Earnings Call: Q1 2021

May 6, 2021

Good day, and welcome to the FreeNet AG First Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Christoph Villanek, CEO. Please go ahead, sir. Hello. Thanks for welcoming. Thanks to all of you for joining today. As you have seen yesterday night, we have published our 1st quarter results and following our tradition, we would like to give you a bit more insights and details in In a short presentation, I myself will start with the more qualitative piece, and then Ingo Arnold will continue With a dive into the financials and Q and A afterwards. I go to the distributed presentation, Page 4, I think overall, I have to say that we're very excited and positive about the first Quarter's performance, given the entire framework of lockdowns, etcetera, etcetera, we have shown Very robust performance in all dimensions. You can see that year on year, we have gained 200,000 220,000 almost subscribers, which is a great performance over the full period. EBITDA went up by 4% to €108,800,000 and free cash flow with Specific events, certainly, or specific circumstances is also going really well. What were the key highlights in the quarter, Except for the fact that we had corona crisis meetings every other day and had to manage A lot of details across the entire organization. Still, we are obviously working on Optimizing tariff plans, specifically on the app based tariffs. We are Heavily working on retail, how to combine click and collect, click and meet and all the other Potential elements on the TV and Media side. WIPU has launched a couple of new channels. Among them It's Kickertvau, which is TV. It's a magazine or the largest magazine On football in Germany, we have signed a couple more contracts with media broadcast. And last but not least, We finally got live with 4 more digital audio broadcasting radio channels, and we have started the organization and are up and running In media sales for our channels, not only for our own ones, but also for 3rd party. On the group level, Ingo will refer to the share buyback, which is going well So far, if we go into one more detail on the let me start with the subscriber page on Page 6. As I said, overall performance positive with plus 218. We have I told you last year that FreeNet TV will go down anyway. So if we would take that out, the downward trend, then The growing pieces is plus 5% and more than plus 400,000, which I think Plus 380,000, which I think is a great performance given the circumstances and the fact that overall, we have a central So the team and the entire organization is very focused on customer renewals, retentions and also Refilling the customer base, exceptional, certainly the performance of Waikutifaa also During the Q1, if we look at the specific performance of the mobile telephony, You can see that during the Q1, we have a plus of 32,000 From January 1 through the end of March, there is 12,000 coming from the pure F based Terrific plans and another 22,000 coming from postpaid. So overall, on a quarterly basis, we are comfortable with plus 33,000. It's very much in line with With the projection and trajectory that we have anticipated for the full year, and we can see that This performance is ongoing. It's even slightly better or yes, no, it's not very I think it's Down to the 0 point something the same as last year. So I think that is significant given the environment. Obviously, the share of online channels these days have increased. That's a natural phenomenon we have seen in the Q1. All our shops being closed for a couple of weeks. Same goes for MediaMarkzSaturn. But it really turns out that Any of our partners and ourselves, we are very comfortable in omni channel management these days. As a consequence, logically, marketing typically or above the line marketing expenses have gone down somewhat. There's no need to do advertising if the shops are closed, which also explains at least a small part of The better result, this will most likely continue during Q2. We're still more or less in a shutdown scenario at least For the half of the second quarter, so I expect similar development on the cost side and on the expenses side For the Q2. Media Broadcast, I think we've always talked about it that on Finet TV, even though we Still report the RGUs. We manage it from a gross margin and EBITDA level. This is why we have compared Full year 2019, 2020 and Q1 2019, 2020 2021, where you can see that the EBITDA development on the left The green graph is doing exceptionally well. Even though we have a A rundown of customers. It obviously raises the question what is the low level or what is the fine long tail. It's hard to say, but I think my prognosis is that we really remain On EBITDA level, we can remain for the next years on that level, but it may well be that the subscribers go down Even further, I would say another 5%, 6% is reasonable. But given the price increase and given the higher proportion of direct debit margin and EBITDA will remain at the current 12 months recurring level. Next to that, Media Broadcast has a significant piece of B2B component working On a number of campuses, also, we do maintenance service and application. We have won a couple of more races. We are now we have most likely the platform license for Northern Australia. We have 1, 2 big requests for proposals, big public channels. And the company as such, isn't we have also some changes on the second level of the management, which is important To refresh and to redevelop the company, overall, we think that is coming back to a really great Performing by PUTIFAR. As you can see here, we have a growth during the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter of the quarter, And this, I think, is remarkable because as of January, we have raised the prices for the Big package by 30% to 12.99%. And even though we've done that, we did not see a downturn here. So it feels that those people that recognize the benefit and the exciting features They accept the higher prices because they compare it with other Potential ways to access TV. So I think that is a very good portfolio. We will I see a slightly lower increase, but still a positive development in the quarter. And this brings me already to the outlook for the full year, make it simple. We expect Reopening of the shops in a normal level only with the start of Q3. Obviously, the revenue down That we have seen in the Q1 and also will see in the Q2 comes from a number of hardware sales in Kavis as As well as mobile computing shops, you all are aware that pure hardware sales has a low margin. So we still miss it because We'd like to do it, and we'd like to create upsell opportunities. But at least from a company performance, It does not impact us really. The positive thing is that this is why I'm mentioning it here, We have more than 10,000 Click and Meet events in March in our mobilecom digital shop game, and that is only the owned shops. So this is not franchise because they do it separate. This is their own business. So this reflects Only a number of about 200 shops where it was even possible. So you see that the adoption rate It's significant if you do the breakdown on opening dates and the number of stores. The media side, we certainly look for a strong Q3 mainly because this is when in summer Olympic Games and a lot of other events going to take place that should be a booster for Wai Bufutte Fau as well as Vignet TV. We expect, as I said, the assumption is that in Q3, shops will be reopening, and that is definitely important For FreeNTV because there the renewals will start and kick in mainly in July August. This is the big bunch And the picture the big turnover of the customers during the summer months. On Wai Puthafau, parallel to The sports events, we will also start with an owned Android TV stick, will hit the market, hit the road most likely Secondly, a fully integrated Android Dongy, which you can put into your HDMI access with a remote control. On the remote control, there is the regular 1 to 9 buttons for the kind of old habit I'm just pressing 1 for R and D and 2 for ZDF and so on. But there's also 2 buttons, 1 for Waiputefau and Waiputefau. Specifically, if you press 1, by the way, certainly, you get the signal from WIPO, but you will have a WIPO tick button. And if you will also with hardware and the sales price of the hardware anywhere between €30,000,000 €50, I think the sales rate will go up. It will be Easier also to go into MediaMarktSatone, for example, so far, the Pure Voucher sales is a passive One way is if you have a hardware device, it's an active sales and something which we can really discuss with the end consumer. So As I said, we're going to see a stronger uptake once again on the IPTV side. And having said that, I'd like to hand over to Ingrid. Thank you, Chris, from my side. So I would like to start on Page 11 with a group view on our financials. Yes. I think it was really a very, very good quarter. What we saw here, And it was such a good quarter behind or with the framework what we had with all these closed sourced during the 3 months because Christophe was talking about Click and Meet and Click and Meet, it was working quite well. This is what we saw. But in most some of the stores were totally closed, and some of the stores were there. It was only possible to do click and collect. And it is not very successful. It's nice to have Click and Collect, But what you see from the revenues here is the result of the environment what we had because Yes, this is something which looks negative. It's a clear decrease of revenues in the quarter here. But if you compare the quarters, Q1 2020 with Q1 2021, The difference is 100% only from Gravis and from the mobile comms digital stores. And without this decrease, the revenues will be stable. The gross profit, I think and this is a proof of the concept what we see here because without the gross Profit of Free Net Digital, what we sold at the end of September last year, which did not generate any EBITDA, But it generated some gross profit, and therefore, we split it here. But what we see without this Free Net Digital in gross profit is an increase from EUR 208,000,000 or EUR 209,000,000 to EUR 214,000,000. So what we see here is that the over performance, what we show is not only based on Cost initiatives, but it is based on a very strong business performance. Comparing the EBITDAs, Here, the sharp increase from EUR 104,000,000 to EUR 109,000,000. And Yes, it is correct that on the bad debt side, it is still the case that the payment behavior of the customers It's quite well. So the bad debt ratio is relatively low. This is what we see. And as you may remember, we built a provision of EUR 5,500,000 at the end of 2020. It was not we have not released it, but if you see how the bad debt ratio is developing, You do not see that many reasons that you need to have it, but I think we do not know how the year We'll develop, therefore, it makes a lot of sense to have this provision here on our books. But definitely, it is a cautious view What we took here at the end of the year. Moving to the mobile business on Page 12. What we do see here, And this is something what I already stated before. You see the hardware revenues, which are based on the business, what we do in Gravis and what we do in our mobile contributor stores. And you see that the hardware revenues are Declining by €26,000,000 and at the end of the day, this is the loss what we do have on revenues. In the other segments, what we show here in revenues, we see that they are relatively stable. In the gross profit, Here again, a relatively stable gross profit. This is something what we saw first In the Q4 of 2020 and what we commented here, but we see again here That even in the difficult situation because, yes, it is low margin Business, what we lose on the revenue side, but it is margin business. And so we lose the margin from Gravis and from the whole hardware business. And even with a lot of this profitability, the gross profit is relatively stable. On EBITDA side, you see that on the cost side, we are also on a good way. And as I already mentioned, the bad debt remains on a very low level. Moving to the next page, To the KPIs of the mobile business, Mo Christoph, so I would like to focus on the ARPU first. Compared to Q4 2020, we see a very slight decrease from 2018 to 17.8. And yes, clearly, we are on a lower level in a lockdown situation because the data volume Loads are much lower because the people use their Wi Fi at home, and they do not need volume from their mobile. This is some effect From roaming, so I think we have to wait and see what the normalized ARPU will be during the year. Dish Lifestyle revenue, this is a very positive result here again, Because it was possible compared to Q1 2020 to increase the digital lifestyle revenues, how is this possible? It is possible because the subscription share of the portfolio, what we do have here, could be even though we sell a lot of Like options for ebooks, music and so on. So I think it is more sustainable than it was at the beginning when there were some one off Revenues. On the next page, Waipu, all the TV and Media segments. Here, what we do see is an increase in the revenue, and WIPO TV is the driver of this growth. Definitely, we already saw the increase in the Customer base and yes, this is the reflection what we see here. There is this small Barter deal, which I think is necessary to show here or to separate, But even without it, there's a revenue of EUR 68,000,000 and we see that is Very similar to what we had in Q4 2020. On the gross profit side, yes, I would say, if you compare, It's the same for the EBITDA. I think it is maybe not that quarter 1st quarters Because the Q1 in 2020 was relatively low, what I would say is what we see since the Q2 of 2020, It is something like the new normal because we see on a gross profit side that something in the level slightly below 45 Looks like a normal gross profit per quarter. And on the EBITDA side, you see that something Slightly above 20 looks like the normal EBITDA at the moment. So I think We see here is that it is relatively stable. We stabilized it on this level, and I do not see a reason While this should change during the year, we have some initiatives, what we already mentioned before. So maybe there is even a possibility to increase it further. All in, if you see an EBITDA Of a level of something like 20% here, in this business, what you see is that the EBITDA is something like 20% to 25 percent of our group's EBITDA, so it is very relevant in the meantime. Switching to the effects From the business segments in TV and Media from the divisions, It's also a very positive picture what we see here. You see in B2C, which is media broadcast, B2C, which is free net TV. We have the higher gross profit from the price increase. And here, this is the Here, we see what we saw on Christophe's chart before. So what we do see is That even with the lower number of customers, it is possible to increase the EBITDA here and the gross profit. And as we saved some marketing expenses on an EBITDA side, The increase is even higher with EUR 1,700,000. In the Media Broadcast B2B Business, We see the effects from the Digital Radio business, mainly here where we see an increase of EUR 2,100,000 on a gross profit to the radio business, but I think also here a strong sign for the B2B part. Exairing, EUR 3,000,000 Above the level of last year's Q1 on in terms of gross profit and EBITDA, which looks normal with the number of increasing customers here. Moving to the free cash flow on Page 16, yes, we have some positive effects from this year negative year end effect At the end of 2020, so I was explaining the gravid effect On our last analyst call, it is not all gone now because I was talking about something like EUR 10,000,000 At the end of last year, the stores are still closed. So some of the effects what we had at the end of the year are still there. But I would say 50% of the effect is done now. On the other side, we have some negative effects Because if you look into the inventories, you see that we increased the inventories by nearly EUR 15,000,000 in the first quarter. I think this is normal because we filled our stock here because There were hopes that a finish of the lockdown could take place during the Q1. It has not taken place. I think we do not have any risk with the inventory what we do have now because it is Very new hardware and so on what we do have there, but this was definitely a negative effect On the working capital level in the Q1, tax payments, no surprises. CapEx On a comparable level to last year, here you see still some investments in the Digital Radio business, leases Stable interest payments, definitely lower because of the lower debt ratio what we have. And so all in, it is a free cash flow in the Q3. It's on the upper level of the range What we guided at the beginning of the year. So I think we are happy also with the cash flow development in the Q1. This brings me to Page 17, where we do see how the Bank net debt is developing. We already repaid some promissory note in March In a volume of EUR 200,000,000, what we do plan in addition to what we said at the beginning of the year is That we talked to some of the investors in the promissory note, if it would be possible to repay Some further tranches, and it was a success now to find some agreements to repay additional EUR 64,000,000, And this will be done during the year. I think we have all the liquidity on the balance sheet, so it makes a lot of sense here To reduce it slightly, bank net debt On the 31st March, it's only EUR 239,000,000, which translate into a net debt Leverage, which is 0.6% only from the bank net debt. On the other side, the net debt and the leverage, including the lease contract, It's 1.6, so on a very healthy level. So we are happy that we are where we are. Equity ratio up to 43%. So this is the new normal here, which is much, much higher than what we saw last year. On my last page, Page 19, yes, we Stick to the guidance. We confirm our guidance. But as we already announced during our call at the beginning of March, Yes, definitely. In EBITDA and free cash flow at the moment, we see the possibility to reach the upper end of the guidance, But it is early in the year, so we have discussed it internally if we should change the guidance now, But I think we need more evidence during the next month. And maybe in August, maybe we will have You, which will be good enough to change anything here. Maybe here some words. I do not have a chart about the Share buyback program, as you have seen at the beginning of this year, We were very fast, and the limit what we placed in the market was that we wanted to buy shares up to 19 95, and this is something which is everybody it's obvious when you see the publications. Yes, we are happy that we are above 19.95. I think we will we have to discuss internally if we change it. I think it was not possible to change it because We were in the quiet period in the last 6 weeks, so it was not possible for us to increase it or to change anything here. But I think definitely we will discuss it. And clearly, I would like to state that we would like To invest this year, the EUR 135,000,000 what we announced, and I think There is a lot of months open during the year. So I'm convinced that this will work during the year. So long from my side. So I think now we are open for questions, and I would ask The operator to start the Q and A session. Thank you, Our first question comes from Joshua Mills from Exane. Hi, guys. Thanks for taking the questions. 2 for me, please. So the first is just actually regarding your last chart Slide 21 and discussion you've been giving us about the improved margins in mobile, in particular, this year. So my question is, what do you think the right level of online versus offline split is post pandemic? And What's had the better what's had the bigger impact on supporting margins? Is it the fact that you're doing more of your sales through non retail channels? Or is it the captive channel effect? Just trying to understand what's driving the better cost base. And then the second question It's on the TV Media segment. So you've highlighted that WIPU TV is delivering the bulk of the EBITDA uplift. Could you give us A rough indication of what the absolute level of EBITDA being generated by WAIPU is now and where you expect that to be Perhaps for this year and also next year to give us a sense of the WIPU TV profitability. Thanks very much. Okay. Thanks, Josh. Well, I think that is the $1,000,000 question, what is the right level of the split. So I think I mean, overall, when we compare and I think we've had it in the chart in a recent presentation. I'm still a big fan of retail. And when I look at our retail channel, when we Generate a new customer, we measure what is the total upselling and the margin of the the net margin of the total upselling during the 24 months of a contract period. And then we compare this number this figure across all channels. And it turns out that retail is by far the best. 2nd best is 1 or 2 of our distribution partners, which have Also a very long lasting direct relationship to the end consumer and the weaker ones or the weaker end of the list is online Edvard. I think the logic is quite obvious. These people, if they have a relationship to a sales rep, If they get into a conversation, they are ready to be addressed and they signal that they are also From type of purchase or personality, people that like recommendations and like ideas given from others, whereas The hardcore online buyer is very self decisive, Only takes what he or she really wants. I think that is the difference. And having said that, We will we always optimize our acquisition ratio and also the spendings on subscriber acquisition retention costs, not only on a pure ARPUgross gross margin base, but on a lifetime margin base. And this determines the split. I think on off line will remain in an order of Anywhere forty-sixty. I guess that's a fair assumption. And on the captive channels, Well, the difference once again is on captive channels. We are more in control of what actually happens to the consumer. For the indirect channels, they might give and this is a made up example, they might give extras To the end consumer, which we can't see, and this is then more difficult for us to renew. This is why we drive it to captive channels. And certainly, the way we plan it is that we accept the retail chain. We measure it as a third party. At the same time, it's running costs. So if we have sales reps with spare time, we certainly want them to do the phone calls And to the phone renewals, which is much more value generating than if we leave that to a third party Service providers. I think that is hopefully an answer without being super specific on the ratios, but I think 60, 40, 70,000 to 75,000,000 on captive is kind of like what we envisioned for the full year. On the TV track, I think we have disclosed that last year, we still lost the EUR 5,000,000, EUR 6,000,000 on WAIPU in total. And I think this year is going to be a positive year in terms of full year contribution. We have I told you last year that kind of like turned to a breakeven on a monthly operational, which is not Including CapEx or something alike was in May and ever since we are positive. The 1st 3 months were positive, And there is no significant investment. So I we will have a positive EBITDA contribution Definitely for the full year, but we're still talking, I think, 1,000,000 1 digit 1,000,000 lower end this year. But the trend It's getting more and more positive, and we are quite excited about that. If I may add here, We are foreseeing also some OpEx optimizations on WAIPU. We most likely will change part and give away part of the network that we have engaged with. Technology has developed so fast that it Turns out that at least the majority of the network could also be leased with 3rd party for similar costs or even lower. So there will be a change by the end of the year, which is will also help then for 2022, Because I think that we once again, we'll save a couple of €100,000 a year. Thanks very much. Take care. Our next question comes From Ode Strapen from Jefferies. Please go ahead. Thank you. I have two questions. The first one is on you have talked about sort of the shift towards customer lifetime value and are focusing in particular here on mobile. Could you comment a little bit more about the drivers of that? Is that mainly the acquisition cost? Is it Trying to get customers that require lower service cost on an ongoing basis. Is it that you're trying to acquire customers with a longer lifetime? And in that context also, how is that accounted for? I think in IFRS 16, These costs would especially the SACs would be distributed over the period. In other words, you would see potentially In lower acquisition cost basis, you would see lower ARPU and then also lower costs from day 1. Could you confirm that and quantify this a little bit to what extent That shift is already helping you in the current EBITDA trends, if that is quantifiable. The second question is on Media Broadcast, the project revenues. You mentioned that they had these project revenues in the 1st quarter, you mentioned Hulich. Could you quantify the contribution that these project revenues Actually, made. And also how I mean, that sounds like a very lumpy business. How continuous do you think That source of revenues will be throughout the year through the quarters. Thank you. Okay. Well, First on the CLTV, I think the that is a kind of like once again the specifics of our business model. If you are a network operator, you basically run against a fixed cost on your network. In our case, we have, as you all know, A monthly purchasing price for a service which we resell basically to an end consumer, and This is creating the margin. The fact that we have different contracts with The different operators, we have different sourcing models also lead to the fact that the ARPU is certainly an indicator. It's easy that or it could well be that we have consumers with a lower ARPU, but in absolute terms, better margin And some of them with a higher ARPU. For example, the FreenetFunc and Flex, the ad based, We let it go through word-of-mouth, etcetera. So we have a very low, not to say, minimal expense at the beginning. We run on the front runs on the Telefonica network where we have A typical rev share model with a significant share to us. So This is super attractive. And this is why even they are on the low ARPU, the 24 months net contribution It's high. And these customers on Funk, they don't have any service cost because they basically use just the app. So in an ideal world, I could now say why don't we shift everything to funk because that would be the most profitable business. We could Basically shut down the customer service, shut down the shops, and we would be in a wonderful life. Well, the fact is Ed Frank is only addressing a small piece of the market, and this is why we are addicted And committed to serve all different kinds of customer segments, all different kinds of customers. And when looking at the customer lifetime value, we have we always have the gross margin out of a specific tariff. Then we include into our calculation the acquisition cost and the service cost minus a potential commission, bonus or marketing fund from the operators. And then we measure it against specific At channel cost, and at the end of the day, we add whatever contribution we can do in upsell. That is kind of the total calculation that we do. We've done that for years, but we're getting better and better. And I think the change that we are now about to make and that becomes Reality from the beginning of the year, and it's going to be reinforced also in our organization, we will change a couple Of KPI responsibilities, we want also in future, we want also to fully include in our model Or in our modeling, the churn rate of a specific channel. There are channels that are very aggressive in their acquisition. And as a consequence, those customers will their renewal rate is lower Because we go for the next attractive contract after 24 months, whereas in other channels, people are super loyal and the reinvest is minor is very minor. So I think in the old days, we looked at life cycle result on 24 months. The last few years, we started to include upselling and cross selling contributions. And from now on, from 2021 on, we also include into our projection The likelihood of renewal, the renewal invest and include this in a full customer lifetime value, Which is then not limited to 24 months, but also but to 48, 72, whatever the right term is. I think This is actually what we do. It does not change the fact that we have to allocate the acquisition cost Alongside the contract lifetime, which typically is 12 months or 24 months, and the subscriber acquisition costs Are depreciated over the 24 months, right? Ingo, there was no change. I think good morning, Ulrich. I think what is important, basically, It is I think the best measure to steer the business is to work with the customer lifetime value Because at the end of the day, this is the margin where you earn. This was difficult In history, because what the fact what Christoph was just describing that the acquisition costs are capitalized At the beginning and then moving to the P and L over the period of the contract, this is Something new what we do since IFRS 15, so we do it for 2 or 3 years. Because before that period, It was much more difficult to steer your business, which was very reasonable all time to steer your business with a customer lifetime value Because that time, the acquisition cost, if you had high acquisition cost, you had to show them directly, and then you had a very negative result at the beginning. In this new framework, what IFRS 15 gave us, it is much easier to show the results On a period basis, which makes a lot of more sense. And let me look and It's not very often discussed in these calls here and with analysts and investors. But what you do see if you look into the balance It is the capitalized contract acquisition cost. And what you see after the Q1 is that these were reduced by EUR 20,000,000. Why are they that low? Because on the one hand, you have a better mix, Because you do more retention, which is less expensive than new customer acquisition. On the other hand, you have a better channel mix Because you do less acquisition in the very expensive channels like Mediasatone and you do more activations In the online channels where you do not have that many acquisition costs. But this is only one side of the picture. The other side is What is the ARPU doing? If the ARPU is lower at the end of the day, this could be a wash. And therefore and this is The customer lifetime value that you have on this calculation of the incoming The incoming value and the outgoing value. And therefore, I think Sometimes it's very focused here in these calls on the ARPU. I and maybe this is hard to say, But I'm basically, I do not care about the ARPU. Because the ARPU could be low or high, I do just look into the lifetime value. And if this was what Christoph already described, if I had very low acquisition costs, I could live very good with the lower ARPU. So hopefully, this helps. Yes. And there was a second question on the media broadcast project. I think you were referring to the statement that we have won the From the DAB platform for Northern Australia. So what does that mean? That is A contract is a 5 year contract. Annual revenue is order of magnitude 3,000,000 The contribution is hard to say because, well, you could either Flip it and say, well, the investment in new equipment is very minor, and it's all existing stuff, so the margin is super high. You could also say, well, These people that are doing the maintenance, they have also lost or given up partially on FM and UKVE. So but that's kind of that's the sizing. I mean, it's for the entire full year Norden Westphalia, it's €3,000,000 in revenues. I think the internal calculation of contribution or profit is about onethree, Which is great, but we need the same for many others, but that's Yes, as an indication or a guideline. That's very helpful. Thank you for explaining the thinking on CRV in particular. Our next question comes from Paolo Tang from UBS. Please go ahead. Yes, hi. Thanks for taking the questions. So I've got some 3 bigger picture questions. The first one is really just about 5 gs, if I'm not mistaken, I think you've started offering 5 gs tariffs already. So can you maybe talk through how much traction 5 gs is getting? And how much impact do you think 5 gs will have on your mobile business going forward? And second question is really just about the Telecoms Modernization Act. I'm just interested to get your take in terms of changes to the Navioskosten Priveleig and does the unbundling of the cable TV from Does the service charge for Housing Association provide an opportunity to drive growth in WaiPoo TV? And my final question is really just an update in terms of your thoughts on Drillisch and their project with the network build. What's your latest thoughts in terms of how you think it will impact the German mobile market and how it will impact 3 Net specifically. Thanks. Yes. Thanks, Paolo. First one, yes, we have started to sell 5 gs contracts on the Vodafone network. I think the traction is not really visible yet. There is No real benefit to the end consumer, and I think that goes For anybody, I think it's more a marketing message. We will push it now on wireless Internet. I think that could be helpful, but we're still talking really invisible numbers. The early adopters have taken it, but it's and I mean, even though the networks Mention extending and coverage is still very low. So I think in 2021, we do not Consider this a significant impact, neither positive or negative on the business. The people don't show up and buy The phone, we take this as a next step. So I think it's very relaxed, and you also could see that nobody has really Being able to charge a price up, which is already a strong indicator for no real demand. In that sense, We take it opportunistically. We offer it. We're happy to offer it, and we can provide the service to the ones that ask for. And that's I think that's as far as we do right now. Yes, the unbundling and the name cost of Grieville It's something which is definitely creating an opportunity. We have to anticipate that Vodafone, who run today those contracts with the house Developers, they are in a position to make attractive offers to the house developers and owners and administrators To give a new contract to their existing inhabitants, In that sense, I think they are in a privileged situation. But overall, we all will take a benefit because it will become more obvious, it will become More talk of town, the fact that people have to pay for television. The normal German 45% cable households might not even be aware that they are charged every other month. And we have done recently a survey That people start to realize that they have to pay for it, and then they say, well, if I have to pay for it and I'm I realize that this digital, including a set top box is €25 a month. Then I will review the opportunities, and I might be changing it. So All the indicators speak a positive language. But at the same time, I am skeptical about how much this I will help this year. I think the next step will be that Telefonica will offer the cable which they have Out of the regulation from Vodafone, so overall, the entire momentum of what is the right access method It goes into a very different dimension. So I'm seeing it positive, but I don't think that there is kind of an overnight Flat of people changing because, I mean, the cable will be there and they will not be switched off. The third one on Drillisch, yes, I mean, we see that they are working really hard on Getting their things done, the fact that they have cut the deals with Rakuten, they have also sourcing We know that they have a public tender offer out there for the servicing and maintenance of the 5 gs network. And we know this. It was a public tender, so it was obvious what they asked for, what their time line is. I think for us, it's going to be it's not it's too early to have concrete talks on terms, But we are in good favor with these guys, and they know us, and they've been working with us really well over the past years on broadband. At the same time, I think we will definitely take a benefit either by having a competitor who will push us as well Or by a defender, namely Telefonica, that will give us favorable offers. When we look, we have recently reviewed On all the public information available, our terms and conditions with Telefonica and the ones that Most likely, Drillisch has gotten in their contract. And it looks as if at least on the bigger packages on bigger data packages, It will be very hard for them to be to provide lower or more attractive prices than we are. So I think we are competitive wise, we are protected, but we see the upside of the competition between Our next question comes from Usman Qazi from Berenberg. Please go ahead. Hi, gentlemen. Thank you for the opportunity. I've got a few questions, please. The first question was just on your slides. You were indicating that you were offering We're a 5 gs solution in the media kind of broadcast business. I didn't quite understand what Yes, exactly was it that was being offered. So if you could just go into a bit of detail on that, please. The second question was, just on the TV, the trajectory of the TV business And specifically, with regards to Ingo's comments that TV is a business now with roughly $45,000,000 of gross profit, dollars 20,000,000 of EBITDA. I'm just wondering whether that's a bit too conservative because what we are seeing obviously is quarter on quarter the Performance is getting better as WIPU is scaling. You've obviously got the contribution from the digital radio stuff coming in. You're winning a Few more contracts on the NVG side. You've got the price increase benefit coming in on the Free Net TV side on a net basis. So, yes, I mean, it just seems quite conservative to say that TV is a business where we should expect Roughly $20,000,000 of EBITDA on a quarterly basis and then that's it. Ciese, if you could clarify that. And then finally, just on the guidance itself, I mean, you have indicated you'll revisit it. But certainly, I think if I look at the second half of the year in particular, last year you were impacted by a $4,000,000 gap On the TV side because of lack of sporting events, you took a $5,000,000 provision on the bad debt side, which you're saying you might And it seems like you've taken quite a conservative view on how much additional marketing you will push in the second half. So it just feels like there is $20,000,000 $25,000,000 of buffer that you're keeping, which you might not actually need. So I mean, is that kind of a right way to think about how much buffer you've got in your current guidance? Thank you. Well, Usman, yes, thanks a lot. I'll take the questions In the row, as you asked them, first one, 5 gs Media Broadcast. What we have installed in our One of our main locations in now and close to Berlin, we have a demonstration area for campus solutions. So if you have any campus, be it whatever industrial conglomerate Or a big company or university or a technical development center and things alike that are now looking for 5 gs solutions, maintenance, service, etcetera, etcetera. We have a demonstration area installed there, and We bring the customers into the place and show them what's possible. We are currently in a number of RFPs on the subject matters in order to provide service, maintenance, build up, etcetera, etcetera, because we can do that. We don't do this. Media Broadcast does not only do it for internal purposes, but they have also cut Letters of or kind of memorandums of understanding with local authorities in order to build up these kind of things. But it's basically Capitalizing the existing maintenance and installation sales force and maintenance force Technicians that we have there, they have been working on DAB and DVVT for the last 2 years, and now they should work on Servicing whatever kind of 5 gs related technical demand is so this is why we have mentioned it. And I think implicitly, I also said that on the RFP of United Internet Drillisch, we are also offering them Maintenance Services. The second one, trajectory on TV, yes? Just Is it that so the end customer would install their own private network or whatever it is and you're offering Repairs, maintenance, servicing of that network, is that what's going on? Because I guess Yes, that's it. If I can give you a concrete So there in Berlin, there is a huge area where we had this 30,000 people working in one place, different companies, a technology hub, And they want a 5 gs network for the technology hub where they do all kind of testing, IoT testing and so on and so forth. So you need a service provider for that. We need somebody to install it, to maintain it, to put the right boxes there, and we're doing these kind of services. So it's not the technology, it's the maintenance and the service. The trajectory on TV, you consider it as conservative. Honestly, I would agree. I think it is conservative. But there is we tend You know us for many years, we tend to be a bit more yes, we tend to be careful on projections. Business is working really well. Pricing is accepted even though we have Seeing advertising revenues in the Q1 of 2021 crossover Have gone down by 25% on radio and 35%. We have a plan on how much revenue we're going to generate Advertising this year on TAB and also on IPTV, but we have seen that the Q1 was weak. So if there is a recovery in general, then we will do better on advertising. Then obviously, The margins on all these businesses will go up because the marginal costs on advertising are not basically 0. I think overall, yes, it is conservative, and I think the segment could if we have 23d the Q1, I think it's more likely to cross the 100 for the full year. It's going to go up. I think it's conservative. I would Ingo said it, we did not officially change the guidance, but I think we you all heard him say that we believe that we definitely be on the More on the upper third of the guidance than in the middle or in the lower one. But once again, I mean, we don't see what the German government We'll invent the next couple of days, and this is why you always ought to be a bit careful. I would not reconfirm the €25,000,000 that you have mentioned. But As you rightly said and pointed out, we have taken some conservative Views on how things would go and put something on the balance sheet To be on the safe side, so I think we are in a good position to grow the EBITDA this year. And but more important for me is that I we are working hard On a projection for the next 5 years, and I want the proper trajectory and not a up and down. So Let's be a bit conservative here, but let's go for the next 5 years and have a constant Thank you very much. Our next question comes from Titus Kran from Barclays. Please go ahead. Good morning, everyone, and thank you very much for taking my question. Just Two quick ones from my side. The first one is just on your costs. You mentioned in the presentation that your positive EBITDA growth benefited from cost savings, Which are partly sustainable. What share of the savings would you expect to persist in a post COVID world after the lockdowns, For example, in relation to the €3,700,000 in lower overhead costs you reported this quarter compared to Q1 2020. And the second question would be on the FreeNet TV segment. Since you mentioned that you expect a normalization in customer churn After the second half of twenty twenty one, do you mean that we should expect to continue to outrun the second half even after the price increases annualizing In Q2, does it does this not represent a change in the outlook and why, may I ask? Yes. Thank you for your questions. I think on the cost side, Yes. I think I believe that something like 50% to 75% of the cost savings Will be sustainable. I'm still very Unsecure about the situation from the bad debt situation, how this will develop After the crisis, and therefore, we had built The provision at the end of last year. So there, I have some unsecurity there, uncertainty there. On the other side, we do have this short term work compensation plan from the government Well, we received something like EUR 5,000,000 in the Q1. So this will up to the crisis, definitely, This will not be there. But what we do also see, especially on the personnel cost side, is We see some efficiencies which could be got in the next quarter. So I It's something comparable to what we said what I said at the beginning of March. I would say something like 50 To 75% should be sustainable, but I cannot be concrete here because I have still some open ends. But I'm really optimistic. And definitely, for example, travel expenses We'll not be as high as before the crisis. This is what we see that we learned that investor talks, analyst talks work quite well online. And so I think we will not fly around that much afterwards. And this is something which is comparable in other parts of the business. To your FreeNet TV question, yes, definitely, there will this annualizing effect Because we start we increased the prices at the beginning of May. So there is Some development, what I do expect up to the mid of the year. And yes, hopefully afterwards, it could be stable. But I think and Christophe was very clear here, it is not a business which is Where we find new customers. It's not I think it is possible to stabilize it further, But I think for this year, a slight decrease even after May is possible. And I think earlier or later, we have to think about further price But what I do also confirm what Christoph said is, I do expect that the EBITDA, what we generate there, even with a Reduction in customers will be stable during the next, let me say, years. This is what I do expect. And if I may elaborate an illustration, I'm the guy here for the daily work. I mean, give you one example. We've seen now that our the guys who serve Mediasatone, who serve the franchisees, who serve our 3rd party retailer. For the restrictive reasons of COVID, They were not able to visit their customers or their dealers every other week, which they usually do. But we have also seen that the performance as such was not suffering. So I am right now reviewing Our visiting calendars and the frequencies, and it turns out that if you serve a Total of 1,000 outlets today with about 80 or 100 people. Well, it may well be that we can do it with €80,000,000 or €75,000,000 next year. We see A lot of stuff being replaced by pure digital, not only meetings, but also process designs. And we are trying to conserve those ones. And this is, I think, the in fact illustration to what Ingo mentioned That it is not only a belief that we will save or will maintain 50% to 70% of the Savings, but it's also a commitment as management team that we have to go for this. It is obvious that there is potential and there is Upside potential or downside potential, if you take cost. Across the entire company, we can get even more efficient. We have to restore our the one only building that we own in Brudosdorf. And in the future, we have The space was reduced. The number of people remained the same. We will not have a full seat for everybody. I think all these effects We'll then contribute to several millions a year, and I think our ambition is still to go on Personnel SG and A and everything to have a reduction of €5,000,000 €6,000,000 each year for the next 5 years, definitely. That is the ambition. And this only will contribute already a positive effect on EBITDA. Thanks. Very clear. We'll now move to our next question from Simon Bendlage from Hoek and Aufelden. Please go ahead. Yes. Hi. Just two quick follow ups. The first one is on ARPU again. You guys mentioned that it makes more sense to look at the customer lifetime values. So I'm wondering if you could quantify on that Or is that something you might even be reporting going forward, making us making it a bit easier for us To follow on what you're saying basically. And the second question is a follow-up on the cost base question earlier. I think if I heard it correctly, you mentioned that there was a €5,000,000 positive impact from short term work in Q1. I'm wondering if that's like a pure Q1 effect or if it's if this is Seem to continue going forward and also how it compares to Q4 last year because The personnel expense has really been down quite remarkably in Q1. Thank you. Yes. Thanks for that. I think on the first one, we actually have talked about internally how we could show that. That's not a trivial thing, But we're working on it, and we certainly would like to add I mean, we will remain to provide the ARPU because you all will compare this to The industry is, but we're working on how we can give you more flavor to the CLTV maybe on an index basis or so. But Well, we take this as a positive idea, and we're working on it. But I'm not promising Anything yet? Because it should be well, anything we give you as for more transparency. And there's also some logic behind it, which will distinguish network operators and so on and so forth. And I want to make sure That we do not disclose competitive relevant informations here. Yes, you're right. We had the quota by the short term work funding amounted to approximately €5,000,000 I think on the in the second quarter, It will not be €5,000,000 but it will be closed because we still have we have just only prolonged the internal Measurements till the 15th May, and then we will see how it goes. But then at least for 6 weeks, we will have it again. So I think there will be effect maybe not €5,000,000 but €3,000,000,000 anywhere in that range. But as I said, We are taking advantage of fluctuations right now. We are doing we do not do internal replacements at the moment. In order to conserve that, in order to also for the entire employee base to do these, let's call it, personnel In a fair manner, so I would assume this What's going on? As you rightly managed, in Q4, we did not have the effect in that amount. It was about half of it because we Only had the effect out of the shops. And this year, we have also the effect across the entire headquarters And in the entire employee base. Very helpful. Thank you. Our next question comes from Adam Ramley from HSBC. Please go ahead. Thank you very much. I have 2, please. 1 Detailed one and a higher level one. So on the I think in your prepared comments, you mentioned that In June July, there is a kind of big chunk of renewals of Freenet TV. And I just wondered if Kind of how material that was and whether or not you could help us quantify that? And then secondly, I wanted to ask about equipment sales as the lockdowns eventually end. Do you think that there are sales that have been delayed or have customers moved To purchase things via other channels, I guess another way of thinking about it is, are you expecting a pent up demand for equipment once the shops reopen? Thank you. Yes. Thanks for that. This kind of like climax of Reunion TV is July, August because This is when we launched it originally, we had the 3 month trial period and that ended in July. This is why it is. That's about 15% of the base is for is in this no, it's about 20% sorry, it's 20% of the base, 20% to 22% of the base Within 6 weeks, and certainly, we would hope that these days then The retail is open again because there is a chunk of people that buy the vouchers really in shops, retail, media marks, whatever. We see a constant shift into direct debit, but there is still a significant number of conservative customers be Trying to be anonymous. This is the challenge here, but I'm positive and optimistic for summertime in retail. That is a, I think, a perfect lead into the second question. What we have seen in between, we had Like 2 weeks open, almost open in Germany. I think that was early March, I saw. And we saw like an overnight uptake, and that's exactly what you have described. There is Very obvious, a delayed demand on the one hand side. And if I look at GfK numbers And all kind of consumer monitoring, there was not such a shift. So it was not replaced by other channels. Online has obviously taken benefit and profit and was growing, but it was not absorbing The entire volume and on Kravis, we have also seen it that as soon as we are open, sales Kind of like kick start and kick in at the higher level. So I think my guesstimate would be 2 thirds of it is delayed and 1 third is either delayed long term or being replaced by Whatever alternative, not always a channel, but also people that said, well, at the end of the day, the TV set still works or My phone is still fine. So but I think if we are positive right now and Reopening in Schleswig Holstein is tomorrow. I think we will see a strong uptake, And then 2 thirds will be recovered. Thank you very much. The next question comes from Martin Ian Flach from Kepler Cheuvreux. Please go ahead. Yes, hi. Good morning. Just two quick ones, please. First one is on in terms with postpaid service revenues. Can you quantify the impact from lower roaming and data top ups in the Q1? And then second question is on TV. I mean, the EBITDA was quite strong. Can you disclose the level of marketing expense you had in Q1? And Was that much lower compared to Q1 last year? Would you expect this to increase again over the coming quarters? Thank you. Yes. Thanks, Martin, for these questions. The marketing expenses in Q1 on the TV segment were equal to last year, So no changes. I think on the postpaid, we have on the ARPU of postpaid, we have Two effects, as Ingo said. 1 is roaming and the second one is over usage. What is that? Something like fifty-fifty That's what I would say. So, ARPU would be flat. Okay. But ARPU would be flat without its FX year on year? Thank you. And as there are no further questions in the queue, I would like to hand the call back over to Mr. Christoph Villanek Well, thanks everybody for joining this call. Thanks for your questions. Appreciate it very much. I will have arranged a number of meetings and talks with a couple of you over the next A few days to dig even deeper. Thanks also for some of the ideas that you have given to us, and we wish you all the best. Stay healthy and see you soon. Go ahead. Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.