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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to the freenet Conference Call regarding the Preliminary Results of the Fiscal Year 2022. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation.
Let me now turn the floor over to your host, Christoph Vilanek. Please go ahead.
Good morning. Thanks for the introduction. Good morning, everybody, ladies and gentlemen, to our today's conference. In old tradition, we immediately start with our presentation. You've all seen the documentation that has been published yesterday night, but we will give you the opportunity to discuss some more detail.
Going into it, on the financial guidance level, you've all seen that revenues have been stable. This is kind of our old way to look at the business within these revenues, there is still approximately EUR300 million hardware revenues in there which are not really contributing margin, but nevertheless we are on the stable level. Even more important -- very much more important is the development on the EBITDA. We have been very successfully increasing the EBITDA in both key segment of the business.
I would say, across the Board, even the small companies have done a great job there. Contribution to the overall picture is not significant, but it is a very good feeling that given the difficult circumstances, the entire macroeconomic and microeconomic environment has given any company, we have been able to increase EBITDA by EUR31 million or 7%. Overall, our return is now 18.7% after 17.4% in the previous year.
I think that is a substantial increase and the guidance that Ingo will talk about later is reflecting that also for the starting year 2023. Free cash flow also went up by 15% to close to $250 million. By definition from my individual perspective, the operational KPIs are even more important because they show the substance and the resilience of the business. We are happy and that was really something that has a meaning also for the identification of all the 4,000 employees that we were crossing the 9 million subscriber line.
I'm trying to translate this for the staff that almost 9% -- 11% of all Germans have a paid subscription with freenet. And I think that is something to be proud of the total subs, but we are increasing by 260,000 or 2.9% to 9,042 million. In postpaid, a small increase, but more significant one on Funk & FLEX. So overall mobile net adds 120,000, and on the TV, things that we have seen and predicted is the fact that waipu.tv is starting a steeper trajectory whereas freenet is going down. But also in the TV, the net adds amount 136,000.
Given a bit of a deeper insight on mobile services, you have seen that over the past quarters of the year, we had plus 15,000, plus 25,000, plus 29,000 and now plus 40,000 subscribers. So there is a positive dynamic and I think current trading in the first quarter of 2023 indicates that we are going on the same -- on a similar level as Q3 and Q4 of the past year.
What were the key things that have contributed to it, once I think the consolidation under the umbrella brand freenet has eased internal processes has given the opportunity to exploit some synergies and some -- reduce some spendings, the real -- the real positive effect will come in 2023. And that is part of the things that might overcompensate or at least compensate the one-off effects that have helped in 2023.
The brand consideration, and that is the indicator for the migration of the brand has 5 percentage points. That is on the visibility side, the unvisible piece because it is one by one for the individual consumers is that we are step -- step-wise implementing the customer lifetime value concept, not only in renewals, but also in new customer acquisition. It has a significant impact on the mix of SIM-only and subsidized handsets.
I think Ingo, once again, will give you a bit more insight on how the good mobile reside has occurred. But that is one of the fundamental pillars on which we have created the better gross margin, more specific individual offers, creating more value on our side without the end consumer perceiving a price increase, but a better tariff.
There is two things that we have also communicated during the year. We have prolonged exclusive contract with MediaMarktSaturn till 2027. And we have also now in January, finally, signed the deal with capital for another seven years on our customer care. It gives us a solid planning framework and prohibits us from any surprises on that end. We're very happy about the cooperation and I think both companies were happy to sign the deal.
The thing that we have launched in 2023 is our freenet TV -- freenet Internet offer. We offer and we have told you that is basically limited to a app to an app. People can hook up to the app, check whether there -- what kind of connectivity and what kind of bandwidth we are able to provide seamlessly from the technology. There is one single price and that also indicates that during the lifetime, we might be deciding that changing technology or access technology for the end consumer is an option for us for EUR29.99, people get full access.
We have started with the pure LTE. We are now doing from February actually the DSL on -- on copper cable, copper line. We are in progress to add cable and we have also agreed now with the first regional providers of fiber to do their services. So, I think, it was a long process to access or re-access the broadband business, but it certainly will contribute to our bottom line and also to the quadruple offers of the company.
No wonder, we are very happy and proud of -- on the team in Munich [indiscernible] these are the 68 individuals that have generated or created the viability for and generate the traffic and the consumers. By the turn of the year, we had 970,000 subscribers. This is an increase of about 250,000 from previous year. We have also indicated on the chart that we have crossed the line of 1 million subscribers, and my guesswork current trading for Q1 will be 1.040 million, -- 1.045 million and this is prior to any migration with Deutsche Glasfaser.
Deutsche Glasfaser currently holds 100,000 active TV subscribers. We have agreed with them to migrate them straight to waipu.tv. Due to management changes and a couple of technical questions, this has been postponed by the Deutsche Glasfaser. So this will kick in anywhere in Q2 or Q3, but it's just a postponement. But we expect 100,000 from them. And well, if you add that to the current development, my personal feeling is that this year, if all goes well, we should be go beyond 1.4 million towards 1.5 million.
And then some of you have already asked 2025, what is the critical size. Well, I have chosen that terminology because it's hard to actually predict a three-year trajectory curve, but critical size means what is, a number of subscribers were content providers are knocking the door, are giving us the license that you have all seen the Disney Plus is already drawing back their pure exclusive subscription and giving their content to third-party.
So I think, if you -- if you have Germany around anywhere between, well, I would say, 2.5 million to 3 million subscribers, then you're suddenly so important that none of the content providers will let you aside. So that is what we're aiming for. Difficult to predict a clear date, but I think that should indicate that we are self-confident and is very positive development. Thanks to an excellent product and thanks to super-satisfied customer base. Some good numbers on the lower end, I think they are for your modeling.
On the next page, we give a little overview on the total TV and media. I already spoke about waipu.tv, freenet TV. We have increased the prices, subscribers go down, but EBITDA is stable in Media Broadcast. I think everything that they have created over the past 18 months is now paying back. A very solid mid-term perspective, very stable EBITDA projection for the next two, three years. So we're very happy about that.
The radio, the owned radio business with our four, five radio channels on digital audio broadcast are up and running, doing well. We are still in an investment phase. This is a 50-50 joint venture with another German media company. So you won't see the results, anyway in EBITDA, but in financial results, but I think it's worth mentioning that they will get -- will still have a negative contribution this year, but most likely turn into positive in 2024.
Finally, on the past year and then I'll give you a quick outlook, I think ESG or CSR has won in perception within not only the Board but also with the individual staff. We have a set a number of course explicitly, the green electricity, and a couple of other things in our so-called company goals. The company [Technical Difficulty] the same goals for any individual in the company.
Obviously, the Executive Board is measured at a 100% -- on a 100% variable level on these company goals, but also every individual in the company is measured. We have put a green electricity into that, we will have most likely this year, things like individual participation in development, education. I think these things have created a momentum and a positive attitude across the Board.
We are working hard on gender balance. On non-executive, we are doing really well. And are have both, Ingo and myself, very happy that Nicole Engenhardt-Gille is our Executive Board Member for HR and ESG. I think the fact that, finally, we have some -- a lady on the Board is a good signal to the entire company. But I can also say that on the second level, if I look at my direct reports, I have a 50-50 range. So I think diversity is gaining momentum.
As well, what are our key ambitions, we want to decrease the CO2 emissions to zero within the next seven years. We need to work on increase -- on the increase of employer attractiveness and we want to improve the learning culture and skills development given the fact of socio-demographics.
In Germany, for me and I hope you will also follow that sort, these three sounds like goals that are made for ESG, but in fact they are all also paying back in returns EBITDA and bottom line. And I think that is something that is -- it took a little while for us to make these things concurrent, so that they contribute to any interest of shareholders' dividend expectation, internal measurement, but also on the pure ecological side.
So to finish that off, looking into 2023, I think there is the obvious development that we have already mentioned in the looking back. I expect moderate growth in postpaid subscribers, I expect a strong development on waipu and we will continue to lose on freenet TV. Let me give you one more hint, for the TV side, we are -- we have a final product now, a hybrid stick that can contribute or can make both technologies available to individual customers. The product is now in testing phase and should be available from mid-summer.
We will then start to actively cannibalize our sales. I think it is the fact that we are losing freenet TV customers to the market is something that is well technology-driven and plus expected from our side now the name of the game is to make sure that they stay within the Group and switch to our technology, and I think the hybrid stick will be a good tool to secure that.
Having said that, I'd like to hand over to Ingo for the deep dive into the numbers.
Yeah. Good morning, everybody, from my side. So I'll start on Page 12 with the Group view. I think based on all these positive operational developments what Christoph already described, I think it is not a surprise that in financials we have seen a very, very strong year '22 from my point of view and especially strong Q4.
On the revenue side, as already mentioned, it is a stable development, what we have. I think good news is that low margin revenues decreased and high margin or better quality revenues increased. On the gross profit side, a very strong quarter driven by mobile definitely. But also in TV, there is an increase in the fourth quarter. But all-in for the whole year, a very strong development in gross profit. And I think this is -- the good part of the story that on both sides, we grow the EBITDA. On the one side from increasing gross profit and on the other side from decreasing SG&A.
So from my point of view, a very, very, very good development. I think we increased the guidance already during the year on an EBITDA level. And now we are even (ph) on the high end of the new guidance, what we already changed during the year. So I think it's a very good development on the Group level.
Moving to mobile, yeah, I think, the story on revenues is the same. I think here, you do see that we do more SIM-only contracts in the business and therefore less hardware revenues, especially in the fourth quarter. But as already mentioned, and what you can see, if you look into the service revenues, the share of the service revenues increased further. And therefore, we are even with the development here of the revenues. We are happy because we focus on the bottom line, and as already mentioned from Christoph, we do not focus that much on the topline.
On the gross profit side, there is a growth in the -- in '22 and the margin improved. I think, yes, it looks relatively strong, what we see here with an increase of EUR12 million. Maybe this is -- maybe I'll give you one insight in the contract or in the target, what we do have, especially with the MNOs but also with all partners. Some of the targets, you do not exactly know during the year, if you do reach the target. And so it is difficult to do an accounting during the year.
So -- and when you reach a lot of these targets in the fourth quarter, then the fourth quarter looks better than the whole year. And -- but what I think up to now, we do not have another possibility to show it. So I would say, it's definitely a one-off in the fourth quarter, but it is not extraordinary for the full year, what we show here. I think this is important to mention. We really showed a good performance during the year and now this is the outcome out of this good performance that all-in there was an increase of the gross profit of 3.2%.
Moving to the EBITDA, here, I think, what helps here is that the Q4 '21 was relatively low because there we have built some provisions in the fourth quarter '21, what we have not released yet, but what we -- which are still there, but there were not build new provisions in the fourth quarter '22. So this explains the increase on the SG&A side. So, all-in, from my point of view, a very, very stable picture in the mobile business and so we are of very good mood for '23.
Moving to some KPIs. In the mobile business, customer base was already discussed. ARPU is stable, and therefore I think not surprising. If there is an increase in customer base and a stable ARPU, then all-in, you have an increase in the service revenues. What is really -- what was really successful and what makes me especially happy was the digital lifestyle development in the fourth quarter. [Technical Difficulty] what we saw during the year was, it was difficult to increase its quarter by quarter. And in the third quarter, there was the first small increase in digital lifestyle revenues, but then the fourth quarter was relatively strong now, with an increase of EUR8.4 million or 16% in the digital lifestyle revenues. And so we were especially happy about this development in the fourth quarter.
And then moving to TV and media, on the revenue side, here is an increase of the revenues by EUR12.6 million in the fourth quarter. I think here, part of it is that we sold some waipu.tv sticks already to Deutsche Glasfaser. Even as they have not started to use these sticks as described earlier, we already sold these sticks to Deutsche Glasfaser and therefore we generated an additional extraordinary revenue here. But even without this revenue, there would be an increase because we think it's logic that with more customers we generate more revenues and this is something what we do see here.
Moving to the gross profit of the TV -- waipu of the TV and media segment, starting maybe with the freenet TV, decreasing customers but stable gross profit because of the price increases, what we initiated during '22. In the B2B business of Media Broadcast, again an increase on the gross profit side because of the digital radio business. And in waipu.tv, a very, very strong increase of the gross profit during the year with the increase of customers here.
Moving to the EBITDA, again in freenet TV, a slight increase, because on the one hand, there was the price increase; on the other hand, there was a reduction in marketing costs. So, all-in, there was an increase of the EBITDA in freenet TV, even with the decreasing number of customers. In the B2B business of Media Broadcast, there was an increase of EUR9.8 million on a yearly basis, on the one hand, again from the gross profit side, the digital radio effect, but on the other hand, we were very cost optimized here and we reduced costs wherever it was possible. So I think the whole team did a very good job here.
In the waipu.tv, yeah, maybe on the first look, a little bit disappointing what we do see here with an increase of the EBITDA by only EUR2 million on a yearly basis compared to this increase in the gross profit, but here was one special effect in the fourth quarter because the employees there, they do have some phantom stocks. And because of the very, very good success, the value of these phantom stocks increased and therefore the EBITDA decreased by something like EUR2.5 million.
And what we also did during '22 and I think we discussed it very often, we increased the marketing cost at waipu.tv to accelerate the growth. And I think we see the acceleration. And in the long run, the profit would also increase. But basically some additional marketing invest of something like EUR3 million to EUR4 million in '22 were necessary. So if you would leave this out, also the waipu.tv, EBITDA development would be very, very strong.
Moving to the free cash flow on Page 16, I think, we will reach the EUR249.2 million. At the end, there was a decrease in the working capital because I think what is normal is the payment to Media-Saturn, which is shown here for the exclusivity. On the other hand, there is again a reduction of factoring during '22, so our outstanding factoring at the moment is only EUR25 million.
On handsets -- on the handsets here, and as you may remember, some years ago, it was EUR100 million. So step by step, we could reduce the outstanding factoring. And at the end of the day, the factoring is off-balance, but again -- but it is to make the balance sheet more healthy, even if it is outside and to reduce the interest cost.
So I think explainable development in the net working capital. On the tax payment side, it's something like EUR30 million. I think this is something what we used to have. With the increasing profit, there will be an increase in tax payments in the following years. In CapEx, a little bit higher this year with the EUR60 million, which was already anticipated during the year because we had the renovation of the -- of our headquarter building and this was an investment of something like EUR10 million in '22.
So therefore higher CapEx in '22. Leases, I think on a similar level than '21. Interest payments, definitely lower because the outstanding debt is lower. And so, therefore, lower interest figure. And then in '22 we received from Ceconomy a dividend of EUR5.5 million. So, all-in, the EUR249 million and as promised and as part of our financial policy, now I think we have to pay out 80% of the free cash flow, which is EUR1.68 and this is something what we will propose to the AGM in May and we will wait and see what happens.
Moving to the balance sheet on Page 17. I think what is important to say here is all the figures are under control. It's a high equity ratio, a low leverage, the bank debt leverage is only 0.8. And if you look into the future, may be important to know that we still have a revolving line with banks of EUR300 million which is not used. So I think earlier or later, we will have to refinance part of the portfolio here. But with this revolving line in the back, I think this will -- this -- I expect, it to work fine.
Moving now with an outlook to the guidance for '23, I think the subscriber guidance was already described by Christoph, so therefore, I would like to focus on the financial guidance. Revenue still stable, as discussed earlier, it is not our top focus, but we think this is something what we can promise here that it will -- that we will keep it stable.
Much more important from my point of view is the EBITDA. So we guide an EBITDA between EUR480 million and EUR500 million. I think this is something like a milestone. I think EUR500 million is the upper end of the guidance, but I cannot remember that we discussed such a high amount. And so we are totally on the route to reach the 2025 ambition, what we published with an EBITDA of more than EUR520 million in 2025.
On the free cash flow development, which is nearly comparable and definitely as we have not changed our financial policy [Technical Difficulty].
It seems like we have lost the connection to the speakers. I will call them back immediately. Just a second, please.
Okay. So here we are again. Sorry for the interruption. I would -- I think I would not -- I do not know exactly when we stopped. I think if you -- if you have additional questions about the EBITDA to free cash flow which afterwards we could answer them and also to the quarterly breakdown.
But now I would handle over to the operator to start the Q&A.
Thank you very much. [Operator Instructions] And the first question comes from Polo Tang. Please go ahead.
Yeah. Hi. Thanks for taking the questions. I have three. So the first question is really just about competitive dynamics in the German mobile market. Can you comment on what you're seeing and what is your view on the recent range of price rises that you've seen in the market?
Second question is really just more detail in terms of the mobile business. So you saw a quite sharp drop in handset sales in Q4. So can you talk through whether there's been any recovery in handset sales in Q1 of this year? And are you seeing any signs of pressure in terms of the German consumer? And then just on mobile, earlier in the presentation, you mentioned that there was a release of provisions that helped mobile EBITDA in Q4. But can you quantify what the impact of this was?
And then my final question is really just about the guidance in terms of EBITDA. You've guided towards modest EBITDA growth for the full year. But can you talk about how we should think about the quarterly phasing of that growth? Specifically, I'm just trying to understand whether there'll be any upfront costs in terms of migrating the Deutsche Glasfaser TV subscribers in Q2, Q3 that could impact the profile in terms of EBITDA? Thank you.
Yeah. Thanks, Polo, for those questions. I think, we're going to take them from my side. Competitive dynamics, I think we have put one line in there, we see more and more rational behavior. I would say, it's a rather silent. I think all the market participants are trying to be, yeah, rational. If I go -- if I go through one by one, Deutsche Telekom, still focusing on the premium proposition. I think, the offer they gave to their premium MagentaL and XL customers to add SIM cards that maybe family members have with discounters is a smart -- is a smart strategy on their end.
I think you've all seen that, what they call, group of family tariffs. We are adopting them. I think we're going to start test within our customer base the next month. It's different for us because our share of these kind of tariff plans, high end EUR50 plus is smaller. But I think this is where they really do a fine job. I see Srini Gopalan spending less on promotions. I think he redress the company to be very careful on additional spendings, keeping prices up.
I think, Telefonica, we have to say that Markus Haas and his team has done a brilliant -- have done a brilliant job on the network as such, but also on the network perception. I think end consumers also a bit and also business consumers appreciate that the Telefonica network in Germany has done at least in the big cities, a big substantial improvement and is on an eye to eye level with the other two. And furthermore, I think they do a good job in rolling the dice very consequently. No big -- no big changes.
I think the cable launch is still a little late, and I think as far as we understand, they are doing a big [Technical Difficulty] migration, which will make them even stronger. But on the price side and we see them on a daily basis in MediaMarktSaturn, they are kind of like five meters away. They are not extending the offers significantly. So on the, let's say, normal offer -- offerings or average ARPU business, they are very stable as well. These price increases that they have done are limited to prepaid offers.
I was a bit surprised that the press and the capital markets was taking this so serious. If you really look into it, it's very small segment. And the increases -- they were overdue on prepaid, have to say. And I think the one that really has the biggest challenges is Vodafone. I think the CEO, Philippe Rogge, is cleaning up the table. He is now six months on board. We have had a couple of good conversations with him.
But we have also seen that for the first quarter, they have cut their commissions to us, but also to all their other partners, meaning their own shops franchise and third-party dealers. Any of the sales channels, including ourselves have taken that money out of the offers, which means that handsets might be a bit more expensive with them. So we take this from the end consumer or we roll it over to the end consumer.
We will see how long Vodafone will keep this policy. I emphasize that it's not hurting our bottom line, but it hurts our in-house share on Vodafone. So, right now, we have, I think, generally was the first month after two years that Vodafone was not the strongest network within our customer acquisition. So, there is a change.
Once again, I mean this is why we are happy to have three networks. It doesn't hurt -- it doesn't hurt so much, but it is -- looking at the market dynamics, I think, it's more relevant topic than the price raises on the prepaid side.
I guess, your second question was on handset sales. I think Ingo and myself, we have and also the IR team has put a lot of emphasis. This is something which -- but it's driven by one availability be it mix of SIM-only and subsidy, we have seen little or no innovation on the hardware side as such. We are -- compared to the others, we have a lower Apple in-house market share. So if there is no innovation, no news than hardware sales go down and we are not particularly keen on it, this is also valid for GRAVIS. You know that we have that 37 Apple put stores and we're doing a good EUR250 million there.
This is a business which we do opportunistically, but it is not an emphasize in our daily -- on our daily agenda. So it's hard for me to give an outlook, I would say, I would -- I would envision it for the coming -- for the 2023 year, for the running year on a stable level. But there might be exceptions if there are special offers.
To give you a flavor, last year, Samsung said they would like to have -- they gave us a special offer for their S23 and they would give any -- any customer who would bring back an old -- old handset, they would give EUR100 free vouchers to buy the very new one. So these are activities that suddenly generate additional revenues and we certainly do that and like to do that with our partner, Samsung, but it is not something which is substantially to the business. It is, well, a normal float within the -- within their plan and within their sales opportunities. While we have released a provision of EUR6 million in -- this wasn't an MNO extra. We have reached one of the top targets, and then we have gotten an extra from them that was the exceptional item that we have been mentioning.
On -- and the last question was on the potential migration of Deutsche Glasfaser. The investment that we do is in non-investment because we sell the sticks to Deutsche Glasfaser. As Ingo mentioned, part of it was already sold because they were originally planning to exchange the hardware with their customers already in Q1. So -- but if this is going to happen then they will basically purchase the sticks from our side at cost. And so it had no impact or seasonality effect on EBITDA of waipu.
Clear. Thank you.
And the next question comes from Martin Hammerschmidt. Please go ahead.
Yeah, and thank you for taking my questions. And I have a couple as well, please. Coming back to the mobile EBITDA, I think you just mentioned sort of a EUR6 million sort of provision release from an MNO. Could you sort of walk us through the rest of the growth component? I mean, previously you mentioned obviously the customer growth, so I know bad debt, if that has improved. So could you maybe just help us dissect what was driving sort of a quite strong mobile EBITDA, please?
And then sort of on waipu.tv, so the growth, do you think you can achieve the growth at the same investment levels? So should we expect the overall TV EBITDA to decline in 2023, given sort of the fourth quarter and a bit of a weaker EBITDA, but quite strong net adds. So what -- how should we think about sort of that trajectory going forward? Thank you.
Okay. On the first one, I understand this -- I understand the question, but the answer is it's a -- the break down if the individual contributions is going in too much detail, I think the effects are, well, on the one hand side, it's volume. So higher net add and a better higher subscriber base is contributing. This also affect if we do more transaction on own channels, then the fixed cost distribution on own channels is getting wider. So that has an impact, so that doesn't have cost leases, et cetera. But I was told ahead, it is the mix of SIM-only versus subsidized handset or subsidized contract is a significant impact.
Maybe just one number on that. I mean, I think three years ago or three or four years ago, we did not sell a single SIM-only in our own shops. We only did it on online. In 2023, 70,000 new contracts in our own captive shops were SIM-only. So that has an impact because initial -- but it's at the initial, but SACs are lower, ARPU is a bit lower, but net value of those customers is better within the 20 -- the first 24 months. So that is an impact or has an impact.
Same goes for -- we have had with Media-Saturn. From the hardware industry, we had good support. If we get good support, then we are able to sell a higher tariff plans in Media-Saturn, because, well, the extra that we get for our hardware sales is then put into the end consumer price of these initiative, the one-time down-payment and vice versa, we can increase the tariff plans a bit.
The smart pricing thing helps specifically on existing customer base. We define the offer for -- in renewals on an individual level, not on a segment or group or target group level, but on individual level. Well, and if you add a euro here or there, this adds up if you just think about, we are doing 1.3 million renewals a year. So if you add on 20%, you add EUR1 or EUR2 (ph) then that is accumulating to EUR1 million contribution. So I think it is and I was, I think, mentioning our four or four of the more important elements, but it is just an outcome of a very deep analytical approach to optimizing value with a total of, I guess, three, four dozen component.
On waipu, yeah, now the EBITDA of waipu and TV segment will grow in 2023. As you rightly pointed out, it is also a result of acquisition cost. But once again, I mean, SACs are expensed over the lifetime of the individual customers. So the short-term seasonality effects that we have seen in the past is not that dramatic.
As I said on the previous question, with partnerships like Deutsche Glasfaser, we actually have no acquisition costs. We give them a revenue share in a kind of a wholesale model. That means that these customers come in at no individual cost because the expenses are hardware and these hardware is paid from Deutsche Glasfaser, because either they give their existing customers a desktop set-top box or they give us sticks. For them, it's the same and for us it is a zero outcome, but then net contribution per customer per month is a little lower. So no impact from this side.
Great. Thank you. If I just maybe ask the mobile EBITDA question in a bit different way. I mean, that was very helpful. And so in those four drivers, they seem to be all sustainable. If I now deduct sort of EUR6 million provision from the EUR110 million, then -- and if I assume that most of those drivers are sustainable, is it reasonable to assume that the mobile EBITDA going forward per quarter should be above EUR100 million versus -- and the last four quarters, it was always like around EUR97 million, EUR98 million. Just sort of help us understand how to model this going forward? Thank you.
Yeah, I think -- Martin, I think, this is -- it is reasonable. I think, what you know, and all of you know is that the fourth quarter '21 was relatively weak. And I think this is also important to put into consideration, therefore the Q4 '22 looks that good. But it has also to do with the results from Q4 '21. I think you just have to put this into consideration, but I think look into the future, I think, what you said is reasonable too.
Thank you. Thank you very much.
And the next question comes from Ulrich Rathe. Please go ahead.
Yeah. Hello. It's Ulrich Rathe at SocGen. I'd have three questions, please. The first one is regarding the mid-term outlook. In November 2021, you laid out an EBITDA target which seems to be very much -- you seem to be very much on track. But you also talked about free cash flow then. And that free cash flow target looks a little bit conservative now because your top end of the -- for this year's guidance is already above the target level. So now, I would think you wouldn't want to change the mid-term guidance in the Q&A of a conference call, but could you maybe discuss two things here.
First, what has gone better than you thought in November 2021 in free cash flow? Is it simply EBITDA or is it working capital or other items in the free cash flow? And second, what factors could potentially weigh on cash conversion and the free cash flow progression from 2023 to 2025? That will be my first question. The second one is shorter. What exactly has been done to the LTIP? I'm not talking about the accelerating one, but the LTIP change?
And my third question is, you mentioned that the refinancing could result in a higher interest level. In the free cash flow bridge 2023, the interest that are shown pretty much at the same level as 2022. So is this simply not in the bridge as yet? And could this be an incremental sort of headwind for 2023 or how to think about this comment about potentially high interest levels? Thank you very much.
Yeah. Maybe, Ulrich, I'll start with the last one with the refinancing. I think what -- I think the net debt level is relatively stable. But on the other hand, the gross debt level is reduced. And I think this is important because all time you have a negative effect between the interest what you get and what you pay. So I think here we optimize ourselves.
With the refinancing, I think as you know, I think the margin in the new -- in the refinancing, maybe the margin will increase by 0.3 percent points, something like this. So the margin -- there will be an increase in the margin, but compared to the financings which are outstanding, we have a much, much better balance sheet today.
So I think on the margin, the difference even in a harder environment will not change that much. And the level of interest of the Euribor at the end of the day, any -- anyway will be seen in all variable financings will end in our P&L. So at the end of the day, I do not expect that big changes from the refinancings, and therefore I do not expect that big changes in the interest payment, what we do, we have to do.
On the free cash flow guidance, on the mid-term guidance, yeah, I definitely would say that the EUR260 million what we told you in November '21, it was a conservative one. But I think it's much easier to predict the EBITDA than the free cash flow, because I think you have so many changes also on your operational side and we are not 100% sure today and therefore definitely, I will not change it. So we -- for one example, a lot of tariffs what we sell today has a cash back part in it. So we do not exactly know what happens with it. So therefore, I would -- I would be -- would stay on the conservative side today even if I see that EUR260 million is already forecasted now for 2023.
So definitely, I would not be too conservative today, but I think there are some angles which are not open. But I would definitely say that in 2025, the free cash flow would be above EUR260 million. This is something, what I would say, definitely, but I do not want to give you another figure today. I think maybe during the year anyways we have to think about the ambition to 2025 again.
And I think we will -- we will publish a -- we will renew it and we definitely will not give you lower figures, but I think we have to -- to discuss it again internally on a Board level during the year, then maybe in November, I do not exactly know when. But then we will give you new figures here. But I think, yes, you are correct.
And do I see risks, on which side I do see risks, I think not on the tech side, not on the CapEx side, not on the interest side, I think working capital is the question what happens here. And all of us, we cannot be 100% sure what happens and what mechanics in the business will change. I think these are the open points.
Yeah. And on the LTIP, I mean, the long-term incentive program for the non -- for the Executive Board is based on the order (ph) number 4, which is the one that is now impacting the result, has a lever depending on the bottom line result of 2022. Since we have done really well in 2022, there is an adjustment needed. So there was, yeah, a lever. And the second one is, it's based on phantom stocks and when our share prices 2022 or 2023, it makes -- it has an impact coming from EUR17 in 2029. So there needed to be adjustments.
Got it. Can you just -- so the understanding for that LTIP, not the accelerating one is that it wasn't a change to the program, it was simply that under the terms of the program, you had the one-off effect in the fourth quarter -- share to book the sort of reaching the target. Okay. Got it. Perfect. Thank you so much.
[Multiple Speakers] Thank you.
And the next question comes from Usman Ghazi. Please go ahead.
Hi, everyone. I hope you can hear me okay. I had a question on waipu, please. So obviously we've seen quite a significant pickup in the net adds momentum in Q4. Can you perhaps talk about what is going on in the market? You know, where are these -- I mean are these customers that you're seeing, are they cord-cutting, or are they -- is there just a more of an appetite to take OTT alongside more kind of legacy transmission technologies? So, yeah, any kind of flavor you can give on what is -- what is driving the additional growth, whether it be in the market or are you taking share, that would be interesting?
My second question was, you know, I guess, a bit of a more strategic question. If I look at the -- your comments on self-cannibalizing the DVB-T business, I guess it makes sense given, they are in mobile network operators, they are lobbying for the 600-megahertz spectrum early. So can we -- can you perhaps talk about, if the DVB-T business was to move over to, let's say, 5G technology or its cannibalized early, so that the spectrum can be freed up. What kind of impact do you see for yourself? I mean, do the economics improve relative to where we are today because you pay less than lease costs or do you get a compensation payment for early release of the 600-megahertz spectrum? Any kind of comments around that would be interesting. Thank you.
Yeah. Usman, thanks for your questions. On the first one, waipu.tv momentum, first of all, what we see is that the conversion from free trials is better than in the past. That is no wonder because in 2020 and 2021, we gave three to six month free of charge and the conversion was decent, but not satisfying. And we have changed that to one single month. So that had a tip in the early -- early 2022, but now we have found the right promotions, the right way to communicate it improved CRM. So conversion from free trial is better. That is one element.
The other one is that you are all aware that we are doing this. Telefonica is also selling our product. I think on Telefonica, we see a step by step increasing number every other week which just tells us that their organization is adapting it. It took a little while. We were honestly disappointed at the beginning, but they are like a big tank. If they start running or if start moving, you can't stop them. So I think they are doing better.
The third one is, in general, the perception of IPTV is gaining momentum, because all the local fiber operators and providers are selling TV as well. So, the perception in the population is, well, you can get TV from a different angle. And I think also the fact that Disney plus, Paramount Plus and all the others have done a lot of advertising, once again creates a bigger -- well, it becomes more of a commodity to get the product over the internet.
And last but not least, I mean we have just -- we have now a package of 180 HD channels, 60 of them are exclusive pay channels that we put into a package, which is super attractive. We have started the cooperation with DAZN, and still hoping that sooner or later, we will get some of the other sports offers in Germany contracted. So I think, once again, it's a mix of operational excellence, good content offer, and a broader perception of the IP opportunity in the market.
The obvious question and that goes already a little bit into the strategic direction, the obvious question that we have on -- me at a weekly basis with operational meetings and on a monthly basis when Ingo and myself go for the business reviews is how can we accelerate this, how big is the opportunity and how can we take benefit from the loss of this (inaudible) next year and all the others.
So I think we're discussing more how can we accelerate and we are also discussing on what impact would it have if we put significantly more money into the brand and the brand recognition, which is compared to Deutsche Telekom or Vodafone Giga still super small. So -- and then moving on to the DVB-T, happy to answer this in that environment. I've given a statement two years ago, once in the press and then suddenly all the operators, the TV operators came and said like are you already baring DVB-T. And I had to do significant number of interviews to change it back.
Well, first of all, the spectrum is given to DVB-T in Germany till 2030. The decision on whether this spectrum can be handed over to mobile operators, it's not a national decision, but a European decision. And as you know, in France and in Italy and in Poland, the terrestrial share is higher in Germany. And that will -- it will not be possible to have a single decision on the spectrum just for Germany. And the respective global meeting to discuss the topic is in -- I think, the big one is in 2024. So, as of today, I would expect no changes till 2030 on the spectrum side.
Having said that, I like your idea, but I have to say that we had this idea ourselves. We were already moving on last year to review whether we could do a deal with the [indiscernible] basically handing it back and what compensation or what we call it, digital dividend, we would get. This would definitely be lower than the EBITDA contribution that we get today from the business, carriage fees plus and consumer. So we are, as of today, I would -- I would say, no -- definitely no changes to DVB-T technology structure and deployment before 2028. I think if then a decision was made for 2030, and then I think we will be ready to move on.
If you move the whole thing to 5G, technology-wise it is, I would say, handling, et cetera, is same cost. Difference would be that the operators would not pay carriage fees at this level because they would assume that 5G broadcast is much more a commodity and does not need individual technology covering the entire country. So the risk would be on the carriage fees, not on the subscription fees.
On the self-cannibalization, I mean, the idea is rather simple. We will offer a freenet TV customer a waipu.tv for free, and then we would basically watch weather they -- which one of the two they use, and they will be charged once. Our investment would be only the stick. And if the consumer pays EUR8.99 (ph) for it a month, it doesn't mean anything to us, whether it's going into the one company or the other.
So it is basically a seamless access offer. Take TV from the freenet Group and we care on which technology is the best for you. So that is the vision that we have. If we implement that, I think we can then at the later stage, even if 2028, a decision was made, we would then have no additional impact on revenues and on EBITDA. So that is hopefully an answer which outlines a little bit the optionalities (ph).
Great. Thank you very much for the detail.
And the next question comes from Titus Krahn. Please go ahead.
Hi. Good morning, everyone. Thanks for the presentation and a very comprehensive Q&A session as well. Just a couple of follow-up questions maybe from my side. First one, just because you already mentioned working capital and a little bit of follow-up on your 2023 free cash flow bridge. I think most elements are actually quite straightforward. But just one question again on this working capital.
To what extent do the EUR50 million outflow includes a reduction in factoring? And what would be left after that year, given you just have EUR25 million left? And following that, would you expect maybe a lower level of working capital outflows from 2024 onwards? Would that be a fair assumption?
And then a quick one on your capital structure, given that you talked about your quite healthy balance sheet and net debt. Just how would you weigh on the one side, maybe paying down some of the debt with the cash you have in the next couple of quarters versus potentially investing it in the share buyback? That's one option.
And the last question just on the broadband launch, I think, I mean, it has been quite recent just pretty much a month going on (inaudible), but can you give any numbers on traction you have so far on the DSL side? And also maybe, I know there's quite -- quite a number of factors playing into this, but what is your own ambition in terms of subscribers to achieve with the DSL launch and by the end of the year?
Okay. Hi, Titus. Thanks a lot for your questions. I think from the working capital side, as you all may know, we have this special topic on the balance sheet that we have the liability versus Media-Saturn of EUR25 million a year, which is a liability based on the exclusivity, right, what we do have there. And so I think this is something which you said. So minus EUR25 million in the working capital is the base for the calculation of a yearly figure.
And then in '23, it is the idea to reduce the factoring to zero. I think, factoring is a little bit the mechanic, what we could do faster or slower. But I think definitely it is the target to reduce it to zero. I think, we will wait and see what happens during the year. But, yes, I think these are the two components in '23.
And I think then we have to see, I already talked about operational changes, we do not know. And so I would be careful here. I think, yeah, basically, a normal working capital without any changes in payment rules, yeah, would mean it should only be minus EUR25 million. But from today's point of view, I would be careful here, would set minus EUR50 million in the working capital also for the future. And yeah, maybe, call it a buffer, but I think we have to wait and see what happens. And I would feel much happier if I do have the buffer and then we will wait and see because '24 is far away from today's point of view, let's wait and see what happens.
Then your question on the debt and on the reduction of debt, I think, yes, I think with the increasing interest rates, yeah, I think there is -- if you compare it with other possibilities to use the capital, yes, it looks more attractive than before. To reduce the debt further, on the other side, we still do have slow interest amount, what we do have to pay, even with higher rates. And I think, we have not -- I think we have to discuss capital allocation during the year.
And, yeah, definitely also we will discuss the share buyback, but we have not decided yet. And I think we will wait and see what happens during the year, what cash is necessary for the business. And then, I would say -- would not say it is impossible that we decide to do a share buyback, but what I can definitely say today is that it is not decided. And I think we will start now into the year and then we will check it again.
On the freenet Internet and DSL, I think we have to wait and see what happens here. We will just -- we will start during the quarter, and I think, Christoph, I would not lay out the figure today. I think let's wait and see. I think we saw that we -- from the reselling what we did in earlier time. I think there is a potential for us, and there is an interest from the customers to buy it. But especially with the app, we have to see how it works. And so it's -- I think it is too early to give a concrete figure here. We still stick to the EUR15 million to EUR25 million of EBITDA in '25. But I think we have to say -- we have to see how fast this will work out.
Thanks a lot, sir. Thank you.
Thanks.
And the next question comes from Francesca Schild. Please go ahead.
Great. Thanks very much. And I have got three questions, please. Firstly, on the overachievement -- achievements bonus, you received in the mobile segment, could you please just clarify bit more what was the criteria for hitting the target? And were all operators offering these bonuses or is it just one specific operator? And for 2023, do have any similar targets in place and could we expect another bonus to hit them? That was the first question.
And second question, please. How many waipu.tv subscribers do you expect to add this year as a result of the Deutsche Glasfaser partnership? And thirdly, please, it looks like the run rate for 1Q '23 waipu.tv is on track for more than 100,000 again. And is it drastic (ph) besides an increased penetration from Deutsche Glasfaser already? Thank you.
Yeah. Thanks, Francesca. The first one on the bonus, for obvious reasons, we cannot disclose the bonus in detail. But in more general terms, the current situation is that we get bonus agreements with Vodafone and Deutsche Telekom. There is a variety of bonuses or extra payments, I would call it. They are typically based on the total generated cost of goods.
So to illustrate that we pay on an individual SIM card basis money to the operators depending on usage and tariff plans. And then we have an agreement that if we -- if this number goes beyond so and so, then we get an extra 1% or 2% or 3% discount. These numbers are made up. This is not concrete. It's just to illustrate. So that is the biggest share of bonus payments that we get.
The second one is typically that they might have individual plans or internal goals, for example, data usage on 5G or extending share of wallet within the households. There are incentives schemes in place. So -- and there is a lot of fantasy in many, many other things. So we have seen a broad variety over the years.
For our internal and external purposes, also for you on the modeling, we have the level of the total bonus payment over the last, I would say, Ingo, 10 years, was on a stable level and that led to always the same kind of gross margin level that we have generated. And we are not expecting a deviation from that tradition in 2023. There was that one exceptional item because we have had one extra goal and we were unsure whether we would meet it. And that was a kind of a lucky punch, to be honest. I think we had a similar one in 2021. In Q4, that was a downpayment on Deutsche Telekom where we had that. So -- but I mean for modeling and for internal planning purposes, we do always the same level, no deviations.
On waipu, as said at the beginning that by the end of the year, I'm expecting a number between 1.4 million and 1.5 million. There is an initial approximately 100,000 current users on Deutsche Glasfaser on TV. From their perspective and we have not seen these customers, these numbers that they have given us and we don't know what their usage is and we don't know exactly what their consumption is. They -- the Deutsche Glasfaser team told us that these are the ones that they want to do a hard migration.
So I would add to that, today's 1 million something, 100,000 by the end of the year with this and then if I add another 250,000 that we have done this year, you know on 350,000. We are currently on -- by Q1, we will be on 1.040 million [ph], so this adds up to 1.4 million. And I said one point -- anywhere between 1.4 million and 1.5 million sounds reasonable to me.
If I look at current trading, net adds in waipu will be about 70,000 in Q1. And that fits to the other number because four times the 70,000 would be 250,000 to 300,000 plus 100,000 from Deutsche Glasfaser. This is why I'm ending with anywhere between 1.4 million, 1.5 million. And if there are opportunities for more, we'd love to -- we'd love to take them, and we will not stop the team on winning customers.
And the next question comes from Adam Fox-Rumley. Please go ahead.
Thank you. I was going to ask a question about a change in approach of marketing in waipu. But I think you basically said earlier that that is still under consideration. So maybe I can ask instead, whether or not the talks -- whether or not there's anything you can say about the talks with other fiber providers for instance on bringing waipu as a platform to their networks?
And then secondly, I just wanted to ask about the customer lifetime value improvements to the systems. And conceptually is that a continuous improvement approach to that or should we expect a kind of step change in the capability of that, if you kind of back-end systems during the year that might more materially change the way that you move or is it just a kind of step by step iteration? Thank you.
Yeah. On the first one, we are talking to almost any of the fiber providers. Obviously, we're not talking to the Deutsche Telekom because they have their own products and the same goes for Vodafone because they still have their own products. But we're talking to Wilhelm.tel, to M-net, to NetCologne, to DNS:NET and to a lot of the locals. We have also a framework agreement with BREKO.
BREKO is the association of small operators. This is now a deep look into human psychology. Typically, these companies have started and have identified that TV is part of their portfolio. Then we have hired people to do TV and now three years later, they realized that the TV as such, with the small scale they run is not making money. But still there is -- they have dozens of people being busy with it.
So, I mean the real role model was Telefonica. They were smart enough to do it from the beginning with us. But with all these companies, we're basically telling them, would you be ready to fire your internal people and to replace it by a third-party product. And what typically the CEOs do then, they walked into the TV units and say, can you please check what the differences are between our product and theirs. So this is real life of B2B sales. We are asking -- we are asking the frog to dry out the pot and this takes time. So, yes, but we are working on this and we have promising talks. But I'm not -- I mean, A, I'm not seeing big size providers, such as DGF. Aside of DGF, and the second is, it will take time.
On the customer lifetime concept, I mean, once again, what we're trying to do is we came originally from kind of a one-size-fits-all renewal. Then we changed the renewal offers to -- based on tariff plans and customer behavior. Then the next phase was to include a projection on future data usage and within the renewal tell the customer give you more for more you should upgrade now to 2-gigabyte or 3-gigabyte or 5-gigabyte or whatever.
And the next iteration is now to do that, not anymore on data usage and tariff plans, but on the individual usage, but also on the individual predicted readiness to pay. So basically, purchase power of the individual. And that leads to the fact that two individuals with same data usage and same tariff plans might on the renewal get slightly different offer and the difference may vary from plus-minus 10% to 15%.
And this is what we are -- this is what's happening. It sounds easy, it's technically rather sophisticated because you need to make sure that all these offers are consistent across all channels. So that the end consumer would not realize that if they go to the shop, they might get a different offer than they get online, et cetera, or in the app, or in the self-service part of our digital offering. So that is really what's happening.
And by the nature of this, the first, I would say, in total four years, it will take four years to have all our customers once migrated into the system and then we will see how often we can raise the prices for the individual. Is that a one-time effect because market and their usage might not change or we don't see that the conversion -- we see the conversion suffering from trying to increase one-time downpayments or other offers.
So I think it is a positive concept and it will help us to increase gross margin. But I don't think -- we should not assume that this is something which you can continuously do on a 3% or 5% levels. But it is an ongoing smooth slow penetration of the entire customer base with the model, helping us to create gross margin and to conserve current profitability on mobile business.
Really interesting. Thank you very much.
And the next question goes to Zahir Ramcharan. Please go ahead.
Hi. Good morning, everyone. Thanks for all the information so far on mobile profitability. But could we just revisit the moving parts again please? So I guess taking OpEx is a difference between EBITDA and gross profit. It looks to have declined about 8% year-on-year. And that follows a 27% reduction in Q4 2021. Now, if we assume personnel expenses were fairly stable, which implies quite a large reduction in other OpEx, could you sort of help explain what maybe drove that please?
I see, I think, maybe you remember last year, when we did a -- when we built a provision in the Q4 '21. So this has not been built in '22. I tried to explain it. And therefore, the SG&A looks are definitely lower, but it was a one-time effect in '21 and no one-time effects here in '22.
Okay. Understood. Thank you. And could you just remind us please how much exactly that provision was?
I think it was something like EUR8 million, something like that.
Okay. Thank you very much.
Okay. Perfect.
Okay. At the moment, there are no further questions. So let me hand back over to your host for some closing remarks.
Well, thanks. Thanks to all of you. Thanks for the high interest in the call also for 90 minutes in total. We appreciate your interest. We enjoyed the opportunity to explain. And we are happy about the performance and hope to see and talk to you again. Thank you.