freenet AG (OTC:FRTAF) Q1 2022 Earnings Conference Call May 13, 2022 4:00 AM ET

Joshua Mills - BNP Paribas

Titus Krahn - Bank of America

Ladies and gentlemen, welcome to the Conference Call of freenet AG. At our customer's request, this conference will be recorded.

As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator instructions]

May I now hand you over to Christoph Vilanek, CEO, who will lead you through this conference. Please go ahead.

Thanks for the introduction. Hello to everybody. Warm welcome. Today, thanks for joining even though there are couple of other events at the same time, I think it's worth listening because we've had a strong first quarter. Overall, I am very positive about the full year and we'll give you a couple of details on this matter during the next half hour and then we are happy to answer your questions.

I'm on Page 4, as you can see subscriber base year-on-year grew by 160,000. EBITDA is above plan. The nice thing which we know internally and we are not distributing it in full detail, is that any activity, any company, even the smallest one is above plan. So both segments for sure, but even on a smaller scale any of the companies is doing really well and any of the subsidiaries and free cash flow is also positive with $62.7 million and in line with our expectation.

If we go one step deeper on the subscriber base, we have grown -- been able to grow the total subscriber base and you know very well that this is a full contract by 163,000 year-on-year and 26,000 net ads in the first quarter. On post-paid, we have a slide gain. I think we have expected maybe a bit more, but we have seen a couple of impacts on EECC, specifically in January where processes were not perfectly established, but February and March showed that we are fully back on track.

We have slight or we have significant wins in terms of percentage on our app-based tariff plans up to almost a 100,000. Really great momentum on waipu.tv with plus 26% up to 769, Ingo and myself, we actually in the waipu.tv excelling office this morning and we have seen that by yesterday we almost are crossing the 800,000. So we are -- the momentum keeps going, which is really great and it's really great because we also see that on freenet TV, we still have losses in the subscriber base OTC that we have -- I think we've taken the right strategic decision to have both of them. And we overcompensate the losses in freenet TV very soon with waipu.tv and this is the first quarter where by the end of the quarter waipu.tv has more subscribers, but doing really pretty well and give you some more details in a second.

On Page 6, even more detail on mobile net ads what did happen during the first quarter we have now finally we are with T-Mobile and Vodafone phone on 5G tariffs, as you well know. The good thing is that we have now also the first what we call the own tariff plans under our own name and brand with 5G.

It's always stepwise first, we get the next technology on what we call the original tariff plans like Red and Magenta and then with the little delay, we are also moving them into our -- into our portfolio, which is not a technically or process delay, but it's always kind of a gentleman's agreement between us and the network operators. They want to protect the new technology for a certain period of time, which is no damage to us. And this is why we follow the rules.

Other than that, we have already informed you about the brand transformation. We are in the middle of it. The rebranding is heavily ongoing. We will also change some of our legal entities on not on the AG level, but on the lower level, we are changing some of our limited companies in the naming. All that is ongoing. We have done a couple of tests once again with the new brand and the customer perception is really positive and internally, people are very excited.

So we have had a bit of a worry after 20 years or 30 years with Debitel and Mobilcom com, but it feels like even internally, it's kind of a relief that we are moving into the one unique name and the positive momentum with the employees. It's also great to see now when we need to go back from Corona back to offices. I think that's perfect that the perfect match these two elements or two situations at the same time.

The captive channels remain the most important ones, but you see on the lower end of the page on the left hand side the compared to last year captive is a bit lower. This really indicates that the [indiscernible] and our free dealership is gaining momentum again, that was the impact last year on the lockdown and now we are back on around 70%, I think that is a healthy and from our point of view balanced situation.

I also want to mention that the corporation with Media-Saturn is recapturing its momentum after they are really difficult times with all the lockdowns and new management is on board. There's also a new guy in communications and marketing, which comes from British Telecom, which we have known for the last 20 years. And we are currently discussing with him and the legacy team on how we continue and can do even better this year. I think the channel will be performing better than 2021 and 2020. So I think that's all positive and therefore, I'm also positive that in Q2 and the following quarters the net ads will be higher than in the first quarter.

Next page, we give you a bit more details on waipu.tv. We've done a TV campaign mainly in order to strengthen the brand. We see that this pays back. We were for a long period reluctant to invest into branding, but we have done it now and we see a positive impact. We will also, we will do the same in Q2 and Q3. We think that really, we have a positive momentum of the platform IP as such, and we also see that we need to make use of I would say the difficulties of the others. If I may add a bit on competition, we see that Saturn is basically not doing any B2C marketing anymore. They have lost a couple of their B2B customers, such as MNet and NetCologne.

So they are not really in a remarkable position as a competitor. We see them in Germany more in the face out. We hear that United Internet is also not too happy with it, but the fact that we hear that also means that Einstein [ph] United internet is interested in the topic of TV, which is a change from the past.

We have signed a corporation deal with -- an exclusive corporation deal with Glass and we will now offer, they have around a 100,000 active TV customers, but eight times more that are not using or consuming TV from them. And we have now agreed with [indiscernible] the CEO on CRM campaigns and switch campaigns during the third and the mainly fourth quarter this year. So it will take a little time until we see the impact, but we are very, very positive and excited and we have met them, the whole management team last week on ANGA, which is a German cable and fiber fair and I think we will gain a lot of momentum there.

This corporation also triggered a couple of other talks for example, with Deutsche GigaNetz with some local providers. We have also started to do a pilot project, with Vonovia, which is you all know one of the biggest landlords in Germany. They want a specific solution for their lease partners. We are doing that. So I think there's really a lot going on not yet official. We will also sign a deal with one of the most well-known set top box providers on the globe. They have asked us to implement waipu there.

So I think there's a lot to come and I think with either the next or the December meeting, we have yesterday decided that we will give you a broader look into it and even more details in order for you to understand what's going on. But we are really, really excited. We think that is now kind of the turning point into a much stronger and much faster growth period than we've seen before.

Then also a media broadcast, media broadcast does not only consist of freenet TV, but also the B2B business which is important and the radio business, but step by step freenet TV, fifth anniversary price increase in Q3, but still on the RGU side we are losing, which was, and is expected, but we're still -- the team is working hard on getting this curve or this trajectory much flatter in the future.

On B2B, we have signed a long-term contract with one and One United internet. We will provide the entire field service for the active infrastructure of 5G, which in many aspects is interesting. First of all, we make use of an existing workforce on the one hand side. So it's commercially viable for media podcast, but I think it's also gives -- sends a signal to the entire market that our 5G campus and all the activities of media broadcast are accepted by this new operator, which kind of, I think is a quality signal. And hopefully we'll find other companies that ask for the same services. There is a couple of talks with a number of partners at this stage.

On DAP, Antenna Deutsche still a small unit compared to anything else we do. We have now five own programs. We have launched our marketing agency or the ad sales agency and we have all the revenues depend on the number of per hour. You see here that we have a growth of plus 70% of the previous measurement 157,000 listeners per average. Our the biggest channel in Germany has 1.5. So I think we're growing. We're very positive that also this company will from 2023 onwards contribute positively to bottom nine.

This already brings me to the outlook for the following, for the current quarter. As I said, we expect stronger net as in profile. We've also launched Mobile on 4th of April. [indiscernible] is a discount drug store chain in Germany with the freenet internet product is supposed to be launched as a fixed mobile service, but then end of Q2 or maybe early Q3 in the fixed line area the digital lifestyle revenues we expect to be stable.

We are still suffering a bit and a lower captive channels and a bit lower share of our brick and mortar sales and also regulatory elements, but we remain positive on the segment as such and but not least the brand transformation is going into operations and execution on the T&T media side. As already mentioned waipu.tv with the first campaigns with Deutsche Glasfaser, we have ordered 150,000 units of our remote control. We have bit delays on the -- from the delivery side because they come from China, but we are doing well.

As I said, we've ordered 150,000 units. They are not yet shipped though. So might cause a bit of a delay in Q2, but not significantly impacting the numbers and free prices will hit the ground by the end of Q2. So I think it's a very regular outlook, has a strong quarter this quarter by 13th of May shows that once again, we're doing really well, we're very happy apart what's going on and having said that, I'd like to give Ingo a chance to go into more details on the number side.

Thank you, Christoph. Good morning, everybody from my side. So I stayed with a group view on Page 10, and I think no surprise. Christoph was talking very positive about the business and therefore I think it is not surprising to see these table figures will represen even increasing on EBITDA and gross profit level. So it's a very strong quarter from my point of view.

What we show here in group revenues, it is stable group revenues is something what you know, from the past. It's not so decisive for the quality of our business itself. It is more decisive if it is more in the valuable parts of the business or not and as you can see here, and it is easy to see as the gross profit and EBITDA is increasing. Therefore it is clear that the lost revenue is not of very high value. And we are happy here in the gross profit to see this increase. It is 218.2 in the first quarter '22.

So it's strongly above what we saw in the first quarter last year and in the EBITDA also additional element from the SG&A side, which brings us to in group EBITDA of $118 million. I think it is important to mention here that definitely there is some headwind in the first quarter, because in '21 in Q1 '21 we received a short term money for -- money from the government for short time work in an amount of $6.4 million and in the first quarter of '22, it was only $700,000.

So there was a basic headwind of $5.7 million which could be compensated because we did summary structuring in the HR in our system. So we have a lower number of FTEs now. This is what you can see and therefore it was possible to nearly compensate this effect.

Switching to mobile. Yeah, definitely the headline is correct. I do not see any sign of weak -- signs of weakness here. It is definitely the other way around. I think very strong figures. The service revenue in post-paid could be increased again in the first quarter. And therefore the share of service revenues could be increased to 75.1% of the mobile revenue here. So I think we only lost in the hardware revenues and this is not that relevant in terms of result.

In the gross profit another quarter with an increase now $166.2 million in the first quarter '22 and also if you compare it with the last four quarters this is the highest level, what we reached here. And I think all in it's -- I think it's a good picture that the EBITDA growth of $5 million is on the one side based on an optimization or an improved gross profit, and on the other side, based on an improved cost base and what is also what I read in some comments out what I read this morning, therefore I think it is important to say there is no release of any bad debt provisions. Part of this result because as a reminder, we build these provisions of $5.5 million for bad debt at the end of 2020 and these provisions are still part of the balance sheet. So there's nothing released to gain it here.

Then switching to Page 12 to the KPIs of the mobile business. Christoph already talked to you through the customer numbers. The ARPU is nearly stable and if you look into the digital lifestyle revenues Christoph was already talking about some problems in the first quarter, what we saw from EECC and from the shop situation.

I think what I added here is the supply chain issues where we also had some difficulties in the first quarter, but as Christoph was already very positive here for the second quarter, I can only confirm it from my side. I think, yes, it was slightly lower in the first quarter, but all signs, what we see from the first weeks in the second quarter is that it should be possible to improve the revenues here again, in the second quarter.

Moving to TV and media on Page 13 there is another increase in revenues. I think we have to separate the media barter deal of $1.5 million here and therefore there is an increase of revenues from $68 million in Q1 '21 to $73.9 million in the first quarter. This increase is driven by waipu.tv and by the increasing number of customers.

On the other hand in the gross profit, also an increasing figure here from $44 million to $47 million. And if you look into the EBITDA, I think the positive picture here again and in the business parts here, what we see is freenet TV, something like zero line. Then we see some cost efficiencies in the B2B business of media broadcast. Therefore, an increase here and in waipu.tv, maybe on the first view, a little bit disappointing the increase of 0.6 million, but Christoph already mentioned the marketing campaign, what we started in the first quarter and therefore this is something which brought the result a little bit down here. In gross profit, it is as strong as in the other quarters.

Moving to the free cash flow, here we see a free cash flow in the first quarter of $62.7 million. It is all what we expected. Yes, correct. This economy, dividend is part of it. There are some negative tax effects out of the dividend. So as a net amount, it is something like, I think something like $4.5 million and so all in, I think the change in networking capital is it's a little bit higher than in '21, which is based on some higher contract acquisition cost and this is based as we do have more indirect sales, and this is an effect what we can see here.

On the other side tax payments slightly higher, but not really it does not make me nervous. The CapEx is higher as announced because we have this renovation in in our office in Budapest [ph], so additional cost. We did some investments into digital radio. So therefore, some additional investments, but we announced something like $60 million for the whole year and I would say we are on track here.

Leases are fine, interest payments lower than last year because the outstanding debt is lower. So all in, I think it's easy to confirm what we guided here for the year and I think we are fully on track in cash flow terms.

Moving to one special topic, I think not surprising for you because we already announced it. And we also gave you the amount at the beginning of the process. So we have to -- we have the amortization of the mobile com JBL [ph] brand which is an or was, or is an intangible asset in the balance sheet, which was $293 million of value.

So we have to amortize it now over the next 18 month and we did the first step in the first quarter. There is an effect in the deferred taxes tool. So all in there was a negative effect of $40 million and this slide number 15 is more or less only to show you that we would like to focus for this period on an adjusted group result, because this is normalization of this effect. And from my point of view, this makes a lot of sense.

Moving to the balance sheet Page 16, even with the amortization of the brand, we still have a equity ratio of 42.3%, a very, very healthy balance sheet. Our leverage is 1.6 and the bank debt leverage is 0.8. So it's all fine.

And moving to Page 17 to the guidance, I think here also a clarification maybe is necessary. We gave the guidance and there is no release of any bad debt provisions part of this guidance. So if there would be a reason to release the bad debt provision, this would definitely come on top to the guidance here, but definitely it's not yet decided. But yeah, definitely we confirm the guidance, what we see here and what we gave at the end of Feb. So in all terms, here we are, I think we are on a very good track and I do not from today's point of view, I do not see any reasons to doubt to the guidance, what we gave, but it is also from my point of view too early today to increase it.

I think we have to wait what happens in the second quarter. It is only March figures, what we see here, but I think in the mid of the year, we have to think about the guidance that we have to see. If we get more proof on the figures and then we have to decide to do so.

So this is all to the figures for now, from my side and therefore, I would ask you to do the Q&A, and I handle back to the operator, please.

And the first question is from Ulrich Rathe from Jefferies. Your line is now open.

Yeah. Thank you. I have two questions and a clarification please. The first one is on the ARPU, so that €17.7 was down ever so slightly year-on-year. You have talked in the past about your shift to a value focus, which could lead to some ARPU drift. Now you're guiding stable. Could that mean there is a minor sign in front for the full year?

The second question is freenet former Chairman has publicly criticized management before his recent department. And his main point seems to be that the management has paid too little attention to innovation with a specific example of an opportunity for cooperation with Tencent. He also suggests that the new supervisory board is malleable and inexperienced.

Now, Mr. Vilanek, as far as I'm aware, you have not responded in public, which is very gentleman. But it seems quite extra ordinary for Chairman to comment in this way on a management team that you supervise for more than a decade. Would you like on this forum here to address this criticism? And my clarification is there was a court ruling I understand that would get you into a sort of $12 million fine. Could you confirm and explain whether that is provisioned and how that fits into guidance. Thank you very much.

Yeah. Thanks Ulrich for the question. Ingo will do the third one up. ARPU, we don't see a change in ARPU as you well pointed out. It is more a function of acquisition mix. And acquisition mix means with hardware without hardware, etcetera, etcetera. And I think that is more impacting than usage as such or customer quality.

Obviously when you do more online, you have a hire same only share. Same only tends to be a little lower because we do not compensate for a subsidized Tencent, etcetera. So we don't see a negative impact there specifically on gross margin, as you can see, gross margin is growing again after a long period of time.

On the statement of Mr. Toma [ph] well, first of all, I have to say that we were, and I think that was also pointed out in the statement from the new Chairman. We were very surprised or from his deputy actually in public voice we were all very surprised about this public statement. But I'm happy to disclose a bit more detail in this close job here. Mr. Toma and myself, we have been working extremely tight and in a very personal relationship up until September last year. So over 12 years.

In September we had two very different opinions on personnel decisions. One was concerning his son who was partly employed upon his pressure on me for eight months in the last year. And then after eight months, he said that we had not seen any output and I will stop that contract because I found it compliant as long as there is an impact and an outcome of the job, but then I decided not to do it.

And I gave this in a written form to his son, which is formally sort of the way you do these things. I made a note on this. It was on 1st of October at 9:39 AM and I had a call 20 minutes later from Mr. Toma where he shouted and screamed on me five minutes and ever since then we have not spoken.

So as simple as that, he was annoyed about my decision there, which I think was just irrational decision and that an old man like him may take be so personal, it's also related to the way he did business in the nineties, which back then was appropriate, but it is not appropriate anymore. So I think that was actually the occasion that I can remember. And I have made a note on all this and documented it properly. So that's the first point.

The second point is, I think it is a totally unacceptable statement on new board. First of all, the majority of board member, the three board members on the capital side that have been prolonged, Mr. Tula [ph] is around for 10 years, same as Mr. Viking and so I wouldn't know why they would suddenly now change their minds and their attitude when Mr. Toma is gone. I think it's the opposite that referring to my example that I made before Mr. Toma had a very 20th century way of looking on things compared to today's standards. And we have added three people that I think with no doubt at all are coming in with a fresh mind. Mrs. Laporta [ph] is a university professor on governance compliance and ESG and from this standpoint, it is very unprofessional to comment as he did, but I think he was just annoyed by the changes.

On the Tencent topic. I remember that we had a conversation on Tencent once and this was Mr. Toma was of the strong opinion that Tencent could deliver content for our TV platforms mainly e-gaming and we said, for sure, we would do that, but why would we do that with Tencent? There is a couple of companies in Europe doing the same thing. And this contact that he referred to is a pure invention of his mind.

There was never -- he never spoke himself to a Tencent. This was a contact of a contact of a contact. And I made clear that we have back then -- we had also contact with people like Tencent to our daughter company, Rina [ph] Digital. So all in all, this was also the reason I was not publicly doing a statement. I'm very sorry that this long term relationship ended like this. I think I have to say in a way it proves that you need to have an age limit for these kind of people in these roles. Ingo, you want to, do you want to say something about the $12 million?

Yeah, I think it's correct that we do expect a $12 million a fine, so it -- and yes, it will happen but we still wait on a written confirmation. So we do expect it and yes, we definitely provisioned it. So there will be no negative effect on EBITDA out of this and we do expect it in the next days to get it, and then definitely it has to be -- has to be paid during the year.

Your next question is from your Joshua Mills, BNP Paribas. Your line is now open.

Hi guys. Two questions from my side. I guess the kind of bigger picture one. If I look at your post-paid net down compared to the rest of the market and I know some details out this morning. Now I understand that there's some impact from the new German telecommunications law, but it looks like DJ [ph] has been losing partner brands, post-paid subs. Your subs are a bit weaker, but still positive.

So my question is, has there been a shift in who you are selling contracts on behalf of, I would suspect that you may be selling a bit more on Vodafone and perhaps even the test or side than DJ. It'd be great to hear your views on that and, more broadly, I think the market is concerned that Vodafone sluggish, commercial performance results in them either being more aggressive on price, or perhaps working more aggressively with you going forward. So a sense of your view of where market competition is and how it's impacting your business would be much appreciated.

And then the second question, just to clarification and forgive my naive here, but bad debt or the lower bad debt expense that you took this quarter, is that simply missed payments, which come in the quarter, or are there any assumptions which you have to make with your auditors? I just wanted to understand whether this is actually a genuine underlying reduction in your missed payments, which we should think about as being lower going forwards or there's any other points to consider. Thanks very much.

Yeah. Thank you, Joshau. If I look at the acquisition mix during the first quarter the DT and Vodafone were both on the strong end for us on our side. If we have taken it back a little bit, then it was on Telefonica. And why is that? because DT, as well as Vodafone are very supportive with very, very positive language between the companies for many years with DT was tough, but now with Sreenath Gopalan [ph] and his team they were really, they were the ones that said you should have also 5G contracts under your name.

We are happy to support you. We are talking with DT on a midterm agreement in terms of volume bonus and terms and the same goals for Vodafone. We see that Vodafone has some commercial issues from our point of view and this is the trouble in Vodafone is that the full technical and process integration with the cable business is not working properly. They are not really able to do conversion products in a reasonable way.

There is also some people claim that this is the leave of harness amide that has some relation there. I cannot judge on this and I cannot comment on this, but we see that also when we have this contract on DSL with them, and later on cable, days air or internet access, which we have signed and all these things are really in trouble because of their internal difficulties.

So our point of view is that Vodafone has some heavy duty work to do process wise and technically internally. I think commercially the mistake is not, or the trouble is not on the commercial side as such. It's not about being even more aggressive on conditions because they have been aggressive, but back end seems to be the problem.

So we do not expect them to kind of like pressure us or give us some trouble. It's more the opposite. They are very supportive and the same goes for DT. Our relationship to test is not -- have also performed well in network performance. So as they, if I would say they, they they're strong themselves and we are not trying to compete them too much, because then it's just a matter of effort and a matter of overinvesting. So I guess this year will be more at DT Vodafone year for us.

Good morning, Josh. To your question about bad dad. Yeah, I'm aware of the situation that it is a little bit difficult to follow the bad debt figures or to guide them. And it was difficult for us here too, because we had, in the last two years, we had two big effects on the one hand we were more quality oriented in gaining customers. So we saw on the one hand, we saw lower bad debt ratios because the quality of our customer base was increasing.

And on the other hand, we saw out of the pandemic that the payment behavior of the customers was much better. It was even difficult during that time to clearly find out what is based on what effect. So what we saw in the first quarter now this $6.3 million I think from my point of view, this could be the new normal, I'm not 100% sure to be quite open here, but what I do expect from today's point of view is so like $25 million of bad debt in '22. But this definitely is without releasing any provisions. So from today's point of view, I would say this is the new normal but also definitely we need some more quarters as a confirmation, but I think this is the best guess what I do have today.

Thanks. And, this is okay, this is based on what you're seeing, but there's not been any change in the actual cash flow for the quarter. Is that right? Or have I missed something there? Yeah, this

Yeah. And then the second, just to come back on the first question have I, could you maybe as a third party, give us an insight into any of the conversations you've had with the new Vodafone management team. I don’t know whether that's too early yet, but I'd assume the current contract terms roll over, be very interested in the way we've had any new discussions of have a sense of what their view of using mobile retailers like yourself as compared to it.

My colleague, our colleague Rickman from Platinum [ph], who is in charge of handling the business with the network operators has already met new management or the new CEO. And I think that alone is already positive because we have seen other management coming in and not meeting us at an early stage and I think it's only officially starting by 1st of July.

That indicates A, that internally, they know that they have, so they need to have a positive relationship with us because of their maybe internal challenges that they face. And Ms. Tova [ph], who was in charge of our relationship on their side for the past couple of years will remain in the management and is holding a, a strong position in strategy. And we will have a meeting, I think the week first week of June, where we want to talk even extending relationship even in other, in other fields. So anything I can say is extremely positive and encouraging.

The next question is from Titus Krahn, Bank of America. Your line is now open.

Good morning, everyone, and thanks very much for both the presentation and taking my questions. I have two topics I would like to quickly discuss if it's fine. So the first topic is waipu.tv and questions, maybe a bit more strategic on the business. I remember in the last quarter, you mentioned appetite to investor the remaining 20% of free cash flow, which are not paid out as dividends, but meanwhile consistent EBITDA growth and waipu.tv segment shows quite a clear advantage from gaining scale and you see some competitors maybe in difficulties.

Do you actually see the internet TV market as an opportunity, maybe for acquisitions going ahead to further boost your scale and with potential for overall consolidation and maybe staying at the waipu.tv segment, you mentioned your new agreement with a setup box provider, and I think has been reported that this should be TV. Can you, can you give any details on how such a structure of such a deal would look like and what you could expect for, for customer ads.

And quickly as a second topic, maybe on your plan these to be launched potentially in Q2, can you give us any more indication or color on the contracts? And you mentioned fixed mobile bundling. Just the question how does this normally work? Can you bundle conflicts of different providers and theoretically mix and match, or do those wholesale providers need to be the same AG DT mobile and DT fixed. Thank you.

Well, first on the IP TV market, there was some time ago was still a third player in Germany. Imagine for sure we have talked to them back then when they said that they would go out of the market. At the end of the day, we have decided not to do an let's say acquisition because we felt that the only thing available is the customers. And we could acquire the customers through the market for lower money than they're buying the company and doing the transfer.

The same actually goes to so two, we have -- I have had a couple of meetings with the shareholders of questioning, whether they would be ready to sell their German entity because they're Swiss based and they have a strong position in Switzerland.

At the end of the day, it did not materialize for a couple of reasons, but the strategic decision that is always staying in my mind is whether at this stage, it's still more beneficial if there is more players in order to push the category as such versus doing acquisitions and basically bringing it down to DT Vodafone and us.

So at this stage I would, I'm still positive, or I think it is more positive for us. If some more players are coming in. Oceanium [ph] is gaining momentum. It's an Austria-based pure B2B provider. So I think I don't see big consolidation opportunities but you can be sure that we are looking at it. And I also spoke, also spoke in a number of meetings with international players.

Some of you might know it's a Spanish company listed agile content. They have recently taken over the entire cable business from from the locally provider in the Northern part of Spain. I like the model I like the model to offer cable operators to take over their full TV operations. And I think that is midterm the strategic, the strategic opportunity. There is so many small companies in, even in Germany organized in the so-called Braco that's locally operators, locally fiber companies locally cable companies, and they all still run their waipu.tv operations, and they will not be able to scale neither towards the content providers nor to the relevant international players, such as Netflix, Disney, et cetera, etcetera. So I think there will be a in, in general a consolidation of service providers.

And I think we are in a great position to take benefit of it. We have also hired two people in X exceling, which is the company that, that runs VI to really address these things we have now a solution where more or less within four weeks we can provide a fully can provide a TV solution for any operator who wants to still continue to do billing and customer ownership. It's an API based solution. We are able to hook up with any of those within four to six weeks. I think that is a big benefit, but at the end of the day, our target and our goal is, is to become the owner of the customers, maybe in parallel to an operator, but to own the customer and also to do CRM, et cetera, et cetera.

So I think that the opportunities are increasing and scaling and we seeing more momentum. But it's, it's still at an early stage because maybe I can give you an example. We spoke to, we spoke to an Austria operator, and then they told us that they need to own the tech stack. And we said, well, you don't need to own it. You're not -- you need to control the relationship to the customer. And you see that these people that come from a very technical standpoint or infrastructure origination, they are still very keen on handling the technology piece.

And more and more examples of people that outsource it will also drive the opinion of these people and maybe change their minds. You mentioned Roku, I will not comment on whether it's Roku or not, but one of the these people, they are -- they have showed up said we'd like to be like to have you app integrated.

And we said, we are happy to do so, but it's some effort and we charge them for integrated for doing the technical integration with them. But in fact, if people like Roku would ask us to integrate, I think it's also a sign of quality and market acceptance by the experts. I think that is the most important signal depending on who it will be at the very end. It'll also have an impact on net ads. It's too early to say the integration will take three, four months. And then by the end of the year, we will be on the platform and it'll have an impact in 2023.

On the DSL question. Well, the things that we are ready to disclose is yes, it will be the same platform as fun and flex. So basically a pure app based we will offer a switch of the provisioning. We will not include a modem, the CLO the mode or router would be extra. There's a very simple product. And the goal is it's a seamless excess product. So at the end of the day, end, consumers will not even, they might not even realize whether the signal goes through a cable through copper or through fiber and that's the philosophy of the product. And there are some other features which are, we think at least will be unique very much fitting the current taste of the market.

And having said that basically we are independent, the contracts are made so that we are independent in choosing the partner per consumer and we could even switch so we could acquire customer on, let's say a 5G fixed mobile access. If at a month later fiber would be available, then we could switch the customer. And we would not need to ask the provider. So this is the way it's done.

So we're trying to be really as flexible as possible, and we are working and talking as we disclosed it certainly it's Vodafone and Telephonic at the one hand side, but with all the fiber providers on the other side, and even Deutsche Telecom was ready to talk to us on the topic, same as United. So flexible service provider platform with full wholesale access across all dimensions is the recipe.

Thank you for very comprehensive replies.

The next question is from Steve Malcolm Redburn. Your line is now open.

Yeah. Thanks guys. Can I'll go for three, if that's okay. First of all, can I just ask about your ambitions to sell energy products? You mentioned it as a slight drag in Q1, I guess the energy market's very different now to the one that you were looking at when you sort of, decided you wanted to try and sell this to consumers. So is there any risk around selling energy with these very elevated the wholesale prices right now? That's question one.

Secondly, just on the mobile business, I guess the sort of snapshot EBITDA, can we have a little bit misleading because you're dealing with contract cost amortization and acquisitions, your contract costs were up quite a lot in Q1 versus €15 million and your net ads were down. Is that just a reflection of the change in regulations that it needs to run a bit harder? And as we think through the course of the year, how should we think about those cash contract cost developing? And I guess the knock on impact on margins as they come through.

And then finally just on TV media EBITDA, obviously the Q1 mix and you called out a bit was a bit different. So the mix we saw last year with a big contribution from B2B and less from waipu. Just help us understand, how that contribution sort of evolves through the year. Do you expect the waipu marketing costs to sort of fade a bit less contribution from B2B, to get to the overall guidance, that'd be very helpful. Thanks a lot.

Yeah. Thanks for your questions. I will take the one on energy. I think it's much less important than it sounds. What we do in there is typically we do commission based acquisition of a low six digit number of contracts a year. You were perfectly right. In the first quarter, this was almost impossible due to the changes of pricing. We are extending that commission-based service now into a couple of other things.

But to give you a flavor, this company is 38 people. I think it's $10 million in revenues and EBITDA contribution is below $500,000. So it is something which we inherited which we do continue, but I mean I'm spending on this business maybe an hour, a quarter.

Yeah. And then about your question about the contract acquisition cost; yes, you are correct the ex-activation figure in the first quarter '22 is higher, but this is only based on the structure of the growth ads was what we gained. So it's not basic, basically more expensive, but there is accounting difference doing acquisitions on indirect or direct channels.

So this is the only reason here. I think what you also can see in the cash flow statement is that the correct acquisition cost in the first quarter was something in a balance. So the same, what we activated was also a motorized. So I think we are in a balance now, what we saw last year was another picture because then there was the pandemic and so on.

So at the moment I think we are in a balance here and I do expect no changes. And as Christoff was talking about media and about the, I would say the better performance, what we see at the moment that what we do expect for the rest of the year, I expect something like comparable balance for the rest of the year here.

Then your question about TV EBITDA yeah, I think it was, let me say a special situation that the B2B EBITDA was that good in the, in the first quarter, there were some special effects. I think, what, what is clear in the free net TV? You have only a few people, you have only low cost out of marketing. So SG&A is very small, but in the B2B business, you have high SG&A cost and so on and so on.

And so therefore you, you have a lot of possibilities to, to get more efficient. And this, there, there were some initiatives during 21. And I think what we saw in the first quarter here were some fruits what, what we could get out of it I think already in 21 we were performing well during the year. So the effect, what we saw in the first quarter here now, it's something, what I do not expect to see that it, that it is be possible to repeat it during the quarters, but definitely a slightly positive EBITDA is something what I expect in comparison to last year from from, from the B2B business of, of media abroad.

Sorry, on the contract, you're basically saying that there was more indirect in Q1 this year than last year, but we're now at a sort of normal, indirect, direct distribution level for the rest of the years. You see it?

The next question for [indiscernible] City Group. Your lines now open.

Yeah. Thank you for taking my questions. On the EBITDA guidance, you made some comments earlier in the presentation and you are trending ahead in terms of, I think it's about entry cash flow and it's a bit early with mark uncertainty, but so where do you see the greatest risk that would prevent you from upgrading the guidance with first half on results.

And also in that context, when we've seen brought to telecom yesterday, announcing salary increase of around 2%, 3%. Can you basically updated us on where you stand. I think in the past I mentioned 2%, 3%, so just wanted to check if that's still the case and then it was coming to effect. And then the second question is on waipu.tv, you signed new contracts with project glass and I think a couple of days ago I signed and if I'm not mistaken.

And you also mentioned a couple of other potential partnerships in the pipeline, telephonic [ph] some of it fixed funded. And I think for the switch over campaign, go to that, you said you should start to see some acceleration in the third quarter. Now, the reason I'm asking is that so the current expectations, the market is assuming that in 2023, we see a slowdown in net ads compared to 2022.

So just wanted to get your thoughts on if you expected better trend than that and then the very last portion that is lifestyle revenues. So trends a bit weaker. You highlighted supply chain issues as a reason and at those stage are important and important driver to your 2025 EBITDA guidance and in the conversation with consumers, do you see expected slower take up of these extra services than originally and in particular, because consumer will make, start to get squeezed and they might then cut back on those services first. Thank you.

Yeah. maybe on the first one EBITDA, I think what Ingo indicated is yes, I think we are, we are right now, we are feeling we are more on the upper end of the, the span and the question, whether we will exceed it is something where we need more evidence. But I think he was, he was trying to be, to be positive without, without overpromising, but maybe we are definitely on the upper end.

So if you look at the downward, what other potential downward risks we have the inflation and the personnel cost? Yes, it is huge topic. We have higher fluctuation than we have seen the last two years mainly. I'm, I'm still not sure whether this is just something, it is kind of a compensation effect of high stability of two years or, or whether it's more, but that goes for any of the companies.

We have introduced the minimum wage in, in Freenet of 28,600 euros for anybody which is a hit on the, on the personnel cost an increase, but with, within the limitation within the budget so far, I think there is a risk of, of that we need to pay more and need to spend more for the recruiting. But that's still, that would be still this year on a level which we will certain will certainly not be a downward risk on the EBITDA.

Yeah. it will, the thing that we have more in mind is any increase that we do this year obviously is, is, has impact on next year and also on the expectation of the employees on how they midterm increases work. We also have in media podcast discussions with [ph] so with the workers' council and the trade unions on increasing the wages every year, I think this is more things that we have.

So at the end of, but at the same time, personnel cost is about approximately $200 million. So if, even if you assume 10% increase we are still on the level, which, which within the span of the EBITDA guidance. Yeah. So I don't want to be show or present my myself too optimistic or too positive, but I don't see a risk that we will not make the upper end of it on vibe.

Yeah. Maybe, maybe if I may add that we did a restructuring last year and so I think we were not expecting what is happening now, but therefore there is something like a buffer for us. And this is an advantage what we do have during the year

On the waipu.tv, I think, it's almost the same answer in a different context there, all the indicators that we are seeing right now and the potential corporations they may all be take a little longer and the impact might be later. But I think everything you said is correct. For me, it's too early to estimate, but I cannot see any reason why next year, net ed should not be better than this year.

And this year we will definitely be higher than what we have promised or expected at the early stage. I said to you, we are crossing the 800,000 these days. So I see no reason why this curve should be different next year. It's more the opposite. We, we should accelerate. But maybe we are a bit reluctant to stated because we have had business plans of 2015 when we acquired the company.

And it was a bit always delayed and now we, we, we are not ready to believe yet that now it's suddenly kick starting, but all the indicators are positive and I would not see any reason why we should not see a further increase and the progressive net ed number for the next three, four years.

Then the other question about its lifestyle, I think there is no structural problem, what we see. I think, we were all talking about the problems, what we do have at the moment. We already mentioned that there's an uplift in April. So we are positive here for the rest of the year where this is the thing where I can repeat. And yeah, I think we only have to deliver now, but we are very optimistic.

The next question from Adam Fox-Rumley, HSBC. Your line's now open.

Thank you very much for the presentation for the answers so far. I just have two quick questions on why, if I could firstly, I just, I wonder if you could talk a little bit about the balance between investment and growth and in the short term, I mean, are you, do you feel like you are marketing for brand awareness at this point and then growth can be more self-sustaining or do you think the level of investment that you need in marketing at this point then kind of needs to continue in order to drive those acquisitions?

And then the second question is around a bit around the Deutche glass versa deal, but also the other ones that you've been talking about as potentials, those are new since you've issued the long term guidance. So I guess I'd be interested to know whether or not those plans, those were in your original plans or, or do account as additive, essentially. Thanks.

Well I think that the philosophy that we have been deploying on the Y business in the course of the last five years was we started and we were very optimistic and we thought that we could have an exponential growth on day one. And then we have learned things and you, most of you have listened to our statements there. We have learned that people have kind of erotic relationship to the remote control.

People are much more reluctant to change technology. It, we have so long about doing our own stick. We have tested it so overall we have pushed the, the, the company and the executive team there to become a profitable company and to be very reasonable about acquisition cost about ATL, spending, ctcetera, etcetera.

But we've always encouraged them to do little testing here and there in order to see, to not miss the starting point of a trend. And I think it, this remains valid. They have decided to take the opportunity to do some typical TV ads. And we have seen that it worked and we, it also, we, we need to have a higher brand awareness and brand recognition because we know that there is a point where Macta TV will push even harder. And at a certain stage water phone will be ready to cannibalize their own cable business with an own IP offer. So it kind of, we feel that it's now time to, to spend more money.

Once again we're talking about numbers that we will be cover within the guidance. We have had a long discussion yesterday about what we could do and how would what would we invest? I think what the executive team show to us is very reasonable. But it's, it's, it, it, it will be covered by the good numbers that we get on other ends this year.

And then the end and well, at the end of the day, the app, you, the app you in, in VI is also going up advertising sales is doing really well. We do we will have more than 6 million in advertising sales only this year. And we know that if we double the numbers of users this number will double as well. So I think we will continue to do this reasonable.

We will continue to invest reasonably in ATL and trying to keep low but we are ready to invest and we would be also we would also be ready to discuss with you if we, if this would have an impact at the later stage. And we will see that speeding an up speed in, in acquisition numbers would impact the bottom line we would be ready to do so because we, we would have proof of concept that it pays back.

I think that is ultimately the answer where we presented, I think a, a rational scenario for the next five years back in November. As I said, we think we will refresh these, these numbers in November again, or in December when we talk about Q3 and give you much more detail, but I think we are right now, the indication show that we will go above the plane let's say the regular scenario.

We think we can upscale much faster. And we think the 20, 25 will be much higher than what we have sought and explained in November. But it's too early to give all details, but I think you digest that we are very positive and we think we going to go faster and steeper. We also see that we also doing tests now to cannibalize ourselves on with DVBT because gross margin on IP is now higher on DVBT. So that is really focus of our growth story.

The next question is from Polo Tang, UBS. Your line is now open.

Yeah. Hi, thanks for taking the questions. I have two the first question is just around media, mark Saturn. Can you remind us when your exclusive distribution agreement with media mark Saturn expires, I think from memory it's 2023. And do you expect the renewal process to be straightforward, or is there scope to improve your economics, given that the media mark Saturn and channels been challenged in recent years amid the pandemic.

And can you maybe remind us whether the deal with the media mark Saturn is a fixed annual fee or whether it varies with subscribers or revenues? And my second question is really just around your stake in economy. How strategic is that stake? Thanks.

Well, let me start with the second one. I mean, it is a strategic stake because it gives us the opportunity to discuss with senior management independent from our day to day business on what their plans are, how the future is going, how they, how they operate services and solutions as they call the category. And I think that's definitely worth being at the table and influencing the discussion.

I think what they generally do is they do a great job in, in like cleaning out the house, improving the it and they have only this month launched the fully integrated multichannel system in one of their key countries. And that shows immediate positive impact. So in general terms, I'm, I'm very positive about the company. It'll remain a omnichannel brick and mortar based business, which has its limitations in margin.

But I think the team does a great job there. That's I, and this, this also indicates that we are not envisioning an increase of our stake but we, we consider it a strategic one and we will hold it for the upcoming years on the contract. Yes, you're right. The contract is there, is, let's say to put it very correctly, they would now be in a position to cancel the contract or to terminate the contract with the 12 months’ notice period. This is we are in that phase of the contract where the renewal is basically an annual one.

But I think I can disclose that both parties have indicated to each other that we would like to extend this the contract for another, for another couple of years everything that has been said at the negotiation table was extremely positive. And it ended with a mutual agreement that we are working on the small, on the fine print at this very moment still signed still, still a couple of open questions, but I would personally having done these negotiations for 15 years or 20 years, almost 20 years to me it looks more like formality,

I think we will also we have also agreed or that we need a bit more flexible ability on both and on what are we selling can we include conversion products from our side bay how would they, how would they support this? How will we in future work with them with the new formats? Can we integrate their so, but I mean, my guesswork and my indications is I see no changes in the numbers and the volume that we cooperate even better day.

We are now working online. We are providing affiliate services to them. We are providing a couple of new products to them, also outside, outside, pure mobile. Couple of our DLS products are now integrated in their platform as well. And we have we are testing even kind of, kind of shopping shop logic with them. So I think there's a lot going on and I have no doubt that we will, we will continue with them for another whatever five years.

Yeah. And from my side, Polo because I read your note in the morning and maybe it helps if I give a clarification to your command or speculation about our position, other provisions definitely what you speculate release of other provisions does not have anything to do with the bad debt provisions, what we build.

And on the other side, it is basically not a release. It is, I would call it a usage of a release here. The reduction in other provisions it is a usage for HR topics where these provisions were built in '21. And now they have been used because the money has to be paid out to the people. So no EBITDA effect from this situation here and the other provisions.

Great. Thanks for the clarification. Yeah.

Now further the questions. I would like to hand back to the gentleman for some closing remarks.

Yeah. Thanks to all of you for this good discussions. Thanks for your questions. Wish you all the best and hope to speak to you soon. Goodbye,

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.