freenet AG

Hello. Thanks for the introduction.

Hello, everybody for our today's call on the preliminary results of the year 2020. I think we've all experienced an extraordinary year in many types of things.

During the presentation, we will also relate a little bit to some of the learnings and some of the actions we had to take. But overall for us, most important is that, our omnichannel strategy worked out really well.

As you can see on Page number 4 of our today's presentation, we were able to grow the subscriber base across all subscriptions with a significant increase of plus 243,000 net adds. So we're very happy about that.

That also shows the sustainability of - and the robustness of our business model and of our fragmented distribution structure. The EBITDA ended close to EUR 426 million, which is very well in the guidance.

Ingo Arnold will explain the major drivers. Certainly a couple of savings from the corona crisis, but we believe that the savings that we've had there or the subsidies that we have gathered there will be replaced by a recurring cost effectiveness in the future.

On the cash flow side, there we ended up with EUR 237 million as well within our guided range. What were the key drivers and the key achievements during this past year?

We explain this, as always in three chapters. One is on mobile communications, and I think you've learned all that before.

I think if I look back, there are three major things that have been driving our abilities here and our performance. One is that, we have not only launched app-based portfolio, but we have also, based on the learnings and based on the system architecture that the colleagues have built up for that portfolio, we were able to optimize a couple of our legacy processes within the company.

So the effect of these tariff plans is not only the number of subscribers, but also the impact on our digitization of legacy systems. The second one is certainly that we've been able to start a couple of new cooperations, such as Netflix bundles with our product portfolio.

I think the success in numbers is a little less than we thought, because when we started it, which was late in 2020, it was obvious that in the first lockdown, Netflix has already gathered everybody, all the couch potatoes into their subscriber list. But still, I think it is one more innovation that - and one more good signal that we've been able to join forces with such a global brand.

And certainly, the finalization of the LTE migration was a substantial effort. And having seen a couple of ARPU deteriorations the year before based on this migration and transformation, we have seen a more stable ARPU in the [interest payables] [ph] from the corona effect in the customer base.

And we're very happy that this is now finished. On the TV and Media side, once again, VOD bundles, a couple of new channels joined, a full set of Turkish channels for the Turkish community, a successful price increase with freenet TV.

Bearing the fact that we have lost a couple of customers, the goal was to increase gross margin and EBITDA, which worked perfectly well. And we have started - founded and started our new activities with 5 owned channels on the DAB+ multiplex.

Those have been launched in October. And from April 2021, we will not only run our own 5 channels, but the full multiplex is now up and running and the external partners are also paying the technical fees to Media Broadcast.

On a Group level, I think, in general, as I said in my introductory sentence, I'm happy that the omnichannel strategy works out well and we see also that the transformation that goes along with it within overhead and back office is doing pretty well. We will engage more into that subject matter during the first six months of 2021, leading to leaner processes, smarter treatment of the customer and improvement of a crossover customer experience.

We've also launched a number of initiatives on the key modern topics such as ESG, diversity. We have also learned to adapt the, what I call the new normal, the way everybody like you are, yourself, now working more from home and finding the right way to do so, not losing efficiency and effectiveness, keeping things lean and smart.

I think there is a lot of small things that we have not anticipated and the learning curve was extreme, but it was implemented pretty well. And I'm very happy about the entire organization.

On the more corporate side, Ingo will go into a couple of details, but certainly, the sale of the Sunrise shares and the follow-up impact on refinancing, et cetera, was a great success. Having spoken about corona, I hate the word and I think we're all fed up with it, but still we have to live with it for the time being.

I think I won't go through all the topics. We obviously had to adopt all the rules, we have implemented it.

It's a side information maybe, we had in total 68 cases so far across the 4,000 people. We have had no real damage - damaging case so far, and we know that we have not have had any infection and coming from within the company.

So we're very proud of that and people are very happy. We had to close the shops.

We have also partially closed all shop-related functions and put them into short-term work. The strategic focus of the company, and I think that goes along with a trend in the entire industry, certainly gross adds lost a little - lost even more in their importance, renewals customer base development is in an accelerated mode.

Even more important, we have seen churn intake or termination intake slowly going down, but continuously going down over the full year. And for your information, none of our employees had to accept any pay cuts.

I think that is important. I think that keeps morale at the very, very high level.

And our shop staff is still in the shops. They are still working from the back office and they are talking to the customers, we do video conference, they do all kinds of things.

We do click and collect. So I think the learning curve in retail was exceptional and seeing that not only with the mobile shops, but also with GRAVIS.

I think that was a real step forward and we think that the sustainability of our retail chain has shown proof-of-concept during this past year. On the dividend, a quick one, you know that we have suspended it back then in the - for the AGM.

I think that was a very wise decision. We have had then room and freedom to do the refinancing.

And if we include the extra dividend, which we're going to pay out this year, plus the two share buybacks, we have shown to our shareholders that we keep our promise to make them the owner of 80% of the free cash flow. We have had a lot of positive feedback on how we did it and how we treated it, so not only from institutionals, but also from retail.

So I think that was the right decision at the right point and we've also shown that we need to adapt to new information and to latest updates. If we are doing really well, we should then keep the promise that we made.

And Ingo will also explain the new financial policy and guidance in a minute to share with you what our overall thoughts are. On Page 7, I think it's a very nice illustration of where we've ended up, right in the middle of what we've planned in EBITDA, on free cash flow, a little lower.

Ingo will talk about working capital impact in a minute. Certainly, the second shutdown in December was - gave us a bit of trouble over the Christmas period, but he'll explain it.

Page 8, the details on the net adds, as you can see, postpaid, as we guided and as we continue to guide, a slight increase. Funk and Flex almost doubled, certainly on a reasonably small level, waipu.tv with a strong year and a net add of almost 170,000.

I think that is really great. Still, we are waiting for the kind of like a hockey stick adoption rate in Germany of IPTV.

So we know that the legacy and the tradition of the well-learned and well-known remote control for cable and satellite is a hurdle here. But I think the numbers speak for themselves, that we're getting better and better and the entire, let's say, segment of IPTV is gaining even more trust within the German community.

On freenet TV, we have to accept 10%, I wouldn't even call it churn. I think it's people that have then decided that, given the offer or given the quality of the offer, combined with maybe different pricing, they stopped the service for a period of time.

But if you increase prices by 25% and lose 10% of the customers then obviously, I think it was the right decision and the right move. And we will certainly continue to seek for a smart price increase every now and then.

I'm not saying it's going to happen in 2021, but given the learnings from the last year, not only on freenet TV, but also on waipu, we feel comfortable that price elasticity need to be used in order to maintain or improve gross margin. On Page number 9, I think that is some of the statistics that we have shown with Q3.

If you compare 2019 to 2020, it speaks for itself, that non brick-and-mortar channels gained in importance, not only on gross adds, with now a share of 55%, but even more on renewals. This equals to a challenge in our shops.

Our retail chain must generate even more sales in hardware, accessories and other services and in all those categories. During the open times, if we compare them on an index they have done a record year on accessories, on attach rates, et cetera, et cetera.

So I think that is a very positive message. I think that also, by the way, goes for our partners, the three retailers, but also Media Markt and Saturn.

Even though, as you can see on the right-hand side, the channels that we have full control of are now - have now a substantial volume of 70% of all transactions, which also means that over the past number of years, we have increased this share. And so the part of the value chain that remains within our control and within our pocket is constantly increasing.

There is, on the next page, even more detailed look at the postpaid development and both new tariff plans. I think they're both doing really well.

We have had some improvement on performance with the product itself, but also with the campaigning. And these days, we focus our campaigns.

We are under the review of how we spend TV money in the future, if we do it more on the mobile - on the, let's say, the tariff brands, whereas in the past, we've put the money more on the retail brand. I think that is one of the key strategic decisions that we have to take during the course of the first six, seven months of this year.

At this very moment, we do not spend any money on TV. We will - we have pushed that into the second quarter because of the current lockdown situation.

On Page 11, I think that the curve clearly shows, and we have also explained that already 12 months ago, I consider freenet TV becoming a long-tail business. We have significantly reduced the team there.

We have taken the opportunity to replace them from Cologne to Hamburg, where, in Hamburg, all the competence in online and distribution and sales is located. Whereas in Cologne, it's the pure TV technology.

I think that has taken - has given us significant benefits. We are able to use synergies across brands and across products.

We have, as I said, we have reduced the headcount in the pure team by about 60% and the numbers on the EBITDA and gross margin level prove that this was not only the right decision, but also the small and very flexible team can do much better in this long-tail aspect. Then on the next page, kind of the last one from my side, on the past year, you can see the overall curve on the subscribers of waipu.

We have - we are now positive with the monthly EBITDA contribution since May. We will turn into a positive annual EBITDA in 2021.

This is kind of a breakthrough, not only for us, but also for the team. We will also most likely buy some of the old shareholders out of the company so that we have - we increase our share, which is, I think, a very logic step if we turn into positive and want to consolidate as much as possible.

Overall, we can clearly see that we are a market leader and we have extended our market leadership during the course of 2020. Our growth is significantly higher than the one of Saturn or the pure IPTV, Magenta of Deutsche Telekom, not including the legacy TV, Entertain, obviously, but the pure IPTV.

So for me, the 2020 is, obviously, the real path, what are the things that we're working on in 2021? Churn reduction and optimizing of the customer experience in the customer base.

Certainly, one of the goals, the increase of captive channels, the extension of service levels and types of services in the shops is one of the key targets. We're still in a lockdown, only a third of our shops is open, not public open, but open for click and collect and repair.

I mean - but all the new technologies, such as meeting or scheduling of meetings with our shop staff, video and telephony consultancy from our sales reps with the end consumer, all these things have been implemented and become now operational normal and are subject to even more optimizations. We are about to launch our first 5G contract.

We are not expecting huge uptake, but in terms of branding, in terms of proposition and perception, it is a very important step. My personal view is that, if we reopen the shops that we will see a flood stream in any of our retailers.

I think people are desperate to go back to the shops. We are preparing for that, not only our staff, but also in terms of availability of SKUs and product in the shops.

On the TV and Media side, freenet TV, obviously, going into a long tail, which means, renewal, no significant innovations, no significant investments into new customer acquisitions. And in parallel, as I've said, we are starting our new - we have started the five radio channels.

They are now not only available on DAB, but also on podcast and on streamings. We have, with our partner together, even founded a media agent to sell the inventory and we expect this to not contribute significant profits and revenues during this year, but positive contribution moving into a significant business in the course of the next couple of years.

And on waipu, I've already mentioned that we most likely will extend our shareholding to take more of the benefits and the profits and hand into freenet and also making it available for our shareholders. Having said that, I'd like to hand over to Ingo for a more detailed look at the financials of the past year.

Thank you, Christoph. Good morning, everybody from my side.

I would like to start on Page 14 with the financials. So I'm very happy with what we reached here during 2020 and even with the fourth quarter.

I read in the comments this morning that some of you were disappointed by the figures. I was a bit surprised by this.

So I try to clarify the things and hopefully get some color into it. On the revenue side in the fourth quarter, we reached EUR 670 million.

Yes, definitely, this is lower than what we reached in the fourth quarter of '19, but this is based on the shutdown here, what we saw since the 16th of December. And for our GRAVIS stores, the period from 16th of December to the end of the year or even to the beginning of January, this is the most relevant period in terms of revenues.

It is not so relevant for our Groups in terms of profit, but in terms of revenue, it is very, very relevant. And therefore, yes, we lost some revenues in the fourth quarter here, but without any big effect on the profit side.

All in, what we see is that, it is a relatively stable revenue. On the gross profit side, if we look into the adjusted figures here without the [regular] [sic - regulatory] topics, then, yes, it was down from EUR 897 million to EUR 882 million.

But I think you have to put into consideration here that in the fourth quarter, yes, maybe on the first view, it looks a little bit disappointing because if you compare '19 with '20, you see a lot of something like EUR 7 million here, but EUR 5 million out of this is freenet digital. This is the company what we sold at the end of September.

And so the biggest effect is resulting from a business which is non - which was not core before, but all in, which was not generating any EBITDA. On the EBITDA side, we, all in generated an adjusted EBITDA of nearly EUR 446 million without the differences from Motion TM and from the international call effect.

And if you see - look into this adjusted figure, then you see that we increased EBITDA on a year-to-year basis by something like EUR 9 million. Moving to Page 15 to the mobile performance.

Yes, on the revenue side, you see what I already mentioned, that the close of the GRAVIS stores in the mid of December had a negative effect here. This is what you can see in the fourth quarter.

But all in, if you see the whole year figure, this is nearly the only effect what you have, the difference from the fourth quarter. In the gross profit, and I think this is very important to mention here, because it is for a long period, the first time, and therefore, I'm very happy about this, it was possible for us to increase the gross profit on a quarterly basis between the fourth quarter of '19 and the fourth quarter of '20, it was possible to increase it from EUR 174.8 million to EUR 175.4 million.

And I think this is the best proof-of-concept what we could give that it is really a very resilient business what we have here in mobile. On an EBITDA side, yes, correct, not all of these positive effects from gross profit are transmitted into EBITDA, but there is one reason for this.

What we did here was, we built some provisions for bad debt. You could call it conservative, but what we do here is, we do - on a regular basis, we do a lot of analytics about the macroeconomic trends, what we do expect for the future.

And if we look into it at the moment, we see some signs here that the economical situation out here could go worse during 2021 after the pandemic, based on unemployment rates and so on. And therefore, I read it in one comment this morning, yes, maybe it is perfect to call it preventative.

This is something what we did here. And I think, during the year, we will see if it was really necessary to build this provision or if there will be a chance to release it again.

I would not do so today, because we do not know all the effects of COVID, but I think we will see during the year. Moving to the KPIs of the postpaid business on Page 16, the big intake of postpaid customers make me very optimistic for the future, because even with a quarter where we lost nearly two weeks at the end, it was possible for us to increase the number of postpaid customers by 74,000.

It was a very, very strong quarter. And without the lockdown, it would be even better.

So very good intake on this side, again, a sign that the mobile business is worth a lot, that it is resilient and that it is very strong. On the ARPU side, yes, this is something which looks a little bit negative, because the ARPU went down in the fourth quarter by EUR 0.50, but still, you have some roaming impact here, as business is not running as it was before.

But without roaming, it is nearly stable what we see in the ARPU. On the Digital Lifestyle side, we see a decrease in the fourth quarter.

In the whole year, even with all this pandemic effect and with the closures of shops, what we saw, we see that the revenue out of the Digital Lifestyle is nearly stable with EUR 189 million. And the reason for this and it's also a positive message from my side, what we reached during the last years was that we moved the revenues from a reselling base to a subscription base.

So much more of our Digital Lifestyle revenues today is in subscription models and therefore, it was getting more and more sustainable by the time. On Page 17, I move to the TV and Media segment here.

What we see in the revenue here is, yes, it looks very stable. We see increases from the growing subscriber base from waipu.tv and so it's a very stable revenue situation.

On the gross profit side, here, again, you see - if you compare the quarter, what you see here in the gross profit, if you look into '19, there was in the second quarter, something like EUR 42 million, in the third quarter, EUR 42 million. And then in Q4 '19, there was an extraordinary effect of EUR 5 million.

Therefore, the gross profit in Q4 '19 was EUR 47 million. Without this extraordinary, it would only have been EUR 42 million.

So average level in Q2 to Q4 '19 was something like EUR 42 million. And what do we see in '20?

We see a level of EUR 45 million. Therefore, the figure of EUR 44.6 million in the fourth quarter, in my eyes, is not disappointing, but it's the confirmation of the gross profit, what we saw in the last quarter.

Moving to the EBITDA. Here, again, we saw an EBITDA of EUR 86 million in 2020, which is nearly EUR 6 million higher than in 2019.

And all in, it is something, 20% of the EBITDA of the whole Group. So it is a very relevant part of our business now.

Some details on Page 18 from the - I only would focus on the middle boxes. There is the Media Broadcast B2C business, which is freenet TV.

Here, you see there was in - the delta to last year was an increase of EUR 1.4 million in the EBITDA. On the other side, if you look into the Media Broadcast B2B business, here, you see the effect what I was already talking about in '19.

In '19, we had a very positive effect of EUR 5 million, which were shown that time in the B2B business. And therefore, now it looks much weaker than in the other quarters, but it's only this extraordinary effect.

In the EXARING business, we see that - and Christoph was already talking about the positive monthly EBITDA figures, this is something what we see here. So all in, the EBITDA of '20 is EUR 7 million higher than the EBITDA of '19 and it will be definitely positive, all in, in '21.

Moving to Page 19, maybe here, on the first view, another disappointing figure. But also here, I need - I think this needs some clarification, because on an adjusted level or on a normalized level, I would say the free cash flow was EUR 249 million, because with the closure of the GRAVIS stores, there was a negative phasing effect from working capital.

And this negative phasing effect in the last weeks of the year brought us this decrease by EUR 12 million to EUR 237 million. So there will be a positive effect in '21, definitely out of this, because it is only a phasing.

And therefore, I think on the first view, negative, but if you look into it, we are much higher in the range of the free cash flow and we are also here very - we're very successful during '20. Another success is shown on Page 20.

I do not want to discuss all the figures. I think the most important one is below the tables.

On the one hand, at the end of '19, we had a net debt of EUR 1.55 billion. And now we do have a net debt of EUR 269 million, bank net debt.

So we optimized our balance sheet very, very - it was very important to optimize it and now we have a very, very healthy situation. This is something what you can see on Page 21 in a result, because what we see here is that, now we have an equity ratio of 40.4%, we have a leverage of EUR 1.7 billion.

And so it's a very, very healthy structure and totally different to the figures what we showed at the end of '19. Then moving to Page 22, Christoph was already talking about the suspended dividend.

I agree totally that it was correct decision what we took last year on the information what we had, it made a lot of things on the capital markets possible for us to refinance and it was a one-time suspension. This is what we already announced some weeks ago.

This year, we will pay again a very high dividend with a good dividend yield, what we grant. So it will be perfect, but it is important what we show on Page 22, that for the shareholders, the payment what we promised to give to the shareholders, they really happened in a different way, but we stand to what we promise.

On Page 23, we show the new guidance. First of all, the subscriber guidance, in postpaid, we still see the possibility to increase the customer base further with a moderate increase.

On the freenet TV RGU, we expect a moderate decrease, a further decrease. But what is important for us here is, we report this RGU, but our priority and our focus is the gross profit of that business.

And this is what we did with the price increase in 2020. Yes, if you only look into the RGU, maybe this looks disappointing.

But if you look into the profitability of the business, this could be increased dramatically. And therefore, I think this is also the idea for the future.

We do not know when it will be possible to do another price increase, but we definitely will focus on the profitability of the business and it's only a second priority to focus on the RGU. Waipu.tv, here, we expect solid further growth.

It's growing month-by-month, quarter-by-quarter. And so there is no sign that something could change here in 2021.

The financial guidance, on revenue, we expect a stable revenue here. In the EBITDA, we expect an EBITDA between EUR 415 million and EUR 435 million.

Why this range? We did, as everybody do at the moment, we also did some worst-case scenario calculations on COVID-19.

We calculated how long the shops could be closed and so on and so on. But in all the worst-case scenarios, what we calculated at the moment, we did not end below EUR 415 million.

Therefore, EUR 415 million is the lower end of the guidance range here for the EBITDA. If you ask me today, yes, I would expect in the - I would expect to end up in the higher end of the guidance, but we are at the beginning of the year now and I think we have to wait what will happen during the year.

Something similar with the free cash flow. It is lower than in 2020 and it has to be lower because we will not receive the dividend from Sunrise, which was EUR 46 million in 2020, and - but we also paid some more interest.

So all in, there will be something like EUR 35 million what we will lose at the end of the day without the Sunrise stake and therefore, now we have the range here between EUR 200 million and EUR 220 million. But with the phasing effect, what I explained before from GRAVIS, I would also say here, what I do expect today, with all these uncertainties, because now we are only in February, but with the uncertainties what we have at the moment, I would say, yes, I do expect to reach the upper end of this guidance.

This is what I would say today. Moving to Page 24 for a detailed free cash flow bridge here.

What we see here is that on the net working capital, we see something like minus EUR 25 million here, what we do expect for '21. In 2020, it was something like minus EUR 35 million.

So here, we see a lower value, also driven by the phasing effect, what I explained before. In the tax payments, EUR 40 million.

There are still some postponement of payments here. If the authorities ask us to pay or request the payment, EUR 40 million could be possible.

If not, could also be possible only to have EUR 30 million. But in a normal way of doing, EUR 40 million.

I would expect EUR 40 million. CapEx, EUR 45 million.

We still do have some investments into digital radio. It's something similar to what we did in 2020.

Christoph already described that in the first half of the year, the second multiplex will work 100%. So there is still some work to do and some investment to do.

And therefore, we will see these investments during 2021. On the leasing side, here, we see minus EUR 70 million.

It is similar to what we saw in 2020. It was slightly higher than in 2019, because there was worthy investment into digital radio, and there were some new rent necessities out of this.

Then the interest payments, EUR 35 million, EUR 10 million lower than in 2020, because of the reduction of the bank debt. The quarterly breakdown on the right-hand side, what I would say today is, I think in '20, if you look into it, the third quarter was something like too good, because there were some phasing effects, because we got some money from the network at the end of the third quarter, which I already mentioned in the last call.

So it was something that was too good. Therefore, the fourth quarter was too low.

What I do expect for the next year without any big phasing effect, I would expect something between EUR 45 million and EUR 60 million per quarter. Page 25, our financial policy for the next year.

On the leverage side, yes, our leverage now is below 2, but we would like to have some room for a maneuver. So we do the share buyback during '21.

This could lead to something like 2.0 or 1.9 during the year in the leverage. And therefore, we thought we do need some room and a leverage of 3 in the industry is something which is really normal.

Today, I would not expect us to see something above 2.0 during 2021, but we would like to have the room for maneuver. But today, I do not see anything which could increase it above 2.0.

In the equity ratio, we left it on a level of 25% here. Today, there is a lot of headroom, because we - actually, we do have an equity ratio of 40.4% and what we do expect during the next month is even to increase it.

And on the dividend policy, we stick to our policy. It is linked to the operational performance, which is reasonable for us, which makes a lot of sense in our view and therefore, we left it on a level of 80% of the free cash flow.

So also in the future, we will be a company, which will be - which will deliver and grant a very high dividend yield. And I think this is - will be still part of the story to invest into our share.

Saying this, I would like to hand it over back to the operator and ask you to start the Q&A.

Yeah, thank you. Good morning.

I have three questions. The first one is on your statement regarding EXARING and that you may extend your shareholding.

So just trying to understand you know what magnitude, so how much would you be buying or what is you know up for sale? What could it cost in terms of investment of cash outflow for that?

Then the second question is on the mobile business. So you had a very strong net-add performance, but the ARPU was kind of weak.

Can you maybe explain, you know, first of all, how you generated these big amount of subscribers? And then, are these you know really low ARPU customers coming in?

So trying to understand the momentum here. And then lastly, on the TV side.

The Q4 EBITDA was down year-over-year. You mentioned the one-off effect in the previous year quarter, but still, I mean, waipu is growing, is now positive, freenet TV should at least generate a little bit of incremental EBITDA year-over-year.

You know why are we not seeing a bigger uptake in EBITDA year-over-year or is maybe the legacy B2B Media Broadcast business the issue here? Maybe you can explain a bit more the moving pieces within the TV EBITDA segment?

Thank you.

Yeah, thank you for your questions. First one on EXARING, there is still, as you know, more than a third of the shares with founding members.

And there is one of the, let's say, maybe not founders, but early participants that let us know that this institution would be happy to sell their shares, because of they have some other investment opportunities. And this is why it's not a family office, but it's kind of a family investment.

There has been a family investment. They have told us already a year or two ago that they would be ready to sell a couple of their shares.

We have now, only last week, agreed that we will have a deeper look into it. I think the total will be maximum investment of EUR 10 million and the share price that we will buy to them is below the one that we have invested.

So it's taken opportunity because one of the original founding shareholders was to step out. I think that is just - I think it's a smart move because we're getting them rather cheap based on a specific situation in the environment.

As I said, it's about EUR 10 million. Not yet agreed finally, but highly likely, and we have not agreed yet on the payment terms.

I'm not sure when the - when it will be - when it will hit the cash flow. It will be, I'd say, somewhere around 10% of the company.

So we will increase close to 70%, which, I think is at this point of time, a very intelligent investment. On the ARPU side, well, I could not remember that question for many years, but I think it's a very good question.

I mean what we see there is the entire way we do customer acquisition is not based on ARPU, but on life cycle result. And that leads every now and then to things that look a bit weird.

Yes, the ARPU - overall, the ARPU of new customers only recently was a bit lower than the customer base overall, but the life cycle results that we have per gross add last year was better than the year before. So the - we're not talking about euros, but back since and over lifetime, we talk about euros.

So this - I'm trying to let you know that we are not - when we think about is there an opportunity, how we would fit it? What is a good campaign?

Which campaign do we extend because we're successful? It's not so much the ARPU or it's not at all the ARPU.

It's a life cycle result. So we have two curves that not always correlate into the right direction or not go in parallel, it's ARPU and margin.

I can assure you that the margin of those customers is even better than the one on the customer base. But we have accepted, it's a lower ARPU effect to give you a flavor of it.

The share of SIM-only that we have sold in the second half of the year in our own shops was increasing. And SIM-only tariff plans typically have a lower ARPU, but the equal absolute and obviously, the relatively better margin than the subsidized contracts that include hardware.

That is the driving force. And also on SIM-only, the entire credit scoring, et cetera, is much more relaxed because you do not hand out hardware to the individual customers and the potential damage, if one of those customers go into bad debt is much more - much lower than with the subsidized hardware-based contract.

That is basically the driving force into that. And for sure, in a year or in a phase where we have a higher online share, ARPUs tend to be a bit lower because of that specific fact that the proportion of SIM-only is higher.

Hello, Christian. Concerning your question about the profitability of the Media business, I already tried it before.

If you look into the quarterly figures then you see in '19 from Q2 to Q4, there was something like an average of EUR 42 million without the extraordinary effect. And if you look into Q4 - Q2 '20 to Q4 '20, you see something like EUR 45 million.

So it is something that EUR 3 million a quarter, it would be EUR 12 million a year and it's something like an increase of 8%. And you could do the same math also on the level of EBITDA.

I think the only thing what is disturbing at the moment is the one-off effect from Q4 '19. This is disturbing the view.

But if you leave this out, then you definitely see an increase, and there will be a further increase in '21.

Okay, thank you. Maybe just one follow-up on Christoph's point.

And obviously, you know we are still in a lockdown scenario right now in Germany. Can you say a bit on kind of the momentum you are seeing during the first part of Q1?

Yeah. No surprise.

It remains with a similar structure. We have obviously, the online and direct channel is the one and only right now, the SIM-only share is even higher than it was in Q4.

That's a driving force. Once again, it - I mean, the good piece is that we save a bit on fixed cost in the shops.

The good thing is that we have lower hardware sales and subsidies and the life cycle results of the SIM-only equal that equation out. The damage is coming from lower attach rates and up-sellings and also from a lower digital lifestyle activities and accessories.

I think that is it. I would say, right now from a bottom line, I think the positive - the negative effect that I've just described and the positive ones from cost savings equal out.

We are not expecting a real opening before mid or even end of March. I think the first quarter will certainly show some - we will show some wounds.

But as Ingo said, all our simulations show that overall, we will even under a very negative assumption. Overall, we would still remain within the guidance that Ingo has just explained.

Okay, thank you. Good update.

Thanks, Christian.

Yeah, good morning. Thanks for taking the questions.

I got three, please. Firstly, just following up on Christian's with regards to your guidance for ARPU, I mean, you're guiding for flat ARPU.

So we shouldn't expect roaming to come back in 2021 or is there some other parts included in this guidance? That's first.

Second, around a comment that was mentioned yesterday in Telefonica Deutschland conference call since they expect Drillisch to migrate data traffic away from their network and consequently try to leverage also partner business. Is that something you also expect to benefit from significantly perhaps?

Or are you more looking into offering a balanced portfolio in terms of networks for your customers going forward? And then finally, just on your waipu.tv growth trajectory.

Just wondering, Mr. Vilanek, you once mentioned that you were eyeing for 5 million customers by 2023.

I guess this is not up-to-date at the moment, but what do you think is a fair market share for a product in the medium-term? And what's kind of like a fair assumption for the customer base by 2023?

Thanks a lot.

Yeah. Jonas, thank you.

Well, on the - I think on the ARPU, we expect flat. I think there will be some roaming coming back, but we do not expect it to return to the original level of 2019 yet.

I think that the German news in the morning was that most likely, they're going to allow international traveling in summer, but nobody is booking yet. So I think we did not incorporate any of this potential upside, and we will see how it's going to happen.

So that is assuming a slight uptake but not a return to the old status. On the Telefonica statement, well, I mean, at this very - at this point of time, IONOS, 1&1 and Drillisch do not run their own networks yet.

We will certainly benefit from a competitive environment with 4 networks, be it either that Drillisch will give us very favorable conditions in order to enlarge their market share or the other 3 to defend their market share. To think under any assumption, the whole development is a positive one to us.

We have also done analysis on what we have learned about the national roaming agreement. And so far, we still believe that our conditions on data with Telefonica remain competitive and will allow us even in the future to compete any offer of Drillisch.

So in that sense, I think from a competitive mechanics, we expect a benefit, and we do not foresee somebody being in a position to undercut our pricing significantly on the network. I think the third one, I can't remember but I said 2023.

I think I said 2023 to 2025 to be on the safe side, but you're still putting the finger into the right point. And I said that in my introduction and my statements on 2020, I think we're really happy with the growth rate in waipu.

If we compare it to Zattoo, if we compare it to others, we have seen TV Spiefilm going away. We have seen Magine going away.

We see that the high investments and with full respect, the great progress that Deutsche Telekom does with their own IPTV. If we do a one-on-one comparison, we still grow much faster.

So I think our market share on the IP should remain at the high level, and it's a matter of definition. But I think I always said like 20% of the market should be the right number.

And I was assuming that, whether it's 2023 or 2025, approximately EUR 30 million will, in a way, consume IPTV. And if we assume that there is a couple other - majority of them paying in any of these matters, it is important for us that we include VOD services and bundle VOD services with waipu in order to make the people and also take our linear offering and then pay for it.

So I think I would still - I think that it's going to be slower than today. And I think there's maybe one part of my statement was, how would I say that, not precise enough.

I don't know whether all the 30% that move into IPTV, whether they will really court cut and will it use it exclusively or is it an add on? I think that is the big uncertainty.

When we do customer research, we realized that those people that they switch it or they switch off, it takes a real while, people say, well, now I cancel my cable TV, I cancel my - or I take away my satellite dish. This is still uncommon.

And in that sense, the uptake is slower. So if you ask me today, I think, to have more than 1 million subscribers is definitely reasonable for going by the end of 2022, early 2023 for us, but the 5 million is not going to happen in 2023.

That's for sure. I think they're - the market is just slower.

The ultimate question remains to be answered whether there is a turning point where suddenly people fully understand their convenience and then suddenly the uptake might go super steep, yeah. But I maybe, in terms of timing, less optimistic today than I was before.

I'm happy that we are highly profitable with - if we go to - if I assume 1 million subscribers, whenever we know that this is a very significant contributor to our total EBITDA in 2 million - 2-digit million number. So I'm happy about that, but we have to accept that this is going less aggressive than we thought.

It's very helpful. Thanks.

Thanks for taking my questions. Just a couple from me.

Firstly, on cost control. It seems like you took 8% of the fixed cost out of the business this year, is that something that you think you can continue to do?

Do you expect you'll still be able to cut cost in this kind of way and of this magnitude? Or do you think some of those costs will come back as the COVID recovery begins?

And then secondly, just focusing in on ARPU again. Could you potentially elaborate on some of the specific headwinds that you see, given the fact that you're guiding for stable, I presume, that there are some headwinds that you see offsetting the potential for a COVID recovery in the back end of 2021?

I'm just kind of framing that with the fact that Telefonica have also said that they expect a stable pricing outlook in kind of both the value and high-end segments? Finally, if I could just squeeze another one in.

Your freenet Funk product is starting to show real customer traction, is it still the case that that's a similar ARPU level to your postpaid mobile base? Thanks very much.

Yes. Thanks for your questions.

Maybe I'll start with the cost question. In a way, I'm still - it is still not 100% clear if all or what part of the cost, which were reduced in 2020 will be recurring in 2021.

I think, yes, there are some learnings from what we saw. And therefore, definitely part of the cost savings will be recurring, but there are also parts like this short - the money what we get from the government, because the time of work was reduced.

This is definitely not recurring, and this was EUR 3.5 million last year. So now we have again, a quarter where we will get this money.

So therefore, in '21, it will be recurring. If you had asked me three months ago, I would have said no.

So yes, to make the long story short, I think biggest part of the cost savings will be recurring, but there will be some costs which will come back. For example, marketing will get higher again, because we will invest again, but we had a lot of learning.

And then there is one part of the cost, which is not in our hands. And this is why we built the provision of something like EUR 6 million at the end of last year, we do not know how the payment behavior of the customers will develop.

And then it was very, very fine during the crisis, but we do not know what happens after the crisis when maybe the unemployment rate, for example, would be higher. So all in, it's - there will be recurring part, but also parts will be come back.

So what I would say is from best guess from today is something like 60% to 75% of the cost savings will be recurring. [indiscernible].

Yeah. I think the other one, I mean, on the ARPU.

I think my answer is the same as before. I mean, we have to see the acquisition mix.

I mean, you said, on Funk, our - the average on Funk is lower than the average of the base, but the purchasing model behind it allows us to create a very attractive margin. I mean, having said that, you might also ask the question, why don't you do more Funk?

Well, the Funk thing is not pushing the shops, because it's app-only. So whenever we do - whenever we decide on where we put the money on, we have a, I would call it, a sophisticated model how to optimize.

I mean, it was clear to us after the lockdowns in the first/second quarter last year that we need to push retail a bit and give it a more potential to do - to win customers and do the renewals, obviously, because you could consider our brick-and-mortar business as fixed cost business. So - logically, we have said, well, don't do a lot on Funk these days, because you can win on the others.

And now vice versa, if the shops are definitely locked down and we have no possibility, which might be moved into pure online and pure online is then Funk, Flex and SIM-only. So we balance this out, and that is part of the job that we do internally with our category management and our sales planning.

So it's a multidimensional optimization with a lot of drivers. Maybe once again, I mean, I can only do an illustration and not give you all the numbers.

But let's assume where we have had that situation in Q4, we were saying, okay, in order to reach some of our volume bonuses with the network operators, we are still missing, and just for the sake of argument, we're missing 100 units of new customers. And then we sit down say, who of - which is the right and the best channel to generate those within the next four weeks to six weeks.

So you have one dimension, which is the life cycle. We have one dimension, which might be any kind of fixed cost or variable bonuses with our channels.

And the third one is ARPU and the fourth one is the type of contract. So you can easily - and the fifth one might be even investment into marketing.

But at the same time, we'll talk to hardware manufacturers and say, while we have an overstock here and there, we would subsidize the handset. We would give you an extra marketing fund.

So I mean, they really jogging with five or six variables all the time. So this is - when we later on, Ingo and myself, need to answer questions on like what has happened, then we certainly remember the decisions we've made and also the reasoning, but it is something which we do on a monthly basis.

And the side effect of this, this is - I mean, if this was not the case, I guess we could run the company with 40 people instead of like 1,500, yeah. I think - but I hope I can at least give you a flavor of what really the sophistication is, then to say, okay, we can't do it with MSH, with Media-Saturn and that's good because they will be happy, but the short-term margin on Media-Saturn is lower, but the long-term is good then we have another partner.

Our captive channels we cover some part of the fixed costs and so on and so forth. So it's kind of a consultant answer, it all depends.

Thank you. Much appreciated.

Yeah. Good morning, everyone.

And thank you for taking my question. Just two topics, please.

The first one would be on waipu.tv. And just could you maybe elaborate a bit more on what has been the main drivers of the kind of strong net-adds in Q4?

And to what extent have customers taking up the new tariffs, including Netflix? Just trying to find out what's the subscriber mix has been over the last year and the last quarter?

And what impact do you think could - should have on ARPUs for the segment? And the second question, just a very quick one on the free cash flow.

Given that the stores remain closed so far in Q1, what impact do you expect on working capital flows after we have the impact in Q4? Is it reverse that probably likely to happen at a later point in the year?

Yeah. Titus, thank you for the question.

I loved the first one, because now I'm opening the Pandora 's Box. The driving force was the price increase.

The price increase that we have announced for the big product, for the perfect product was becoming real in January. So we knew that any customers that would hook up in November or December would basically be automatically part of the price increase.

So the marketing team created a campaign, which included a significant number of bonus months, because - which was refinanced by the price increase, which was not in place at the time of the customers seeing the offer. And that campaign was the most successful that we ever had before.

So we could offer the customers a price reduction over a period of six months, which paid back because implicitly, they have already accepted the price increase. And that - so basically, it was a very smart idea on a campaign and that was done with and without Netflix and became even more effective.

This, let's say, concept was and mechanics was discovered anywhere early November, we've tested it. And early indicators showed that also the customer - the attrition patterns of the loyalty remain on the same level as the normal.

And this is what they've pushed. So smart campaigning is the answer.

Concerning your question about the free cash flow, I think the situation in the first quarter of '21 is a little bit different than in the fourth quarter of '20, because we had to order all the hardware and all the stuff already in November last year, where it was not clear that there would be - if there would be a lockdown at the end of the year or not. So it was not a surprise, but we had to prepare ourselves for the business in November.

And therefore, we already ordered the stuff. Now we have much longer period in the lockdown.

So we optimized our ordering and so on. So I would expect that a counter-effect of what we saw in the fourth quarter of '20 should be possible in the first quarter of '21.

This is what I do expect at the moment.

Okay, thanks so much for the answers.

Hello, good morning. And thank you for taking my question.

Just one for me, please. So regarding what you were thinking about customers - about employees being made redundant maybe at some point - sorry, not employees so I'm going to [indiscernible] - not related to the company, but to do with people in the wider sector.

What was the amount of bad debt provision, which you took in 4Q '20? And what was the rationale behind this in terms of perhaps people in the economy losing jobs?

And have you seen any change in customer behavior or invoicing, which suggests you might not be able to collect the cash? Or is this simply based on a high-level macro view?

Will you need to take any more provisions next year as well? And sorry for the jumbled question.

I hope you understood that.

Thanks a lot for the question. I think, first of all, I would like to start in 2020, because what you normally would expect is, if you have a crisis, you would expect that the payment behavior would get worse.

So this was the first very positive surprise, what we did have during 2020 because the payment behavior was as good as it has never been before. Now, it is the question what will happen after the crisis and how -

Okay, sorry. Now we are back.

It was - what I heard, it was a small technical problem. I do not know what you get of my answer, but the payment behavior in '20 was very fine, surprisingly fine.

In '21, I think we have to see what happens after the crisis if the unemployment rate will be reduced. I think there are a lot of patterns from the past, and we use these patterns to calculate or to pre-calculate what could happen.

And on these pre-calculations, we built this provision what we have done at the end of last year. We think this - from today's point of view, and what we do expect is that this provision will be high enough even if the payment behavior would be worse.

If it would not be worse, which could also happen, then, there could even be something like a reserve in our results.

Thank you, very clear.

Okay.

Yeah. Thanks, everybody for joining today's session.

We look forward to the next one early May in Q1. And as always, very happy to take even more questions and more detailed discussions with our Investor Relations team.

Have a good day. Stay healthy.

Goodbye.

Goodbye. [Ends Abruptly]