T
Tele Columbus AG
LSE:0R50
Tele Columbus AG
LSE:0R50
Price:
3.3425
EUR
Market Closed
Market Cap:
€914.7m
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Dear ladies and gentlemen, welcome to the Tele Columbus AG's Q3 Results 2018. At our customer's request, this conference will be recorded. [Operator Instructions]
May I now hand you over to Mr. Leonhard Bayer who will lead you through this conference. Please go ahead.
Thanks, Marcia. Good morning, ladies and gentlemen. It's my pleasure to welcome you in the name of the Tele Columbus management team to today's conference call following the release of our third quarter results for fiscal year 2018, which ended September 30. Today's presentation is also posted on our website www.telecolumbus.com, and forms the basis for today's earnings call.
I'm here today with Timm Degenhardt, our Chief Executive Officer; and Eike Walters, our Chief Financial Officer.
Now I would like to remind you that if any lenders or rating agencies are on the call right now, that this is a public conference call in which only publicly available information will be discussed. I would therefore ask you to refrain from questions containing information not belonging to the public domain. This conference call is intended for Capital Market participants only and not for press representatives. If any journalists are on the line right now, we would highly appreciate if you were to leave -- leaving the conference call now. Press representatives are welcome to call my colleague, Silke Bernhardt, to discuss any outstanding questions. In addition, I would like to draw your attention to the fact that everything we are saying on this conference call is under the EU-U.S. Privacy Shield reservation.
Having said that, it's now my pleasure to hand over to you, Timm. The floor is yours.
Thank you, Leo. Good morning, and welcome to our Q3 call. Eike and I are very happy to provide you with an update on our overall progress and the financials over the next hour or so. Actually, we have a short presentation, and after that, we go into Q&A.
If you go to the next page, the agenda, so no surprises on the agenda.
Let's move to the next slide, which is key messages.
Okay. In a nutshell, we are making good progress regarding our transformation and we are confirming our full-year guidance. So if that's the big picture. Let me give you a bit more color at this point.
We're happy to confirm that we have completed the consolidation of our accounting platforms onto one single ERP system, as planned, by the end of September. After the migration of our customer data early in the year, that was in Q2, this was the other big milestone for the company, and this will significantly simplify our reporting procedures and hence shorten timelines for management reporting.
As of July 1, we are reporting Homes Connected and RGUs, based on a harmonized reporting policy across the group. However importantly, in Q3, we have stable Homes Connected, and we have reached a turning point for Internet RGUs.
We have previously communicated that revenue development this year would be driven by construction revenues and B2B, so I don't think there's any surprise around the revenue composition. And with regards to cost, we have said that we would be strengthening the customer service, sales and finance organizations where necessary. We see that our investments in customer service are bearing fruit and are being recognized by third parties. We saw it with Connect Magazine early in the year, and most recently, also now I think it's the edition of December of CHIP magazine, we're also quite highly rated in terms of customer service. We also see NPS trending up, so I think our investments there are bearing fruit.
In September, we already incurred some advertising costs in preparation of the relaunch of our commercial activities. In addition, we have a growing B2B business, and that impacts to some extent, our direct costs, as we connect customers across our network first, but also by using leased lines. So as a result, our normalized EBITDA margin is lower at 46%.
Naturally, we want to address this development. So we want to add high-margin revenues, hence, the restart of our marketing activities, which is showing sales picking up clearly in the recent weeks.
In addition, we have relaunched, as communicated, the shipment of our advanceTV box, so that's another milestone in the turnaround.
We're making progress in completing the management team with the start Dietmar Pöltl, who started on the 1st of October as our new CTO, leading our technical organization. And as you are well aware, we did the financing round in October.
So in summary, we are on track, and we will meet full-year guidance.
And now, I'd like to hand over to Eike for KPIs and financials.
Thank you, Timm. So hello and good morning also from my side. As Timm said, we already announced in our Q2 call that we would harmonize our Homes Connected recognition across the group. Just to remind you, the new policy only recognizes contract-based connections as Homes Connected. This means that we have either a concession agreement with the housing association, or an individual contract with a customer of our system.
The impact of the adjustment results in roughly 220,000 fewer Homes Connected. On page #7 in today's results presentation, we provide the pro forma figure for Q2, 2018 in order to show the operational performance in Q3, 2018. The pro forma comparison of the KPI adjustment of our Homes Connected base shows a stable development in the third quarter at around 3.3 million. This implies that our housing industry sales are fully on track to reach the 3.3 million for year-end 2018, and presents a stable basis that's reflected on our full-year guidance.
Our 2-way upgraded Homes Connected on our own network increased by 10,000 sequentially to circa 2.3 million, again, pro forma for the adjustment that impacted circa 45k upgraded homes. This resulted in a 0.3 percentage point increase in our upgrade status which now stands at 68.5%. In general, over 80% of our 2-way upgraded Homes Connected are capable of receiving bandwidths of at least 400 Mbit per second.
On Page #8, you can see that after 2 quarters of Internet RGU losses, the customer base stabilized in the third quarter. There were no further significant migration-related losses, and as a result of this, the customer base saw the stable development.
As indicated in our Q2 call, we kicked off our marketing campaign in early October, which would create tailwinds for Q4 and beyond. Our Internet penetration is still significantly below our German peers as we continue to see a lot of catchup potential in the market in which we want to tap into. The operational decrease in telephony RGUs is mainly a result of the debundling and introduction of stand-alone tariffs since the first quarter of 2017. In the last couple of months, the broadband-only offers attract more customers than our bundled tariffs. According to our internal report, the majority of churn occurs in bundled legacy products, while a significant portion of new customers opt for the Internet-only tariffs.
Positively, this year trends towards higher NPS with Internet-only customers, underlying the satisfaction of our customers with the debundled product. However, in general, we use the marketing restart to redesign our telephony product portfolio to make it more attractive. This should enable us to reverse the current trend here. Timm will elaborate a bit more on this later on.
The next page shows a soft CATV RGU development in the third quarter as we lost 24,000 pro forma further adjustment. Importantly, to say and to note, that the churn of 24,000 RGU only translated into 16,000 TV subscribers who are relevant for the ARPU calculation. The 24,000 losses are largely explained by a move from bulk to individual concession agreements. The benefit of these kinds of projects are higher ARPU. On top of these developments, we had individual customer churn as a result of the recent migration.
Moreover, the cable TV losses are also stemming from the absence of marketing as a temporary suspension of advanceTV shipments. The effect we experiencing here are comparable with the broadband business as both are part of our consumer business.
The above mentioned also holds true for the development of our premium TV RGUs, where we lost 6,000 RGUs quarter-on-quarter. But as already said, we restarted the shipment of our advanceTV set-top box in October again, and this should have positive impact in the future.
On Slide #10, you can see that our TV ARPU increased by around 2% year-on-year to EUR 9.50 in the third quarter. This includes a small positive impact from IFRS 15. Therefore, the ARPU remains on Q2's level. The Internet & Telephony ARPU decreased sequentially by [ EUR 0.50 ] at the third quarter. The IFRS 15 effect was negative in this case, and the operational declined [ EUR 0.30 ]. This is largely explained by the aforementioned fewer telephony RGUs and also with minor effect from fewer compensation fees from nonpaying customers. Please keep in mind that for the ARPU calculation, Internet & Telephony revenues are divided by the number of Internet-owned RGUs only and excluding bulk Internet RGUs, so the decline of revenues from telephony churn is reflected on the same denominator.
Now coming to the financials on Page #12. Our third quarter revenues increased by 6 -- 3.6% year-on-year to EUR 127.7 million, under the application of IFRS 15. The year-on-year Internet & Telephony revenue decline stems from different effects, i.e. fewer telephony RGUs, lower amount of damage claims, as well as negative impact from IFRS 15. On top, there was a positive one-off effect in Q3 2017.
Our TV revenues saw the soft development year-on-year, mainly due to an extraordinary positive Q3 2017, but of course, also significantly fewer cable TV RGUs in our current base. Positively, our B2B unit continued its success with double-digit revenue growth also in the third quarter, translating into a steadily increasing contribution to group revenues.
Furthermore, as already highlighted, during our half-year earnings call in August and also from Timm, construction revenues showed an expected significant pickup in the third quarter as we made progress with our ongoing infrastructure project.
Our normalized EBITDA in the third quarter decreased year-on-year by roughly EUR 10 million, even though the revenues increased by more than EUR 4 million. We see a couple of reasons for this. As mentioned before, the revenues generated with construction work are largely of a low-margin nature. This is the first and biggest bucket. Secondly, we spent roughly EUR 3 million more on recurring personnel costs at the first 9 months of 2018. We already shared the information that part of the integration related personnel costs were shown as nonrecurring in 2017. Since our colleagues are doing their daily business now, these costs were shown as recurring costs.
Finally, we spent more on marketing already in the third quarter, and our focus on the strategic pillar NPS also led to a higher cost in customer service.
The nonrecurring expenses came down by almost EUR 6 million sequentially to EUR 8.7 million in the third quarter. These costs are, as in the previous quarters, mainly integration-related, and a significant amount relates to the ERP migration, which has been finalized by the end of September.
On Slide #14, we added a chart for reported EBITDA to demonstrate the focus of the new management team. In the third quarter, we continued to focus on keeping nonrecurring expenses under control, which resulted in a reported EBITDA growth year-on-year by 1.6%. On a 9-month prospective, we are still behind 2017, but you should keep in mind that the extraordinary high amount of nonrecurring expenses last year appeared overwhelmingly in the middle of the integration in the fourth quarter with a total of EUR 21.5 million.
By the end of September, our CapEx investment increased by around 80% year-on-year for the first 9 months of 2018. We invest continuously in our network in order to provide superior usage experience for our customers. So our investments are mainly growth CapEx of quality, of product and network is core to our strategy. We found good traction to execute on those projects and decided to pull forward strategic projects and to accelerate the speed of the projects. As we cannot execute a lot of projects during the winter, we did the work in advance as the CapEx is crucial to support our plans.
Against the backdrop of our recent refinancing in October relating to the new EUR 75 million term loan, we share with you on Page #15 a more recent leverage position as of November 15, which you see on the right-hand side of the slide. Our cash position for November 15 period amounts to EUR 44 million. After having repaid the revolver, the revolver remains fully available to us, adding another layer of flexibility. Overall net debt stood at EUR 1.39 billion, translating into a leverage of circa 5.6x per mid of November. Keep in mind that the cash figure already reflects the interest payment for the bond which happened in early November.
In conclusion, I would like to highlight that we feel very comfortable with our current liquidity situation and the long-term maturities of our facilities.
With this, I hand over to Timm for the operational update.
Yes. Thank you, Eike. So Page 17. We introduced the flying wheel in order to give a framework for our plans moving forward. We have to actually communicate externally towards you, but we're clearly using also internally for the management of our plan.
Now what's the logic behind that? It's really a simple recipe for customer base growth. We start in the pink area, number one, product quality. It's very simple. We want to create a great product, keeping bandwidth advantage over copper. And as Eike has said, our CapEx goes into that.
The second leg is offering a great customer experience, making it easy to join, use, upgrade.
Third, differentiating products. We believe our portfolio is really simple and attractive.
On the fourth, the housing industry. We say that if we deliver on the first 3, then we deliver on the core expectation of the housing industry. On top, we then deliver actually FTTB network architecture to our housing clients, which is differentiating, as well as on top, services that we provide to the housing industry specifically. When we do that well, we actually create local stickiness, and we create additional B2B opportunity to acquire customers in the regions and locally.
In the center, last but not least, a high-performing organization that keeps the wheel spinning.
Let's move to the next page, which is the first element of the wheel, our network. And consistent with our strategy to provide high-quality product, we have accelerated CapEx across all segments in Q3. We have improved coverage for our 400 Mbit product, which spans over 80%. We have more available bandwidth across our network. We have more Homes Connected 2-way upgraded, and we are keeping and building our speed advantage over the copper network. But if you remember, it is the only competitor we have within the housing industry where there are only really 2 infrastructures, ours and the copper one from Deutsche Telekom.
As Eike said, accelerating on our spend, to a certain extent, derisking our building activities going into the winter. We will see our CapEx going down in the fourth quarter.
On the next slide, that's the second part. So creating a great customer experience. Well, as you know, we didn't just complete customer migration this year, but we also started the program to switch off the analogue signal. We're doing this in order to create more space, more bandwidth for additional HD content, and more higher bandwidth IT products, which is quite a, let's say, intense process because we need to do a new channel lineup, and as we do that, we need to ask our customers, even though they are already watching TV digitally, to do a channel lineup. So every customer really is being touched and they all have to do a channel lineup for their TV set.
Now we have already done about 600,000 Homes Connected this year in Bremen, Saxonia, and Bavaria. And as you can see the -- on the chart, on the graph, you can see that the development of calls is actually continuously trending down, and that includes all the calls for TV2Digital. So you can see that the communications approach and the way that we support our customers in order to come through that process is working. Our ability -- our availability is continuously high, and this is actually also being recognized by external parties where we rate for our availability quite highly.
What is also important to see on this chart is that over the course of the year, we can actually -- we've been able to reduce the overall number of calls substantially, which is again a sign of our operations stabilizing and a sign that we can actually work at the core of customer issues and reduce them over time. We do expect that these developments will continue also over the next year, and they're also a very important ingredient for our NPS journey.
On the next slide, Slide 20, we have a very clear road map for our customer service organization. And the ambition at the core is to be simple and digital. Now we believe that, that's a realistic objective. Why? We have completely simplified our IT architecture, and hence, with changing and improving processes, once we can roll them out across our customer base, then we will be faster and more effective in digitalizing our operations.
We have launched in just recently now, it's already Q4, but I think it's important for you to know, a new telephone system which is unified, that allows us to make much better call steering and also case steering. And we've also been rolling out NPS routines across our call center operations to further improve our customer experience.
The focus is also on digitalizing whole customer journeys, and we have seen an example of new customers joining, wherein the beginning, we were not as digital as one would think. We're moving that up, and we'll be above 80% in early 2019. And we're also moving customer interactions on to the digital channels, in particular, the app you can see is continuously increasing the number of monthly active users, so quite happy with that.
We've also started the transformation of field service operations. You may remember that we managed the largest part of our field service with our own operation, [ RSC ], and we're piloting right now there a way to transform these operations completely, and we'll be rolling this out over the next quarters, which is a very important element for us in order to improve the NPS resulting from issue resolution.
So if you go to the next slide, you can see that despite, let's say, the TV2Digital, as well as the integration efforts, our NPS trends remain on track. They are improving slowly, but they are improving. And I think this is the key message here. We also continue to see that our -- the product is -- booked for the majority of cases to 200 Mbits per second, product is also increasing in terms of NPS, which is important because that's our way to grow the business.
All right. Moving to the next slide, our product portfolio, that's the third part of our flying wheel. We see that the bandwidth split was stable in the third quarter. We also see that the logic of offering both bundles and single Internet tariffs works. We have more than 40% of gross adds choosing the tariffs of 200 Mbit and more. And also, we see an increasing number of customers migrating towards the single product, towards higher bandwidth. And what you can see is that customers are really taking up also the better terms and conditions that come with the unbundled single product portfolio. This is a real differentiator for us in the market, and we believe this is a good way for us to grow where the customers have very little risk in actually trying that out.
Now on the next slide, we decided to do a bit of a fine-tuning of our product portfolio. We had, you remember, the complete relaunch in the fourth quarter of 2017. And after about a year, it was time to kind of make some adjustments. We have made those adjustments, in particular, around the fixed line, but also around the single Internet product.
So what's the rationale here? As Eike said, customers choosing a single broadband product often don't choose a telephony product. So what we did is we are decreasing, let's say, the barrier towards ordering their telephony product. It was previously at EUR 1, and now it's at EUR 0. Anyway voice-over-IP, so it's already integrated into our modem as we ship it.
But then importantly, actually, we've added flat rates on top of that, and the flat rates are used because they are attractive for our current users that are currently pay-as-you-go, and we move those pay-as-you-go revenues more to fees, which you all know is important. And secondly, we can also attract new users who think that this is actually quite a competitive offer versus others in the market, be it on the fixed line, but also be it on the mobile side.
Regarding broadband, we saw that we can actually take more share, i.e. increase the volume of gross adds, by introducing an entry-level product that is competing head-on with the 16 Mbit ADSL product that are copper-based. And they're still very popular in Germany, so we believe we can increase the volume without actually cannibalizing, or with limited cannibalization effect on our 200 Mbit product. Here, the logic is with only EUR 10 more, you get 10x the bandwidth and we believe that's a great value proposition.
We have launched some offers to make it easier to switch to pure for both broadband and TV, and I know that you all would like to know how this is all going. What I can say so far is that sales are picking up nicely, and I think that's really good news.
Moving to the next slide, housing industry. So here, the key element is are we able to keep our Homes Connected stable? A core component of that is, what is the churn around our Homes Connected? We see that the churn is extremely low across the year. And whilst it's churning away, we've been able to compensate with gross adds. This is how we get then to the stable result that we reported for the third quarter. Now also, with regards to the overall churn rates, we're actually better this year by 12% on a cumulative number versus 2017, which I think is also good news.
We remain a key partner of choice for the housing industry. We are the only, really -- the operator fully focused on the housing industry. We deliver differentiating ways of building the network architecture, and this is working. You can see that we have recently also won again some projects, importantly both Seelow which is 1,000 -- smallest project, 1,500 Homes Connected, but also Gesobau here in Berlin, they are all FTTB build-out. So ready for 3.1 docsys, and hence, gigabit speeds.
Moving to the next slide, our B2B business. Our B2B business continues to grow nicely. You can see that year-over-year, the growth accelerated to 27.6%, year-to-date, it's is a bit lower, 18% to overall 30 million. And the good news is that also on normalized EBITDA, we are growing. So we're growing actually the business, it has a very healthy margin in the third quarter of nearly 70%. That's great because we're able to actually expand our customer base across our network footprint, which is the proof of operating leverage.
All right. That's the end of the business update. Let's have a look at the outlook. So on Page 27, following the third quarter results, we confirm full year targets for 2018 on all metrics.
And maybe on the next slide, as a summary. Yes, so we're confirming our guidance. We've reached good stable Homes Connected. We've stabilized, and in my view, come to a turning point on Internet RGUs. We see good signs of sales picking up from the restart of marketing. We're comfortable, as Eike has said, with our cash position. And we're fully focused on continuing this turnaround. So with that, I would like to end and hand over to Leo or the operator for Q&A. Thank you.
Thanks, Timm. Yes, we're happy to take your questions now. Marcia, if you could invite the participants, please.
[Operator Instructions] We have received the first question from Mr. Wolfgang Specht, Bankhaus Lampe.
It's on the TV side. I'm still somewhat concerned regarding your customer and margin development in the TV business. Can you give us some more insights how the development here is, especially how is the traction of concession agreements where you do not have the full control of the end customer any longer and more move into a, let's call it, wholesale provider position, where the housing association is taking over multimedia services against its tenants.
Yes. Thank you, Wolfgang. So I'll take part of the question relating to the business dynamics, and I think then Eike can say something about the TV margin. So where -- you're asking about the -- those contracts where the housing industry is actually taking over the ownership of the network Level 4. Now as I previously mentioned, yes, this has happened, but this has happened only with very large national key account organizations, the type of Vonovia, Deutsche Wohnen, TAG. And this is, let's say, a fairly small amount of our overall Homes Connected, and it's also limited to that segment of the market. So from that perspective, we continue to deliver services there, we have long-term contracts, we have stable cash flows. It also means that in those cases, the housing industry is responsible for the upgrade of the network, which we then actually execute, so there are also other types of benefits that come with that arrangement, yes. But just to kind of put you at ease, from an overall perspective, it's not our intention to broadly go into that business model. And maybe regarding to the margin question?
Yes. I think it's a multi-answer because as I said, it's the real [ big holding ] of [indiscernible] who are asking for these kind of modems in the sector. Where we are acting as the small and middle entities, and there, we also see a high ARPU still and then a decent margins.
I hope that answers your question, Wolfgang.
Yes.
We have received another question from Simon Bentlage from Hauck & Aufhauser.
Simon Bentlage from Hauck & Aufhauser. I have 3 of them. The first one is with regards to CapEx investments, you said you pulled some of the investments forward. So was the only reason for this then that you can't do any CapEx investments during winter? And more importantly, you talked about capacity bottlenecks during the Q2 call. So can we assume that these are all fixed by now? And what are you expecting going forward, especially then in 2019? Second question is with regards to Internet revenues. Again, they showed some weakness despite the stable RGU development, and you said you updated your portfolio now. So how confident are you that we are going to see increasing revenues here in Q4 and onwards? Maybe you can give us some color on how the new portfolio is perceived by customers? And if there is any more marketing in the pipe, also, what does this mean with regard to marketing costs? And the last question would be on the relationship with United Internet. After those 2 supervisory board members left, how is your relationship? And is there any pressure from the management there? Or yes, how is this continuing?
Okay. So thank you, Simon. Let me answer a couple of those point. And then another point, I think, Eike will also chip in. So CapEx, why pull it forward, well, we have a -- we had a clear plan of what to do on the network side. We phased it out across the year, and we're making good progress, also because of the good weather conditions. So that's fine. On capacity bottlenecks, yes, we're clearly improving on that, you can see it in the NPS coming from the product. We're a cable operator, so we'll always work on capacity as demand goes up and our customer grows -- customer base grows. So going forward with regards to CapEx, as you know, we're not yet guiding for 2019, so I'll leave that for a later discussion. Then maybe on the second question, I'll leave the Internet revenues point to Eike. I will cover the marketing cost question. So yes, we will have higher marketing costs in Q4 because we're clearly executing on marketing. But that's fully factored into our guidance and our outlook, and that should also be normal that as a company, we do marketing and sales activity. And maybe the last point from United Internet. You know that, basically, United Internet have said that they are supportive of the strategy, that they are actually very collaborative and constructive in actually working with the company for the election of new board members, and that will happen until the next general assembly in 2019, and there's nothing else I can say to that. Eike, do you want to do the question on Internet revenues?
Yes, of course, Simon. I think I touched on a couple of points briefly in my presentation. And first of all, you have to keep in mind that the Q3 2017 was an extraordinary good result because there were some one-off effects regarding to the migration -- to the first migration there. So this is really the compared base, it's difficult and we have to compare apples-to apples there. So secondly, I also touched this one, we were weak on the phone RGUs, and so with that, also on the revenues, and what we present here are the Internet and the phone revenues. And we gave the answer -- or we hope to finally gave the answer, with the new product portfolio and the attractive tariffs. So since -- and an answer on the operational side. And last but not least, I think Timm has said this also during the presentation, we saw sales picking up as a result of our marketing activities already.
There are currently no further questions. [Operator Instructions] We have received another question from [indiscernible].
So I have a couple of questions. I guess the first one is just on your -- just following up on the Internet revenue decline, given the RGU base. So I didn't quite understand your answer. Are you basically saying Internet revenues were stable, but it was really telephony revenues that declined? If you could just clarify that? Secondly, in terms of your marketing spend in Q4 and the pickup you're seeing in revenues from that, could you just talk a little bit about the quality of the revenues that you're seeing and what sort of margins you are actually achieving on that marketing spend because I just note that some of the marketing offers are quite promotional. So just worried about margin on those. And then the third question was on your construction revenues, clearly linked to how much CapEx you spent perhaps in the quarter. Could you just remind us again exactly how you make revenues from your construction activities? And how the margin on that -- I know it's a low margin, but can it vary quite a bit, or is it a stable low margin?
Okay. I'm going to start with the first question regarding the clarification of the phone and Internet development. As you can see in our operational data, we lost some -- also some B2C RGUs in the first half year related to the migrations, so this also is reflected in our revenue decline. But the majority on the Q3 is really [ on account ] of the phone. Then the last question was on the construction work. There -- you had the question regarding business model, if I got you right. So I think you are aware that we have this infrastructure project, and what we are doing there is that we get all the agreements with the municipalities, and we are the company who builds the network for the municipalities. And so we build it and we sell it to the municipality, and this is the kind of construction works we have in our balance sheet.
And let me -- thank you. Let me take the Q4 marketing spend question. So we're not commenting on Q4. I think that's clear. But the -- what I can say is that the primary target of our marketing activities is, of course, on Internet, as well as CATV products. And as you know, those are high-margin products.
Understood. If I could just follow up on the Q4 marketing. I understand you can't give forward-looking guidance. But I guess, could tell us is the marketing and the promotions, are they specifically targeting new customers? Or can existing customers effectively trade down into the promotions?
I mean, they're -- the marketing, of course, is targeting new customers. So as you know, we have after the migration of Pepcom, we hadn't really launched a new brand in the whole southern region. So the first piece is that we need to make the brand known, the product known in order to attract customers. And as Eike also has said previously, we still have quite a lot of potential as our overall Internet penetration is quite low and we still have -- or we have, a really superior Internet product, a broadband product. So we believe that this will actually help us to grow with new customers. Now of course, existing customers can also migrate into the new portfolio. And this is what I mentioned before, the customers that are migrating usually migrate for higher bandwidth. And when they migrate for higher bandwidth, it's because they're Internet users and they want -- and they'll use less telephony, hence we are also losing some telephony RGUs in that migration path.
Understood, understood. And then just in terms of I guess, the higher churn that you've seen in the last 9 months, and we know the reasons behind those, I guess. But can you just talk a little bit about what promotions or retention promotions you're providing customers and how that's impacted your margins?
No, I think it's more a question of introducing and managing, actually, a proper retention unit and the organization business, what we're building up. We're doing that. And so from that perspective, I think there's nothing new. This is what you should expect a telco to do. And I also don't think that you should expect margin dilution from that because most of the time actually, it's more about resolving the customers' issues rather than actually offering a discount on it. Our products are well-priced, so from that perspective, I don't see any issues.
We received another question from Mr. [ Roberto Marques ]
Can you hear me?
Yes, we hear you well, [ Roberto ].
So just 2 questions. In terms of the ARPU for the gross adds you showed on Page 22, right, I'm just curious, how should we think about the up to 200 megabytes per second adds you are adding in terms of ARPU compared to, I guess, your existing ARPU? Is it similar? Is it -- are you getting an ARPU improvement from there?
Yes. So up to 200 means essentially the -- in the bundled world, the 60 and 120 Mbit bundles. And going forward, also the 20 Mbit product. The bundles, you know the prices. They are, let's say, bundled prices, and hence they go up after the first 12 months. And the 20 MBit product is actually priced at EUR 20. So from that perspective, I think, both the bundles there have a tend -- have a higher ARPU. The entry-level products has a, let's say, a EUR 20 ARPU but no discounts offered to it. So I think this shouldn't be an issue with regards to ARPU dilution.
Right. Okay. Fine. And then in terms of CapEx on Page 18, so it's useful for you to have sort of split it out into these 3 different categories. But I'm just curious, trying to get some more granularity. In terms of the customer projects. So for example, the renewal of housing association contracts, which you do, right? And then you sort of upgrade the plan. Where would that -- in which of those buckets would that fit in?
In -- that would sit in customer projects, which is the dark blue area.
Okay. And then that also includes CPE. So I guess to the degree you update customers with more modern CPE, that would go into the dark blue area?
That's right.
And are you able to say how much of the 57.7 that was approximately?
No. We don't disclose that.
Okay. Just because I'm just trying to understand. Obviously, there was a significant increase, you gave some explanation. But for me, it's more, where should we see these going to in the future? And I don't fully understand what exactly goes into those, so it's difficult for me to say where will this be in the next few years. How can you provide comfort in that in terms of CapEx in future years?
Yes. So as you know, we're not guiding for 2019 yet, so we don't give that information. And I also think that we're already giving quite a lot of granular information around the CapEx. So I'm afraid you'll have to wait until early 2019.
Okay. And so when will you give guidance for '19?
Early 2019.
Okay. You can't be more specific than that?
No.
We have received another question from Ines Charfi, HPS Investment Partners.
If we can go back to Page 9, I wasn't quite clear on the difference between the churn, so the 24k versus the 16k. Can you explain that again, please?
Yes. I think it's -- this is a bit of a legacy of the company. So this affects the -- we've shown here on the majority of the effect is mainly a result of one contract, under which customer both had to buy cable TV RGU, covering the German public broadcaster, and an additional individual cable TV RGU on top, covering the full basic TV package. As the contract was prolonged in the third quarter, this moved towards individual billing completely, so we lost the bulk RGUs but kept the individual ones that are now counted as one RGU only instead of the 2 RGUs before. So that was the legacy contracts, and they were counted -- yes, the past 2 RGUs, we prolonged the contract, and now we shifted that to 1 RGU.
Okay. Is there any change from the last earnings call where you guided that the contracts that are coming up for renewal are not more than [ EUR 0.10 ] per year? Is that still the case?
Yes, that's still the same. No change there.
Okay. And then can I just confirm on the migration? It just seems like you're still saying that some of the churn is still in migration? Can you just update us, where are you in terms of migration? So there was a first wave completed in 2017, and there was a second wave started, I think, in the last quarter. When did that -- are you done with that? Or is that still ongoing? When is it going to be done?
Yes. So indeed, the first wave was done in the summer of 2017. And the second and final wave was done in the second quarter 2018. And you can see that actually on Page -- is it 19, and that we have drawn. Clearly, both migrations were done over 2, 3 months in different cycles. But we have not finalized the customer migrations on the integration project.
You have now finalized?
We have finalized.
Okay. So I'm just -- so why is some of the churn this quarter is still explained by the migration...
Well because the migration happened -- the migration happened all the way up to the very last day of June, and then out of that, you have churn spilling into the third quarter as being rested and executed.
Okay. So it's just -- okay, that effect, okay. And then, okay, this last one on the nonrecurring cost, I think you got it to 20 million last time for the second half of the year. So given that there's 8 million this quarter, is it still 12 million expected for the fourth quarter? Or has that changed?
No, there is no change.
Okay. Okay, maybe as a final question. Have you seen any -- or do you have any updates on the potential -- how do you view the ongoing Unity Media, Vodafone deal? Have you prepared any kind of views on it? Like, are you expecting anything in particular more this quarter than the previous quarters?
No. We're clearly following the process very closely. Phase I will be finalized by the 11th of December. So we expect, as also Vodafone, something to happen more during the spring, early summer of 2019. In the meantime, we remain fully focused on executing our stand-alone plan as our key priority.
We have received another question from [indiscernible].
I have 2 questions, if I may. The first one is with regard to the -- to your base, which is still on legacy bundles. I mean, I'm sure you can proactively target that in order for retention activities. I'm just wondering, what sort of potential discounts or customers in legacy products getting in order to renew. And then the second question is, we've now probably got quite a lot of experience now that you've launched sort of individual service contracts. So I'm just wondering, on average, each new customer, how many service -- or how many products are they taking on average, relative to what they were in the past?
Okay, so on your first question, what are the type of discounts that we offer on legacy bundles for customers to renew. Well, we don't. So basically, there is an introductory period where there is a discount, which is really serving the acquisition purpose. And then, usually, the customer pays the full amount going forward. And I think, your second question? Help me with that, sorry.
Now that you've...
How many products -- sorry, I think our overall number of product is [ 1.65 ] but you are asking about the split between the singles and the bundles. I don't have the information right now. I need to get back to you through that [ through Leon ] on that one.
We have received another question from Mr. Christian Fangmann with HSBC.
It's Christian with HSBC. Coming back to the question earlier regarding the bulk versus the real subscriber losses that we've seen, 16 versus 24. Just trying to understand if you have more of these, let's say, legacy basic contracts or these bulk agreements, so basically asking for the risk down the road, how many of the 2.3 million are bulk contracts in terms of you're just providing a basic public [ process ] CATV product. And then if people moved to an individual contract, so just trying to understand that. And then secondly, your Internet base was only stable. So the improvement, is that related to lower churn or do you do also see already in Q3 an uptick in gross adds? And in terms of the churn reduction, if that was the reason, is that coming from the Pepcom footprint or are you seeing improvements across-the-board?
So let me first take the first question because just for practical reason, I'm longer with the company. So I started in 2007 in the company, and then during this time we already started to change this kind of contract. And there are potentially really minor one, but this is not the course of business anymore. So this is really legacy products, and as said, it's -- yes, it's -- it will not impact our P&L.
Maybe on the Q3 numbers for the Internet base, you saw that in the previous 2 quarters, we lost about 8,000 RGUs per quarter. And then in the third quarter, this actually went to flat. And this is actually not yet through gross adds, it's more, let's say, the reduction of churn, as we have not yet started really our marketing activities in the third quarter. We always said, by the way, that Q3 would -- from the way that it would develop, would be still more similar to Q2, yes.
Okay, thanks. And the improvement, is that Pepcom-related? Or can you give a bit color...
No. It's across the base. It's across the footprint.
There are no questions. I hand back to the speakers.
Great. Thank you very much. Since we have now finished almost the hour, happy to take your -- having taken your questions and for your attention on this morning's conference call. And looking forward to meet you in individual meetings or group meetings over the next couple of weeks. Speak soon and have a nice day. Bye-bye.