refinance part of the portfolio here. With this revolving line in the back, I think or I expect it to work fine. Moving now with an outlook to the guidance for 2023. I think the subscriber guidance was already described by Christoph Vilanek. I would like to focus on the financial guidance. Revenue, still stable.
As discussed earlier, it is not our top focus, but we think this is something what we can promise here, that we will keep it stable. Much more important from my point of view is the EBITDA. We guide an EBITDA between EUR 480 million and EUR 500 million. I think this is something like a milestone. I think EUR 500 million is the upper end of the guidance, but I cannot remember that we discussed such a high amount. We are totally on the route to reach the 2025 ambition, what we published was an EBITDA of more than EUR 520 million, EUR 520 million in 2025.
On the free cash flow development, which is nearly comparable, and definitely as we have not changed our financial policy.
It seems like we have lost the connection to the speakers. I will call them back immediately. Just a second, please.
Okay, here we are again. Sorry for the interruption. I would, I think I would put notes. I do not know exactly when we stopped. I think, if you have additional questions about the EBITDA to free cash flow bits afterwards, we could answer them. Also through the quarterly breakdown. Now I would handle over to the operator to start the Q&A.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to cancel your question, press 9 and the star key again. Please press 9 and the star key now to state your question. The 1st question comes from Polo Tang. Please go ahead.
Yeah, hi. Thanks for taking the questions. I have three. The first question is really just about competitive dynamics in the German mobile market. Can you comment on what you're seeing, and where is your view on the recent round of price rises that you've seen in the market? Second question is really just more detail in terms of the mobile business. You saw a quite sharp drop in handset sales in Q4. Can you talk through whether there's been any recovery in handset sales in Q1 of this year? And, you know, are you seeing any signs of pressure in terms of the German consumer?
Just on mobile, earlier in the presentation, you mentioned there was a release of provisions that helped mobile EBITDA in Q4, but can you quantify what the impact of this was? My final question is really just about the guidance in terms of EBITDA. You've guided towards modest EBITDA growth for the full year, but can you talk about how we should think about the quarterly phasing of that growth? Specifically, I'm just trying to understand whether there will be any upfront costs in terms of migrating the Deutsche Glasfaser TV subscribers in Q2, Q3 that could have impact the profile in terms of EBITDA. Thank you.
Yeah, thanks, Polo, for those questions. I think it's gonna take them from my side. Positive dynamics, I think we have put one line in there. We see more and more irrational behavior. I would say it's a rather silent. I think all the market participants are trying to be, yeah, rational. If I go through one by one, Deutsche Telekom is still focusing on their premium proposition. I think the offer they give to their premium Magenta L and XL customers, to add SIM cards that maybe family members have with discounters, is a smart strategy on their end. I think you've all seen that, what they call group or family tariffs. We are adopting them.
I think we're gonna start a test with in our customer base the other next month. It's different for us because our share of these kind of tariff plans, high end 50+ EUR, is smaller. I think this is where they really do a fine job. I see Srini Gopalan spending less on promotions. I think he redressed the company to be very careful on additional spendings, keeping prices up. I think Telefónica, we have to say that Markus Haas and his team have done a brilliant job on the network as such, also on the network perception.
I think end consumers and also business consumers appreciate that the Telefónica network in Germany has done, at least in the big cities, a big substantial improvement, and is on a eye-to-eye level with the other two. Furthermore, I think they do a good job in rolling the dice very consequently, no big changes. I think the cable launch is still a little late, and I think as far as we understand, they are doing big e-migrations, which will make them even stronger. On the price side, and we see them on a daily basis in MediaMarktSaturn, they are kind of like 5 meters away. They are not extending their offers significantly.
On the, let's say, normal offerings or average ARPU business, they are very stable as well. These price increases that they have done are limited to prepaid offers. I was a bit surprised that the press and the capital markets was taking this so serious. If you really look into it's a very small segment, and the increases, I think they were overdue on prepaid, I have to say. And, I think the one that really has the biggest challenges is Vodafone. I think the new CEO, Philippe Rogge, is cleaning up the table. He's now 6 months on board. We have had a couple of good conversations with him.
We have also seen that for the first quarter, they have cut their commissions to us, but also to all their other partners, meaning their own shops, franchise and third-party dealers. Any of the sales channels, including ourselves, have taken that money out of the offers, which means that handsets might be a bit more expensive with them. We take this from the end consumer, or we roll it over to the end consumer. We will see how long Vodafone will keep this policy. I emphasize that it's not hurting our bottom line, but it hurts our in-house share on Vodafone.
Right now we have, I think January was the first month, after two years, that Vodafone was not the strongest network within our customer acquisition. There is a change. Once again, I mean, this is why we are happy to have three networks. It doesn't hurt, it doesn't hurt so much, but it is, looking at the market dynamics, I think it's a more relevant topic than the price raises on the prepaid side. Your second question was on handset sales. I think Ingo and myself, we have, and also the IR team has put a lot of emphasis. This is something which, well, it's driven by, one, availability, B, mix of SIM-only and subsidy. We have seen little or no innovation on the hardware side as such.
We are, compared to the others, we have a lower Apple in-house market share. If there is no innovation, no news, then hardware sales go down. We are not particularly keen on it. This is also valid for GRAVIS. You know that we have that 37 Apple stores, and we're doing a good EUR 250 million there. This is a business which we do opportunistically, but it is not an emphasis on our daily agenda. It's hard for me to give an outlook. I would say I would envision it for the 2023 year, for the running year, on a stable level.
There might be exceptions if there are special offers. To give you a flavor, last year Samsung said they gave us a special offer for their S23, and they would give any customer who would bring back an old handset, they would give a 100 EUR free voucher to buy the very new one. These are activities that suddenly generate additional revenues. We certainly do that and likes to do that with our partner Samsung, but it is not something which is substantial to the business. It is a, well, a normal float within their plan and within their sales opportunities.
While we have released a provision of EUR 6 million in. This was an M&O extra. We have reached one of the top targets, and then we have we've gotten an extra from them. That was the exceptions item that we have been mentioning. The last question was on the potential migration of Deutsche Glasfaser. The investment that we do is a non-investment because we sell the sticks to Deutsche Glasfaser. As Ingo mentioned, part of it was already sold because they were originally planning to exchange the hardware with their customers already in Q1. If this is gonna happen, they will basically purchase the sticks from our side at cost.
It has no impact or seasonality effect on EBITDA of waipu.
Clear. Thank you. The next question comes from Martin Hammerschmidt. Please go ahead.
Yeah. Thank you for taking my questions. I have a couple as well, please. Coming back to the mobile EBITDA, I think you just mentioned sort of the EUR 6 million, sort of provision release from an M&O. Could you sort of walk us through the rest of the growth component? I mean, previously you mentioned obviously the customer growth. So I know bad debt, if that has improved. So could you maybe just help us dissect what was driving sort of quite strong, mobile EBITDA, please? Then sort of on waipu.tv, so the growth, do you think you can achieve the growth at the same investment levels?
Should we expect the overall TV EBITDA to decline in 2023, given sort of the fourth quarter had a bit of a weaker EBITDA, but quite strong net add? How should we think about that trajectory going forward? Thank you.
Okay. On the first one, I understand the question. The answer is, it's a breakdown. The individual contributions is going in too much detail. I think the effects are. Well, on the one hand side is volume. A higher net add and a better, higher subscriber base is contributing. This also affects if we do more transaction on own channels, then the fixed cost distribution on own channels is getting wider. That has an impact. This doesn't cause leases, et cetera. But also overhead. The mix of SIM-only versus subsidized handsets or subsidized contracts is a significant impact. Maybe just one number on that.
I mean, I think 3 years ago, or 3 or 4 years ago, we did not sell a single SIM-only in our own shops. We only did it on online. In 2023, 70,000 new contracts in our own captive shops were SIM-only. That has an impact because Well, it's not the initial, but SACs are lower. ARPU is a bit lower, net value of those customer is better within the first 24 months. That is an impact or has an impact. Same goes for, we have had with MediaMarktSaturn from the hardware industry, we had good support. If we get good support, we are able to sell a higher tariff plans in MediaMarktSaturn because...
Well, if the extra that we get for hardware sales is then put into the end consumer price of the one-time down payment, and vice versa, we can increase the tariff plans a bit. The smart pricing thing helps specifically on existing customer base. We define the offer for in renewals on an individual level, not on a segment or group or target group level, but on individual level. Well, if you add an euro here or there, this adds up. If you just think about, we are doing 1.3 million renewals a year. If you add on 20%, you add in euro too, then that is accumulating to a EUR 1 million contribution.
I think it is. I was, I think mentioning now four or five of the more important elements, but it is just an outcome of a very deep analytical approach to optimizing value with a total of, I guess, three, four dozen components. On waipu we are, with the EBITDA of waipu and the TV segment will grow in 2023. As you rightly pointed out, it is also a result of acquisition costs. Once again, I mean, SACs are expensed over the lifetime of the individual customers. The short-term seasonality effects that we have seen in the past, is not that dramatic.
As I said on the previous question, with partnerships like Deutsche Glasfaser, we actually have no acquisition costs. If we give them a revenue share in a kind of a wholesale model, that means that these customers come in at no individual costs, because the expenses are hardware, and this hardware is paid from Deutsche Glasfaser. Because either they give their existing customers a desktop, a set-top box, or they give us our stick. For them, it's the same, and for us it is a zero outcome. Net contribution per customer per month is a little lower. No impact from this side.
Great. Thank you. If I just maybe ask the mobile EBITDA question in a bit different way. I mean, that was very helpful on sort of in those 4 drivers. They seem to be all sustainable. If I now deduct sort of the EUR 6 million provision from the EUR 110 million, If I assume that most of those drivers are sustainable, is it reasonable to assume that the mobile EBITDA going forward per quarter should be above EUR 100 million versus in the last 4 quarters, it was always, like, around EUR 97 million-EUR 98 million? Just to help us understand how to model this going forward. Thank you.
Yeah. I think Martin, I think this is, it is reasonable. I think what you know, and what all of you know is that the fourth quarter 2021 was relatively weak, and I think this is also important to put into consideration. Therefore, the Q4 2022 looks that good, but it has also to do with the results from Q4 2021. I think you just have to put this into consideration. But I think look into the future, I think what you said is reasonable, too.
Great. Thank you very much.
The next question comes from Ulrich Rathe. Please go ahead.
Yeah. Hello, it's Ulrich Rathe at Soc Gen. I'd have three questions, please. The first one is regarding the midterm outlook. In November 2021, you laid out an EBITDA target, which you seem to be very much on track, but you also talked about free cash flow then. That free cash flow target looks a little bit conservative now because your top end of the, for this year's guidance is already above the target level. Now I would think you wouldn't want to change the midterm guidance in the Q&A of a conference call, but could you maybe discuss two things here? First, what has gone better than you thought in November 2021 in free cash flow?
Is it simply the DA, or is it working capital or other items in the free cash flow? Second, what factors could potentially weigh on cash conversion and the free cash flow progression from 2023 to 2025? That'd be my first question. The second one is shorter. What exactly has been done to the LTIP? I'm not talking about the accelerating one, but the LTIP change. My third question is, you mentioned that the refinancing could result in a higher interest level. In the free cash flow bridge 2023, the interests have shown pretty much at the same level as 2022. Is this simply not in the bridge as yet? Could this be an incremental sort of headwind for 2023?
How to think about this comment about potentially higher interest levels? Thank you very much.
Maybe, Ulrich, I start with the last one, with the refinancing. I think the net debt level is relatively stable, but on the other hand, the gross debt level is reduced. I think this is important because all time you have a negative effect between the interest, what you get and what you pay. I think here we optimize ourselves. With the refinancing, I think, as you know, I think the margin in the refinancing, maybe the margin will increase by 0.3 percentage points, something like this. The margin, there will be an increase in the margin, but compared to the financings which are outstanding, we have a much, much better balance sheet today.
I think on the margin, the difference, even in a harder, environment, will not change that much.
The level of interest of the Euribor at the end of the day, any way will be seen in all the variable financings will end in our P&L. At the end of the day, I do not expect that big changes from the refinancing and therefore I do not expect that big changes in the interest payment, what we do have to do.
On the free cash flow guidance or the midterm guidance, yeah, I definitely would say that EUR 260, what we told you in November 2021, it was a conservative one, but I think it's much easier to predict the EBITDA than the free cash flow because I think you have so many changes also on your operational side and we are not 100% sure today and therefore definitely I would not change it. We, for one example, a lot of tariffs what we sell today has a cashback part in it. We do not exactly know what happens with it.
Therefore I would stay on the conservative side today, even if I see that EUR 260 is already forecasted now for 2023. Definitely, I would not be too conservative today or but I think there are some angles which are not open. I would definitely say that in 2025, the free cash flow would be above EUR 260. This is something what I would say definitely, but I do not want to give you another figure today. I think maybe during the year anyway, we have to think about the ambition 2025 again. I think we will publish a, we will renew it and we'll definitely will not give you lower figures.
I think we have to discuss it again internally on a board level during the year. Maybe in November, I do not exactly know when, then we will give you new figures here. I think, yes, you are correct. Do I see risks? On which side I do see risks? I think not on the tech side, not on the CapEx side, not on the interest side. I think working capital is the question, what happens here? All of us, we cannot be 100% sure what happens and what mechanics in the business will change. I think these are the open points.
On the LTIP, I mean, the long-term incentive program for the executive board is based on the older number 4, which is the one that is now impacting the result, has a lever depending on the bottom line result of 2022. Since we have done really well in 2022, there was an adjustment needed. There was a yeah, a lever. The second one is, it's based on phantom stocks. When our share price is 2022 or 2023, it has an impact coming from 17 in 2029. There needed to be adjustments.
Got it. Can I just? The understanding for that LTIP, not the accelerating one, is that it wasn't a change to the program, it was simply that under the terms of the program, you had the one-off effect in the fourth quarter because you had to book the sort of the.
Three stages.
reaching the target.
Three stages.
Okay. Got it. Perfect. Thank you so much.
Perfect.
Thank you.
Thank you.
The next question comes from Usman Ghazi. Please go ahead.
Hi, everyone. I hope you can hear me okay. I had a question on on waipu.tv, please. Obviously we've seen quite a significant pickup in the net add momentum in Q4. You know, can you perhaps talk about what is going on in the market? You know, I mean, are these customers that you're seeing, are they cord cutting or are they, is there just more of an appetite to take OTT alongside, you know, more kind of legacy transmission technologies? Yeah, any, any kind of flavor you can give on, you know, what is driving the additional growth, whether it be in the market or are you taking shares? That would be interesting.
My second question was, you know, I guess a bit of a more strategic question. You know, if I look at the your comments on, you know, self-cannibalizing the DVB-T business, I guess it makes sense given, you know, the mobile network operators, you know, they're lobbying for the 600 MHz spectrum early.
Can you perhaps talk about, you know, if the DVB-T business was to move over to, let's say, you know, 5G technology, or, you know, it's cannibalized early so that the spectrum can be freed up, you know, what kind of impact do you see for yourself? I mean, do the economics improve relative to where we are today because you pay less in lease costs, or, you know, do you get a compensation payment, you know, for early release of the 600 MHz spectrum? Any kind of comments around that would be interesting. Thank you.
Usman, thanks for your questions. On the first one, waipu.tv momentum? First of all, what we see is that the conversion from free trials is better than in the past. That is no wonder because in 2020 and 2021 we gave 3-6 months free of charge, the conversion was decent but not satisfying, and we have changed that to 1 single month. That had a tip in the early 2022, but now we have found the right promotions, the right way to communicate it, improve CRM. Conversion from free trial is better. That is one element. The other one is that you are all aware that we're doing this, or Telefónica is also selling our product.
I think on Telefónica we see a step-by-step increasing number every other week, which just tells us that their organization is adapting it. It took a little while. We were honestly disappointed at the beginning, but they're like a big tank, you know. If they start running or you start moving, you can't stop them. I think they're doing better. The third one is, in general, the perception of IPTV is gaining momentum because all the local fiber operators and providers are selling TV as well.
The perception in the population is, "Oh, you can get TV from a different angle." I think also the fact that Disney+, Paramount+, and all the others have done a lot of advertising once again, creates a bigger well, it becomes more of a commodity to get the product over the Internet. Last but not least, I mean, we have now a package of 180 HD channels. 60 of them are exclusive pay channels that we put into a package which is super attractive. We have started a cooperation with DAZN. I'm still hoping that sooner or later we will get some of the other sports offers in Germany contracted.
I think Once again, it's a mix of operational excellence, a good content offer, and a broader perception of the IP opportunity in the market. The obvious question, and that goes already a little bit into the strategic direction. The obvious question that we have at a weekly basis with my operational meetings and on a monthly basis when Ingo and myself go for the business reviews is: How can we accelerate this? How big is the opportunity? And how can we take benefit from the loss of this next year and all the others?
I think we're discussing more how can we accelerate, and we are also discussing on what impact would it have if we put significantly more money into the brand and the brand recognition, which is compared to Deutsche Telekom or Vodafone, still super small. Moving on to the DVB-T. Happy to answer this. In that environment, I've given a statement 2 years ago, once in the press, suddenly all the operators, the TV operators came and said, like, "Are you already burying the DVB-T?" I had to do significant number of interviews to change it back. First of all, the spectrum is given to DVB-T in Germany till 2030.
The decision on whether this spectrum can be handed over to mobile operators is not a national decision, but a European decision. As you know, in France and in Italy and in Poland, the terrestrial share is higher than in Germany. It will not be possible to have a single decision on that spectrum just for Germany. The respective global meeting to discuss the topic is in, I think the big one is in 2024. As of today, I would expect no changes till 2030 on the spectrum side. Having said that, I like your idea, but I have to say that we had the idea ourselves.
We were already moving on last year to review whether we could do a deal with the Bundesnetzagentur, basically handing it back and what compensation or what we would call a digital dividend, we would get. This would definitely be lower than the EBITDA contribution that we get today from the business, carriage fees plus end consumer. We are, as of today, definitely no changes to DVB-T technology, structure and deployment before 2028. I think if then a decision was made for 2030, I think we will be ready to move on. If you move the whole thing to 5G, technology-wise, it is, I would say, handling, et cetera, is same cost.
Difference would be that the operators would not pay carriage fees at this level because they would assume the 5G broadcast is much more a commodity and does not need individual technology covering the entire country. The risk would be on the carriage fees, not on the subscription fees. On the sales cannibalization, I mean, the idea is rather simple. We would offer a freenet TV customer a waipu.tv for free, we would basically watch whether which one of the two they use, and they will be charged once. Our investment would be only the stick. If the consumer pays EUR 8.99 for it a month, it doesn't mean anything to us whether it's going into the one company or the other.
It is basically a seamless access offer. Take TV from the freenet Group, and we care on which technology is the best for you. That is the vision that we have. If we implement that, I think we can then, at a later stage, even if 2028 a decision was made, we would then have no additional impact on revenues and on EBITDA. That is hopefully an answer which outlines a little bit the functionalities.
Thank you very much for the detail. The next question comes from Titus Krahn. Please go ahead.
Hi, good morning, everyone. Thanks for presentation. Very comprehensive Q&A session as well. Just a couple of follow-up questions maybe from my side. First one, just because you already mentioned working capital and a little bit of follow-up on your 2023 free cash flow bridge. I think most elements are actually quite straightforward, but just one question again on this working capital. To what extent do the EUR 50 million outflow include reduction in factoring? What would be left after that year, given you just have EUR 25 million left then? Following that, would you expect maybe a lower level of working capital outflows from 2024 onwards? Would that be a fair assumption? Then quick one on your capital structure, given that you talked about your quite healthy balance sheet and net debt.
Just how would you weigh on the one side, maybe paying down some of the debt with the cash you have in the next couple of quarters versus potentially investing it in a share buyback as one option? The last question, just on the broadband launch, I mean, it has been quite recent, just pretty much a month going on, or even bit less. Can you give any numbers on traction you have so far on the DSL side? Also maybe, I know it's quite a number of factors playing into this, but what is your own ambition in terms of subscribers to achieve with the DSL launch by the end of the year?
Okay. Hi, Titus. Thanks a lot for your questions. I think from the working capital side, as you all may know, we have this special topic on the balance sheet that we have the liability versus MediaMarktSaturn of EUR 25 million a year, which is a liability based on the exclusivity right, what we do have there. I think this is something which is set. EUR -25 million in the working capital is the base for the calculation of a yearly figure. In 2023, it is the idea to reduce the factoring to 0. I think factoring is a little bit the mechanic what we could do faster or slower.
I think definitely it is the target to reduce it to zero. I think we will wait and see what happens during the year. Yes, I think these are the two components in 2023. And I think then we have to see. I already talked about operational changes. We do not know. And so I would be careful here. I think basically a normal working capital without any changes in payment rules would mean it should only be minus EUR 25 million. From today's point of view, I would be careful here. Would set minus EUR 50 million in the working capital also for the future.
Yeah, maybe call it a buffer, but I think we have to wait and see what happens. I would feel much happier if I do have the buffer, and then we will wait and see, because 2024 is far away from today's point of view. Let's, let's wait and see what happens. Your question on the debt and on the reduction of debt. I think yes. I think with the increasing interest rates, yeah, I think there is if you compare it with other possibilities to use the capital, yes, it looks more attractive than before to reduce the debt further. On the other side, we still do have a slow interest amount what we do have to pay, even with higher rates.
I think we have not. I think we have to discuss capital allocation during the year. And yeah, definitely also we will discuss the share buyback, but we have not decided yet, and I think we will wait and see what happens during the year, what cash is necessary for the business. Then I would say... I would not say it is impossible that we decide to do a share buyback, but what I can definitely say today is that it is not decided, and I think we will start now into the year, and then we will check it again. On the freenet Internet and DSL, I think we have to wait and see what happens here. We will start during the quarter.
I think, Christoph, I would not lay out a figure today. I think let's wait and see. I think we saw that we from the reselling what we did in earlier times, I think there is a potential for us and there's an interest from the customers to buy it. Especially with the app, we have to see how it works and. It's, I think it is too early to give a concrete figure here. We still stick to the EUR 15 million-EUR 25 million of EBITDA in 2025, but I think we have to see how fast this will work.
Thanks, Lars. Thank you.
Okay.
The next question comes from Francesca Schild. Please go ahead.
Great. Thanks very much. I've got three questions, please. Firstly, on the overachievement, achievements bonus you received in the mobile segment, can you please just clarify a bit more, what were the criteria for hitting the targets? Were all operators offering these bonuses or was it just one specific operator? For 2023, do you have any similar targets in place, and can we expect another bonus payment if you hit them? That was the first question. Second question, please. How many waipu.tv subscribers do you expect to add this year as a result of the Deutsche Glasfaser partnership? Thirdly, please, it looks like the run rate for 1Q 2023 waipu.tv is on track for more than 100,000 again.
Is this correct, or does the graphics on slide 8 include an addition from Deutsche Glasfaser already? Thank you.
Yeah. Thanks, Francesca. The first one on the bonus, for obvious reasons, we cannot disclose the bonus in detail, but in more general terms, the current situation is that we get bonus agreements with Vodafone and Deutsche Telekom. There is a variety of bonuses or extra payments, I would call it. They're typically based on the total generated cost of goods. To illustrate that, we pay on an individual SIM card basis, money to the operators depending on usage and tariff plans. Then we have an agreement that if this number goes beyond so and so, then we get an extra 1% or 2% or 3% discount. These numbers are made up. This is not concrete. It's just to illustrate.
That is the biggest share of bonus payments that we get. The second one is typically that they might have individual plans or internal goals, for example, data usage on 5G or extending share of wallet within a household, there are incentives schemes in place. And there is a lot of fantasy in many other things. We have seen a broad variety over the years. For our internal and external purposes, also for you on the modeling, we have the level of the total bonus payment over the last, I would say, in what, 10 years, was on a stable level, and that led to always the same kind of gross margin level that we have generated.
We are not expecting a deviation from that tradition in 2023. There was that 1 exceptional item because we have had 1 extra goal, and we were unsure whether we would meet it. That was a kind of a lucky punch, to be honest. I think we had a similar 1 in 2021 in Q4, that was a down payment on Deutsche Telekom, where we had that. They... But, I mean, for modeling and for internal planning purposes, we do always the same level, no deviations. On waipu, I said at the beginning that by the end of the year, I'm expecting a number between 1.4 and 1.5.
There is an initial approximately 100,000 current users on Deutsche Glasfaser on TV. From their perspective, we have not seen these customers, these numbers that they have given us, and we don't know what their usage is, and we don't know exactly what their consumption is. They, the Deutsche Glasfaser team told us that these are the ones that they want to do a hard migration. I would add to the today's 1 million something, 100,000 by the end of the year with this, and then if I add another 250 that we have done this year, you're on 350. We are currently on, by Q1, we will be on 1,040,000. This adds up to 1.4. As I said 1 point...
We are between 1.4 and 1.5. Sounds reasonable to me. If I look at current trading, net adds in waipu will be about 70,000 in Q1. That fits to the other number because 4 times the 70 would be 250-300, plus 100 from Deutsche Glasfaser. This is why I'm ending with anywhere between 1.4 and 1.5. If there are opportunities for more, we'd love to take them, and we will not stop the team on winning customers.
The next question comes from Adam Fox-Rumley. Please go ahead.
Thank you. I was gonna ask a question about a change of approach on marketing in waipu, but I think you basically said earlier that that is still under consideration. Maybe I can ask instead, whether or not there's anything you can say about the talks with other fiber providers, for instance, on bringing waipu as a platform to their networks. Then secondly, I just wanted to ask about the customer lifetime value improvements to the systems. Kind of conceptually, is that a continuous improvement approach to that, or should we expect a kind of step change in the capability of that, of your kind of back-end systems during the year that might more materially change the way that you move? Or is it just a kind of step-by-step iteration? Thank you.
On the first one, we're talking to almost any of the fiber providers. Obviously we're not talking to Deutsche Telekom because they have their own products, and the same goes for Vodafone because they still have their own products. We're talking to wilhelm.tel GmbH, to M-net, to NetCologne, to DNS:NET, and to a lot of the locals. We have also a framework agreement with BREKO. BREKO is the association of small operators. This is now a deep look into human psychology. Typically, these companies have started and have identified that TV is part of their portfolio. They have hired people to do TV. Now, 3 years later, they realize that the TV as such, with the small scale they run, is not making money.
Still they have dozens of people being busy with it. I mean, the real role model was Telefónica. They were smart enough to do it from the beginning with us. With all these companies, we're basically telling them, "Would you be ready to fire your internal people and to replace it by a third-party product?" What typically the CEOs do then, they walk into the TV units and say, "Can you please check what the differences are between our product and theirs?" This is real life of B2B sales. We are asking, we are asking the frog to dry out the pot, and this takes time. Yes, but we are working on this, and we have promising talks.
I'm not, I mean, A, I'm not seeing big size providers such as DGF aside of DGF. The second is it will take time. On the customer lifetime concept, I mean, once again, what we're trying to do is we came originally from kind of a one-size-fits-all renewal. We changed the renewal offers to based on tariff plans and customer behavior. The next phase was to include a projection on future data usage, within the renewal, tell the customer, "Give you more for more.
You should upgrade now to 2 GB or 3 GB or 5 GB or whatever. The next iteration is now to do that on not anymore on data usage and tariff plans, but on the individual usage, but also on the individual predicted readiness to pay. Basically purchase power of the individual. That leads to the fact that two individuals with same data usage and same tariff plans might, on the renewal, get a slightly different offer. The difference may vary from ±10%-15%. This is what's happening. It sounds easy.
It's technically rather sophisticated because you need to make sure that all these offers are consistent across all channels, so that the end consumer would not realize that if they go to the shop, they might get a different offer than they get online, et cetera, or in the app or in the self-service part of our digital offering. That is really what's happening. By the nature of this, the first, I would say, in total 4 years, it will take 4 years to have all our customers once migrated into the system. Then we will see how often we can raise the prices for the individual.
Is that a one-time effect because market, then their usage might not change, or we don't see that we see the conversion suffering from trying to increase one-time down payments or hardware offers. I think it is a positive concept, and it will help us to increase gross margin. I don't think we should not assume that this is something which you can continuously do on a 3% or 5% level. It is an ongoing, smooth, slow penetration of the entire customer base with the model, helping us to create gross margin and to conserve current profitability on mobile business.
Very interesting. Thank you very much. The next question goes to Zahir Ramcharan. Please go ahead.
Hi. Good morning, everyone. Thanks for all the information so far on mobile profitability, could we just revisit the moving parts again, please? I guess taking OpEx as the difference between EBITDA and gross profit, it looks to have declined about 8% year-on-year. That follows a 27% reduction in Q4 2020 to 2021. Now, if we assume personnel expenses were fairly stable, which implies quite a large reduction in other OpEx, could you sort of help explain what maybe drove that, please?
I see. I think maybe you remember last year when we built a provision in the Q4 2021. This has not been built in 2022. I tried to explain it. Therefore, the SG&A looks or are definitely lower. It was a one time effect in 2021 and no one time effects here in 2022.
Okay, understood. Thank you. Could you just remind us, please, of how much exactly that provision was?
I think it was, something like EUR 8 million, something like this.
Okay. Thank you very much.
Okay. Perfect.
Okay. At the moment, there are no further questions. Let me hand back over to your host for some closing remarks.
Well, thanks to all of you. Thanks for the high interest in the call, also for 90 minutes in total. We appreciate your interest. We enjoyed the opportunity to explain, and we are happy for the performance and hope to see and talk to you again. Thank you.