freenet AG
XETRA:FNTN
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freenet AG
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The conference is now being recorded. Hello, ladies and gentlemen, and welcome to the freenet Conference Call regarding the Q1 2023 results. At this time, all participants have been placed on a listen-only mode. The floor will be opened for your questions following the presentation.
Let me now hand the floor over to Christoph Vilanek.
Hello, everybody, good morning. Thanks for joining this session. Format and everything very, very much the same, very much, as you all know it. We're very happy to present the first quarter results, which came in strong very happy about the overall development of the company in financial as well as operational KPIs.
And I would like to start as always with the development of the customer base. You can see that year-over-year we have a really nice development in mobile net adds of plus 166,000 and TV plus 182. I think it underlines our ambition to equalize these two businesses that is still in absolute terms of subscribers big gap be closed, but you can see that on the net add side. We're doing really well on both ends.
I think it is a result of a strong quarter as such good ambition with the team. Couple of changes that we have done on the sales side also in retail. These days, not a single event that was changing the picture, but I think it's a lot of little improvements that payback these days.
If we take a one step deeper into the mobile business, you can see that we have a total plus of 60,000 and during the quarter and plus 51 with pure postpaids. There is a strong development in unlimited strong demand and unlimited contracts and also fixed mobile substitution Internet access. They are incorporated here and they are doing really well.
I think they're going to be a little bit of a push back in the second quarter because we need to limit the ultra-high usage. So we have to -- we will clean out a little bit, but that -- we're talking about to 2,000, 3,000 customers, but that is the basic driver is SIMon and Unlimited.
Second topic which is more on the qualitative side, you know that we are constantly trying to improve our customer service. There is three elements to it. One is to push more and more of these contracts away from manual to digital. The current ratio of digital context is 38% and we're trying to improve on a constant basis.
Second key topic is to make the people not even call. We have seen a reduction of contact during the first quarter compared to the previous year by about 6%, 7% which is a result of improvement on processes such as mobile number portability and the like.
And overall, we were quite excited that Connect -- tested the hotline services and we've done pretty well there, which is also good in terms of communication to the outside world. On retail, the major changes during the first quarter was that by January 1, we have limited the way of paying bills in -- GRAVIS stores we have excluded any cash payments there from January 1, and we have done the same February 1 with the freenet shops.
To be honest, this was -- there was big panic on the side of our sales reps and shop managers but it turned out that it did not hit the bottom line at all. People fully accept that we are asking for all card, Mastercard or any non-cash payment method, which is pretty well and there is more to come. That's what we say. We are working on a new concept to fully align on and offline to delete any differences between the existing channels.
We want our shops to be very focused on not demand -- on real demand driven sales and going away from still supply driven sales that we're doing right now. I think that in the next call in August, we will elaborate a bit more and we will also share with you what the impact will be on the business side.
Freenet Internet, we have kind of like added to the portfolio. As you know, by the end of January, we have then beta tested the sales and activation in February, real sales only started now in April, on some of the other pages, but we also mentioned that we will increase the price and €29 to €35. This -- basically, it's driven by the market overall -- the market conditions and the commission demand that third-party sales partners want from us. So we will increase prices to have more money to spend as commissions to third party dealers, which we did not include in sales so far.
Next page. Page number 6 is a bit closer look at -- on the TV side. I think the outstanding number is that waipu.tv has a net add number of 83,000 during this first quarter. I expect a similar or slightly -- even slightly better net add number for Q2. What is the drivers. Well, I think it's a great product on the one hand side, but on the other hand side, it's the partnerships. In the Q1, we did not include any numbers from Deutsche Glasfaser so far.
So this comes in right now. First analysis on the April looks that these people that adapt or change migrate to waipu have super high engagement of over 90%. So we're doing really well there. These numbers will mainly come in in Q2 and Q3. So this is why we are expecting well anywhere between 80,000 and 100,000 net adds.
For the second quarter, there's -- on continuous range of new partnerships, which I will not elaborate, but I think it's just showing that the product is also improving with currently holding 248 channels 185 are HD. I think it's the widest and most attractive portfolio in the market. It's even bigger than the one from cable and MagentaTV. I think this is not really an attractor but more a hygiene and communication factor that we have a super competitive product.
On freenet vice versa, we still see a decline, which is expected. We keep the revenues on a stable level due to the price increases that we have very silently implemented in end of next -- last year and this year.
Still, we do a lot of interviews with people that are leaving and I even personally spoke to a couple of customers and they basically tell us that they switch technology typically to IP either when they are upgraded with glass fiber connectivity or improved Internet service and this drives us to test now a hybrid offers meaning that freenet -- freenet TV customers will get a waipu either on top or in a hybrid stick version in order to make them kind of like seamlessly migrated to the new technology and not stepping away then from freenet as a total company.
On Media Broadcast, B2B is doing really well. We have also -- I think I have mentioned last year that there is a couple of risks on carriage fees. We have signed the extended long-term contracts with public television also in Q1 which will give us stability way beyond 2027 and the radio is doing really well.
So I think overall, you can see them. I'm very positive. I'm happy that we've done -- I think, as I mentioned it's a bit better than we even thought, are not one-time effect, but a combination of positive effects that Ingo will give you more detail. So what is the outlook for the full year, we remain bullish and positive on the overall result. We will focus on implementation of AI and ChatGPT functionalities.
We have an internal group working on this. Specifically, we expect mid-term very positive impact on the customer service side. As I mentioned, assisted personalized shopping is a big project, which have kicked off these days within the company and I will give more details in August when we talk about Q2.
And freenet Internet is up and running and we will increase price to €35, on the TV side, now fully integration and implementation on Deutsche Glasfaser side. We have also seen demand from other B2B -- potentially B2B partners to talk to us and none of those conversations at this stage are ready to be either disclosed or concrete enough to be mentioned.
But we see that the IPTV market has really kicked off and anybody in Germany who is in the TV access business has a waipu on the radar and gives us the strong impression that we will find more partners such as Deutsche Glasfaser still this year. And the hybrid stick I've mentioned as well, we will -- have a meeting tomorrow where we will start talking about the implementation and the volume and I'm very positive that in Q4, we will see first results which we will again share with you at that stage.
Having said that, I'd like to hand over to Ingo for the EBITDA details.
Thank you. Good morning, everybody, from my side.
I'll start on page 8 with the group view. I think, Christoph already summarized a little bit. I think it's very promising what we saw here or what we see and I think it is -- yes, I think, Christoph is right, in all dimensions -- no extraordinary effect, but in all dimensions slightly more positive than expected.
So it's not the big effect, but a lot of very small effects and these positive effects lead to the EBITDA growth of incurred 8.5% here. What is also very positive, I think, is that the performance is not based on cost savings but it is based on better quality of the business and I think this is shown in the gross profit growth of €10 million and this is very equal to the €10 million of growth in the EBITDA.
What is also positive is that in both segments in the TV and Media segment and in the mobile segment, there is a strong development. And so I think all in a very positive picture also driven by an increased revenue, which is not so usual for us, but it was also in terms of revenue, a very good first quarter year.
Moving to page 9 to the mobile view here. Yes, here we speak of a steady growth of EBITDA which is totally correct if you compare it with the last quarter. In this quarter, yes, it's even bigger, the positive effect on the one hand and this is also very positive. It is driven by the higher service revenues, which is the most profitable part of our business and the share of the service revenue was again near to 75%.
So the quality of the revenues is quite fine. We see the positive gross profit effect. And on the EBITDA side, the effect is relatively comparable to the gross profit because we have a strong cost control, which keeps the cost on the level where they were last year, even with all the inflationary effects and so on.
Moving to the -- through the -- some KPIs of the mobile business on page 10. Yes, we are happy that DLS revenues are still on track. We saw some increase in the third and fourth quarter last year. And then, as usual, the first quarter of the year is slightly lower, but it's definitely much, much higher than the first quarter of '22. So I would say, yes, we are back on track since Q3 and this is something which shows it's here again. ARPU stable and subscriber base growing as Christoph already described.
Moving to the TV media business, I think a comparable picture to mobile. We see the increasing revenue based on the growth -- growing customer base at waipu.tv and I would ask you not to forget that in Q4 '22 where the revenue was even higher than the first quarter now, we had some extra -- extraordinary revenues from parted deals and from some sticks what we sold separately. So I think this was definitely extraordinary. The €80.8 million revenue in the first quarter, a very strong.
Moving to the gross profit. It is an increase in gross profit, mainly driven by waipu.tv again because of the growing number of customers and the service revenues what we generate here. On the other hand, freenet TV, it is stable. And this is the target to keep it stable because we see the decreasing number of customers in freenet TV. But on the other side, we increased prices during '22 and this is what we promised that we try to keep it on a similar level. And I think here, that we deliver what we promise.
On the B2B side, Media Broadcast, maybe a little bit surprisingly strong, but this is driven, especially by the digital radio business. I think we invested a lot in CapEx also last year into the infrastructure of digital radio and so therefore, now we generate the gross profit out of the network what we built there. And on EBITDA terms, what is obvious here, freenet TV, still on the same level as gross profit, on the B2B side also a very good cost control and in waipu.tv, I think this is not surprising that the EBITDA growth in waipu.tv is lower than the gross profit growth, because if you want to grow the business, then you have to invest into marketing and this is what we did in the first quarter and this leads to a low EBITDA effect on the shorter time but on the long term, this will pay in also on an EBITDA level.
Moving to the free cash flow. I think what is important to do, if you compare it with last year's free cash flow, last year, we received Ceconomy dividend. So if you normalize the free cash flow of last year, it was only €57.2 million and if you compare the €64.6 million of the first quarter of '23, this is an increase of 13% and therefore the free cash flow even outperformed the EBITDA growth.
If we look into the buckets here, change in net working capital, this is influenced by a further decrease of factoring from something like €26 million at the end of the year to €13 million, €14 million, something around this in the first -- at the end of the first quarter '23 and therefore, this is something why the change in net working capital is bigger, the negative effect year than last year because factoring reduction last year was much lower.
Tax payments comparable level than last year, CapEx higher than last year. Yes, again some investment in -- investments in digital radio. What we did in the first quarter, I think we could see from the Media Broadcast B2B figures that this makes a lot of sense because we get the money back afterwards. In the other, I think interest payments slightly lower. So nothing surprising in the other buckets here.
Moving to KPIs on page 13. Yes, I think, here in the headlines. I think the balance sheet is under control. It is still very healthy. I think we have a -- we will have a usual effect because in May, we will pay out the dividend. Afterwards, the leverage will be higher again, but definitely still on a very low level and it will -- the balance sheet will stay on a very healthy level with a equity ratio above 40%.
On my last page, 14, is the guidance. We reiterate it, I read in some of your comments that maybe the guidance is too low and maybe it's too conservative. I think, today, definitely it is much too early to discuss the guidance here. I think we are early in the year, we have to see what happens. And therefore, we reiterate the guidance today. Then during the year, we have to see what happens and what will be possible.
So therefore, I hand over to Christoph again.
Yes, thank you, Ingo.
Before we go into Q&A, I'd like to make a comment on -- as well on the topic of guidance and target. I think there's a couple of things which I would like to mention. We see that you have all read that Apple has problems with CPU revenues significantly. We also see that in April with GRAVIS. So both -- please don't be surprised that revenues in Q2 might take a dip from pure hardware sales.
Actually, it's not -- non-profit revenues but I think that is one thing I'd like to mention and you should be aware of no damage, but we would like to avoid a negative surprise. The second thing is that we have decided to do increases in salaries more significant than we've done in the past. The question was whether we will already implement it in Q1. It will come late Q2, early Q3. So that is part that will make that trajectory a bit flatter than one might expect now in the typically extension of Q1.
And the third topic is that we have tested a lot of new advertising social media, et cetera, et cetera with waipu.tv and the team had told us that they are feel -- more comfortable now to spend a bit more money than they did in the past. I think there are three effects, and this is why I was intervening here. I think the three effects that we will see over the year and -- also cause the fact that we are not yet in a position to really extrapolate Q1 results and see whether this will have an impact or a need to increase the EBITDA guidance.
Having said that, I think that is setting the scene for Q&A and happy to answer your questions.
[Operator Instructions] And first up is Polo Tang from UBS. Over to you.
Hi, thanks for taking the questions. Congratulations on a strong set of results. I just have a few different questions. The first one is, can you talk through what you're seeing in terms of competitive dynamics in the German mobile market, also ARPUs have been broadly stable for you guys but given price rises in the market, do you think that your mobile ARPU can grow going forward?
And second question is really just about M&A and use of cash. So just looking at the annual report indicated that the Board had considered M&A given the quantum of the one-off charges that you recognized for due diligence. It sounded like you were considering a large scale acquisition. So can you talk about how you see your priorities for use of cash and if you are considering M&A, what type of M&A are you thinking about? My final question is, what's your view on whether there will be a fourth mobile network build in Germany? Thank you.
Yes, thanks, Polo. On the first one, I think no big changes in the picture on the market. I think Deutsche Telekom, we see that they are putting lot of effort on cross-selling, they are what they call next tariff plans. So within families who try to get whether SIM-only from children, wives, husbands, neighbors and et cetera, et cetera., as long as they have lead Elite tariff plan with Magenta. Actually, we're doing the same on Magenta tariff plans, but that's what we see as an activity and the other one is that Deutsche Telekom seems to do -- let me say, unfortunately they do a great job in penetrating fiber, open access providers, doing a great job there, to do Internet access and accompanied by MagentaTV.
I think they finally found the right approach and doing really well. Other than that, they can -- in the core business on mobile, they keep prices on their high premium level and it's appreciated by the end consumer. Vodafone, we still see them in -- I guess. in less turbulences that we have seen in six months, it feels that the new management is getting grip on the company, still lot of open questions on whether they, what the investment in quality is, what they are -- how they are going to treat topic of DOCSIS versus fiber overbuild, I think there is still a lot of uncertainty.
We have seen them taken out money from the commissions in the Q4 2022 and Q1. We see them now coming back to do it still with some caution, but in general, return to what we would say -- we would call the normal status.
We have also done couple of commission versus revenue shares, which is in the first quarter, in accordance with their internal planning, but overall, I think they are for sure in the weakest position and their perception -- and consumer perception is rather weak. At least, if we compare it to the period three or four years ago.
For us, they remain an important. But, I think, it is -- the difference is that for long period they were the strongest and most important partner right now. The other two are more important for us, but I expect them to have a comeback over the year. And Telefonica, I think they -- Markus and his team did an excellent job in brand perception, in quality perception. They're doing really well. We are still struggling with them because they don't give us full access or access to their 5G network. We have escalated these discussions.
That is a general will to cooperate but there is still a couple of open questions which hopefully we can sort out in the next couple of months.
I don't see ARPU is going up. These famous price increases happened actually on prepaid tariffs with Telefonica. I think that the message was oversized. It did not really move the needle but don't expect ARPUs to go up. I would say flat on that level. And I think they are more impacted by the channel and acquisition of SIM-only versus subsidized sets than from any other.
Let me also go to the situation with Eins&Eins but I'm not in a position to disclose more than what's publicly available. Anyway, we were told public knowledge is that they are still below two digit number on active antenna. I think they have built anywhere between 10 and 15 but active -- not even 10. I was surprised to read last week that he starts now to offer Internet through 5G. I think that is a very brave statement if you run this with six active antennas.
We have also read the same credit quotes from Tim hedges that he is not -- he does not believe that Eins&Eins is honestly working on their -- on building a real network. So that's what I read. That's what you read. My interpretation is still that he is struggling with that infrastructure from what we know from other projects. Even if you sign a deal to input -- to put an antenna on top of a building, it typically takes six to eight months. So I cannot see a realistic chance that they will go anywhere near 1,000 antennas by the end of the year.
This would then mean that in -- from January 1, 2024, Eins&Eins would not be in a position to seriously state that they have 5G access or 5G network for their consumers and I personally think that someone would really need to have -- to take its own decision on the future whether he is trying to collide once again with either of the networks or find a different solutions -- a pure standalone solution for 2024 might be damaging for the reputation of his brand and I think he will not let this happen. So you need to ask him what he thinks the way out of the travel situation is.
On the cost of M&A you were -- you are right, we have spent money on a big project which we finally turned down. By definition, we will not -- cannot disclose what actually was the project by -- the target. I think if we look at M&A, let me exclude a couple of things. I mean, obviously, within the mobile, the service provider market, there is no option in Germany. There is also not real optionality to acquire a big chain of shops or something there because there is nothing available.
I think a natural organic expansion is there but not an organic move and we have over the years, every time that we look into products be it accessories, be it IoT, be it specific app services, we always -- but -- we've always looked at it, but at the end of the day, we always step back and said, we are not a product company, we're not good at that. We are a good company in packaging and selling.
So -- and that leads to the area of M&A where I am busy with is to understand how could we accelerate the growth of IPTV. I mean, you know that we are working with Deutsche Glasfaser in a sales cooperation. If there would be -- and trying to avoid any real name -- If there was a local network, a city network or somebody who says, we would be ready for an exclusive partnership, you are our provider for TV services, I think then, we could -- if this was an M&A, I don't know, but that could be in combined -- initial downpayment, exclusivity fee, CapEx subsidy for the network and you all are aware of those dimensions.
So if I look at them, I think the example, D&S network, Pantenburg, Berlin, they have a couple of hundred thousand subscribers on IP and fiber. They're doing their own TV services. Would it be attractive for us to cooperate with them. Well, first choice would be a cooperation with the revenue share but they might say, hi guys, if you give us so and so money, we will be ready to migrate our customers straight into waipu.tv and then extend it and maybe they have some cash need. That is the type of deal that I am constantly looking at. I think there is -- on international platform, there is a good example, that was the Euskaltel deal in Spain, but Masmovil has bought them and then they handed over the TV business to a third party IPTV provider.
I think that is a model which I like. That is the type of thing we have had a couple of talks over the past 18 months. Every now and then there is options out there, but at this stage today, there is no concrete projects, but that's the type of -- seeing. And other than the cash deployment and capital deployment, I think, Ingo, you want to give a statement there?
Yes. I think nothing new on this side. I think it is the first idea to invest the free cash flow which is not spent as a dividend to invest it into the business. I think this is still our idea and Christoph was already talking about IPTV earlier and then if there would be a chance to invest part of this free cash flow into the business to grow faster, especially in front of the end of the NIM cost for example, in 2024. Yes, we would be open to do so. But then, I think we would only invest it in the group. And I think this is what we do all the time. And as you know us, but if there would be a chance to grow faster, definitely, we would invest it.
So, I think it's still the same priority than in other calls here. What we told you we want to invest it into the business. If there is a good chance to do it in a corporation with a third party, as Christoph discussed earlier, yes, definitely yes. If it is called at the end of the day, M&A, it's when we can't see. Maybe it's something in between.
But if nothing of this would be possible, then, yes, definitely earlier data and this is also something what I read in all of your comments, earlier or later, we have to discuss if a share buyback would make sense, but I think already in March, we told you that we do not expect it before the second part of the year. We'll discuss it. And this is still the situation.
So nothing new on this side. But we see opportunities and hopefully we could realize some of that.
The next up is Yemi Falana from Goldman Sachs.
Good morning. Christoph and Ingo. Congratulations on another strong quarter and thanks for taking my questions. Firstly, I'd start on just volumes across the core business. On the mobile side, your commercial traction remained strong. How are you thinking about the progression through the year, and it feels ambitious at this stage to extrapolate such a strong quarter, but given your traction today, I would want -- I'd be interested to know what your kind of expectations are as we go through the year.
Secondly, I think you've touched on this, on the course of this call on the TV side, partnerships will continue to be a tailwind whether that's with Deutsche Glasfaser or elsewhere on the TV side. So do you think there is still scope for consensus to move upwards towards the kind of €1.4 million to €1.5 million expectation that you have on the waipu.tv volume side for the full year.
The second question is just on your new initiatives. Firstly on freenet Internet, could you comment on the pace of ramp up and the scale of opportunity there as you see it now and are things progressing in line with your expectations when you initially set them out at launch. Secondly, your hybrid sticks strategy on the TV side, does look well-reasoned, but there are clearly some risks and opportunities around that.
Some of us were around in late 2018 when we saw a large step downs in the TV base. So how are you thinking about managing that commercial deployment. And maybe I have one final question, just on factoring, I guess ex-factoring the free cash flow performance would have been even stronger. Do you plan to fully unwind this factoring in 2023, and if not, what timeline should we be thinking about. Thank you.
Yes, thanks for the questions, first one postpaid. Yes, as you said, I think first quarter was stronger than one would expect, I would not -- take that times -- for the year I think anywhere between 100 and 130 net adds over the full year is the fair assumption. We see April was okay. But as I said on the unlimited, we will have to take volume down a little bit because of the extra cost to big cost.
So yes, I would say plus 100 to 130 would be my guesstimate for the full year. On waipu.tv my personal guesstimate would be, well, anywhere between 1.4 million and 1.5. million We have had by yesterday beyond 1.1 million already more than 55,000 net adds in the first five weeks of the second quarter.
So I think second quarter, but I guess my -- is a three-digit number. So, plus 100 would be great. If this is doable, I'm not sure yet, but we get -- we will get close, then we will -- and if I take that -- the fact that fourth quarter is typically stronger than I think an assumption beyond the 1.4 million. It's a fair one and this is independent from new partnerships. So it is I would call organic development -- that given circumstances of -- as of today.
On freenet Internet, I said we did some beta testing. It turned out it's still implementation, service delivery remains a challenge. So this is why we were testing intensely. Then in April, we have-- we have really launched it in our own shops. We will -- after the first five weeks, we have now said that we will take away the other commission-based DSL services -- Internet access services that we have -- we're still selling and replace them by our own one.
So ramp-up so far was reasonable within the plants with effect of two or three months delay, but in fact, really implementation is starting now. And then I think the volume that we will create, it's maybe a 2000 to 3000 a month. I think that is when we do now -- I would say from June. That is the kind of volume. So we do not put money on marketing side. We just take cross-selling opportunities and migrate the volume that we have -- so far on commission base.
The TV stick, the hybrid version, yes, I understand your question -- but simply said, my current hypothesis is we send that hybrid stick to an existing freenet TV customer and tell him to replace its existing set-top box or PCMC card, connect his private antenna to the stick and then take the opportunity of experiencing the full HD with the channels that he has subscribed with freenet TV and on top use of waipu.TV.
And then, this year, many of these people are aware that the technology we have in-house is already the latest hottest stuff that is available in the market. So, to make them -- whenever they want to move away from their current antenna to make them aware that there is no need to switch but to stay with us.
That would also mean that the subscriber would still be a DVB-T subscriber but would have an additional IPTV service on top. That would, by the way, then end to the fact that we would not see a net add on waipu side, we would not -- we would just see a -- hopefully, a more stable number on the freenet TV side. So, no additional revenues for this -- for them, but lucky enough we're on the same pricing level anyway.
So, our investment would basically be the hardware, the shipment and then to make the people understand that we do not cannibalize -- self-cannibalize the product, but we give a deliver an add-on, which saves them later migration to anybody else. That is, let's call it, the philosophical idea around it.
We have shipped 150 sticks with that kind of ambition last week and we do is -- we start our questionnaires with these customers next week. So once again, I guess till Q2 results in August, I will be in a good position to explain how it should work and what the concrete impact was.
We definitely saw high engagement and high response on the offer. I sent the people personal letter saying I'm the CEO of both of these companies and I'd like to invite them to experience both and now we see what the outcomes are going to be. And the question on factoring, I think, Ingo, will -- how we've gone with factoring?
Yes, I think we reduced it further. I think, at the moment, we do not add any receivables to the program. So, if we would not do so during the year, then it will reduce further in the next month and the next quarters. So, I think it is a little bit a possibility to influence the level of free cash flow. But I think basically, the idea is to reduce it further to zero, but the program is still there, it is available. So if you would need it, we could use it, but from today's forecast and based on the guidance, what we gave in free cash flow there, the idea was to reduce it to zero and at the moment, we are on this track.
Thanks guys. Very clear and reassuring. Definitely on the hybrid stick side of things. Thanks for taking my questions.
Thank you.
The next questioner is Martin Hammerschmidt from Citi.
Thank you for taking my questions. I have two, please. The first one is on the waipu.tv EBITDA and sort of the growth from 2023. I think this quarter, you managed to do 0.6 million on that. If I think about throughout the year, you have customer growth coming from Deutsche Glasfaser and obviously your organic customer growth. On the slides, you also highlighted higher investments in anticipation of the elimination of the meeting cost [indiscernible]. So how should I think about that 0.6 million going forward. Is that something that you think you can maintain, improve or because of the investments coming in, in the second half that might actually turn negative.
And then the second question is, I mean, your comments on the guidance at the end of your remarks were quite helpful. If I think about sort of the mobile business, I think on the previous call, so the indication was that you can manage or you should be able to manage over €100 million of EBITDA per quarter. Now with the salary increase coming in, is that still sort of the case that you see or has something changed? Thank you very much.
Yes, I think I start with the waipu full question. I think first of all, maybe to clarify here, the €0.6 million is the increase of EBITDA compared to last year. So it is not the size of the EBITDA in the quarter. So there was this increase of €0.6 million in the first quarter. And -- but on an all-in EBITDA level, I think what we promised in the last call was that it could be possible to have an EBITDA of something between €10 million and €15 million in 2023. So if we would invest additionally, I think it could be possible that we put the EBITDA something like down to zero. This could be possible, if there are growth opportunities.
I think it is all base -- if there is no chance to gain additional customers, there will be no cash out. There will be only a cash out if there is really the availability to grow the base. So I think it is -- I think we are talking about investments of €10 million to €15 million, I would say something like this additionally, and I think we have to see if there is really a realization, but the EBITDA in the first quarter was definitely higher than €0.6 because for the whole year to repeat it, there was a guidance what we gave that the EBITDA will be between €10 million and more €15 million in '23.
Then your question about the guidance and about the mobile EBITDA. Yes, I think we have to think about the sales increases and I think we do not exactly know the dimension. But I still would say that €100 million a quarter, €400 million a year in the EBIT -- in the Mobile EBITDA would be possible. But here again, I think -- what I also said discussing the guidance, I think we are early in the year, but from today's point of view, yes, they still looks possible.
Understood.
Hopefully that --
Yes. And can I just clarify the first one on the waipu.tv. So as things stand right now, would you sort of speak to that €10 million to €15 million and so you don't necessarily see a big investment coming of this €10 million to €15 million or would you sort of walk back on that and say €10 million to €15million, might not necessarily be something that we can achieve.
I think the €10 million to €15 million is fine because it gives already a span of €5 million and we are talking about that kind of level of investment.
Very clear. Thank you.
The next question comes from Ulrich Rathe from Societe Generale.
Thank you very much. As asked, on the DLS revenues which you are highlighting, could you give us a sense of what the contribution margin from this is. Ingo, you said on the call that obviously the mobile service revenues have the highest contribution in margin. But -- these sort of other revenues, we all care in our models are a bit difficult to do the model in terms of what they actually do to the EBITDA. And I think the DLS revenues are probably relatively high margin as well, if you could give us some help there.
Second question is on TV. So if you are considering inorganic growth opportunities, whether it's M&A or these sort of partnerships that require capital contributions. Could you talk a little bit about what the end game there is because waipu -- literally is centered -- as I understand, is around a linear TV service, which may or may not have the long-term future and I'm talking about a very long term here obviously. So, how do you think about that. Did you want to essentially own the German market with your very strong starting point you have share wise and then migrate that into real sort of streaming world -- sort of on-demand streaming world or where are you actually aiming with these sorts of expansionary strategies in the end game?
And the last question I had would be on the refinancing. Could you give us an indication at what terms you are currently refinancing? Thank you.
Okay. Maybe I do the TV thing and then Ingo goes for the other two. So, what is Ingo talking about, and thanks for stating very long term. So what do I see? I see that fiber penetration over the next -- it will take up to 10 years to have it on the reasonable level in Germany. When you see the announcements and reality, then it's going to take longer than expected -- than it sounds. Let's put it that way.
There will be a replacement or strong decrease on cable for technology reason and for this famous name customers Lake, we do research on that and we -- people tell us that about a third of the population are currently aware. At the same time, we get the first mailings from Vodafone and the house landlords that people should be switching. So I think there's a lot of activity coming -- going on. And satellite will remain an existing technology very long-term contract with the program owners, public and private. So the strategy on waipu is to grow it as fast as possible beyond the 3 million subscriber line. Why do I believe 3 million?
That is close to 10% of the households, 5% of old TV sets, if we had the 3 million then it would be approximately 10% of the TV sets as well. With that size, you're suddenly in a different game because right owners are approaching you and offering their content versus now, we are still hanging on their door, knocking on their doors and asking them for content.
So it's a different ballgame from a certain size. I think the opportunities out there, if I look at the market is a Vodaphone, they need to switch into IPTV, whatever the platform they kind of deploy, it's going to take them long time and they would be -- for them, it's very difficult because the super -- we cannibalize the super high margin cable business.
So they will be in a delay. Telefonica is doing slowly but surely more than they did in the past. They are growing with ourselves at a similar level. Eins&Eins internet as far as what we hear, they have also a couple of hundred thousand subscribers, which they currently run on B2B service contract with Zattoo. Rumors say that they are also reflecting or reviewing their current partnerships. Is Tele Columbus same position as Vodafone.
What is the right timing to replace the existing TV business. So if I add all this together, then I think that is -- within the next five years, there is a potential for us. Can it -- to grow into the 3 million range. And if we get any of the others that need to switch technology as well, it should be possible to add another 30%, 40%, 50% to that volume.
And then if we are in that range, five years -- let's say, in three years, I want to have 3 million, in five years, I want to have five million. If we are on that range, then we -- you currently talk to. Well, I have now first talks to National Football League, they say, well, what are you planning to do. What are you -- what is your vision?
Netflix was the first one to partner with us and we have been approached from DAZN and we are now cooperating with DAZN. Sooner or later, I think Sky Germany will also open up for a third party and not on guarantees. Nothing dramatic change in with IP is that the film industry will move away from set guarantees for rights to a more license per subscriber business model.
I think that is what we have seen in the US, that what we see in couple of other countries, and this is how I see mid-term the development. We have tested a couple of real -- few video on demand on single series and single programs, still doesn't work in Germany.
Big packages, like 75 Turkish channel work but not same with VOD. We've also tested a couple of things now with DAZN on single games. So single ticketing doesn't work either. The CRM is still too expensive there and the attractiveness and the likelihood is still not there.
And finally, I think there will be also a clean out of the services, we have seen Disney Plus not really approaching Germany with a single subscription but also only with the deal with Deutsche Telekom. Paramount Plus more or less stopping their own start after a couple of weeks. And I could talk a long list of tries, joining is still struggling. So, I think a big platform like waipu and Magenta, they are the survivors. It must be our ambition and goal to be number 2 of the Magenta because they are just in a better position because of their 30 million each led households. Is that an answer which you can gladly live and work with?
It's very helpful. Thank you for taking the time to lay that out as to that.
And then with your question about digital lifestyle revenues, I think basically you are definitely correct. The margin of the digitalized business is higher than the average margin of our business, definitely. If we look into the increase of 10 million revenues in the first quarter, I would split it a little bit, because some of it really was an increase from businesses with this high margin, but we also have small parts in the digital lifestyle portfolio where we sell hardware, where the margin is lower, and especially in the first quarter, the share of hardware sales in the increase of €10 million was slightly higher than normal because we had relatively high inventories, which we had to reduce during the first quarter. This is something what we did. So generally, you are totally correct, but for the increase in the first quarter, I would say 50-50, 50% high margin, 50% lower margin.
And then your question about refinancing. I think what is important to know is that we still have an unused revolving line in the back of €300 million. So, therefore, we are not in a hurry to do the refinancing and we are not getting nervous with the margins, which are out in the market at the moment. And to give you, I think, an important additional information in the revolver, we do only have a margin of 18 basis points.
So a very, very low margin compared to all what we have in other instruments. So, therefore, it could make sense to use the revolving line first. But definitely, it is not the idea to use the revolving line for longer terms, but in the short term, makes lot of sense, and therefore, we already announced that we will try to do another permission notes in autumn this year and this is still the plan to do so.
And so what we do see at the moment is that the margin should be something like 170 basis points, something like this. And in the existing promissory notes we have margins of something like 130 basis points. So there is a difference of 30 basis points to 40 basis points at the moment, but I think we will try -- we will see how the market will look like in autumn -- interest markets are moving.
You know better than me and if it would not -- if the margins would be too bad in autumn, they will -- then we will try in winter and if it is still the situation, we would also have the time to do it in the first month of '24. So we are not in the hurry, we will check the market. Basically, it is still the idea to do it in autumn, hopefully, with lower margins than what we see today.
Thank you very much. Can I just -- the level of audio dropped out. The revolver margin is what?
Only 80 basis points.
That's it. Thank you so much. Appreciate it.
Okay, perfect.
And now we're coming to the next questioner. It is Usman Ghazi from Berenberg.
Hi, gentlemen. Thanks for the opportunity. I wanted to ask, just on the wage increase that you've indicated at Q4, the headwind was -- I mean, you've indicated roughly €10 million from inflationary effects, 3 million was from LNG, 7 million was from wages. I mean, are you saying that because of the strong performance that you had, you're thinking of maybe putting wages up by more than what the flat -- wage headwinds would be more than 7 million on an EBITDA basis. So just a clarification there, please.
Second question was just on the -- again, on your -- on the stocks that you've been having with the city carriers and you mentioned that you were looking at the deal in Q4, but I believe that over the last two years, you have been considering this model where you subsidize the CapEx for the city carriers and return for exclusivity. But in all cases, I guess you have decided not to go ahead. Can I perhaps ask, what is the key stumbling block. Is it kind of the quality of the end partner, is it governance issues, is it -- I mean, we just -- to see what is making you back off, this is a concept. Obviously given your gearing, given the opportunity that exists with the city carriers, it would appear that this is a no-brainer. But, yes, just your experience there would be helpful.
And my final question was just going back to factoring. So I mean -- I guess, I mean, the main purpose of the factoring in any factoring is to neutralize the impact of cash flows from the hardware sales, right. But in reducing the factoring facility, are you as a company saying that look, in order to improve the quality of the balance sheet, we are willing to take a negative hit from selling hardware or take the negative timing hit from selling hardware in our cash flow to improve the balance sheet or is it or something else happened. Thank you.
Usman, thanks for the question. First one I think the €7 million to €10 million inflationary effect on wages are still valid. The fact is that we could not see any impact in the first quarter.
Okay.
So I was just making sure that nobody says, okay, it's so well. It never -- it's not going to drop again, the impact will only happen later, but thanks for -- I think it's a good clarification for everybody.
On these carrier things, I mean, the strange -- to be honest, it's a strange experience. You're going to a city carrier, you talk to them and say, hi, guys, we'd love to do Internet access through your network. We'd love to do kind of become your serve call on TV, then they are really excited, really positive, then you start to ask questions like, how many households are really active customers, how many do you really know and how many are using your TV service and then it turns out for example in the -- in Munich with M-net that you start with a couple of hundred thousand.
Then, in the second meeting you learn that the excess is only 200,000 and you learn that not even 10% of their connected -- theoretically connected households are really customers and are really getting TV. So, you're starting super optimistic and with the pockets, ready to spend money and then you learn step-by-step that they are nowhere near real customer relationship. So that is a matter of fact.
The second thing is same picture on cable -- local cable networks Wilhelm.tel or PYUR/Tele Columbus, you talk to them and then you learned that 70% of their business currently is not a direct to consumer but a direct to the landlord or the real estate Commissioner and then you ask them like how can we migrate the customers and they say, well, you could send somebody there and knock the doors because we don't even know the names of the users.
So, I'm a bit dissolutionized from -- super happy to talk to us, they're always excited when you offer money and then we start to tell them that we are happy to work with subscriptions with individuals that we at least know the name and their bank account. It turns out that they are -- this is a level of detail, which they have never heard of. I'm slightly exaggerating but that is really what I am experiencing.
I'll give you a different example, we have a channel on waipu.tv with -- is the Newberg-- which is the Newberg football game -- football club, very, very traditional club. We are super happy they said we want to have our club TV on waipu and we said, okay, implementation, no issue you have read, but hi, guys, what you should do is tell all your members that they should now go to waipu and have their football and your club TV on their big screen at home and then it turns out that out of this famous club, they do not even have 20,000 addresses.
But they have only 5,000 and out of those 5,000, 3,000 they have no allowance to address them. So reality of CRM direct marketing customer ownership is very different the deeper you go and that is -- has been so far the disappointing experience and what you call the stumbling factor of this non-M&A activities.
Thanks.
And your question about factoring. I think, is it possible to give a clear answer, I would say, no. I think, I remember the situation two years ago when we already said, okay, after the sale of Sunrise stake, we have a healthy balance sheet and then we talked to some investors and they said, okay, yes you have a -- your balance sheet looks healthy, but you have factoring volume of €120 million. So -- and also rating agencies are doing it. They say, okay, this is part of your debt and you have to add it.
So you could say, okay, I do factoring and then I do have a healthier balance sheet. I would say, and this is where we changed our position already some years ago. At the end of the day, the factoring is -- even if it is off balance, for us, it is part of the balance sheet, how we interpret it and therefore, we said, we want to get a clear picture to everybody. Therefore, we reduced the factoring to zero and we have the ability to finance the hardware business, what we do with the strength of our balance sheet.
And therefore, I would not say that we could change the position in the future because there are still enough receivables to sell and there are still enough programs where we could sell the receivables. But at the moment, it's not planned and I think we want to give a transparent and clear picture with the balance sheet and this was behind the decision to reduce the volume.
Right. And then just, sorry, I mean, could you indicate what the interest cost savings are that you're making by reducing the factoring balance?
Yes, I think you'll have the margin of something like 1.5% here. What you do have to pay, and this is at the end of the day, something what is -- what you say.
Thank you very much.
And next up is Adam Fox-Rumley is from HSBC.
Thank you very much and for all the answers you've given so far. I -- we've spoken previously about the efficacy of advertising. So I was interested to hear your comments on the feedback from waipu team but it sounds like something has changed or a new approach has changed. So if there's anything that you can say a little bit more about the improvement you've seen that justifies a great approach. That would be very interesting to hear.
And then just on a second question around potential partnerships. I just -- I think you probably mentioned this before but just like a reminder, if there's any kind of meaningful work to be done on your side ahead of taking on another, becoming a white label for someone or becoming a direct partner for someone or is that mostly all done and it's pretty plug and play from your side? Thank you.
Yes, let me start with the latter question. To connect any local fiber carrier or so there is an API. It's done within four weeks. It is a different thing if we would do white label, but the answer is, we have not done any white label yet and we are not planning to do white label. We are always talking about -- we call it the sales partnership and we are in a position to give the partner a couple of entrants screen and presentation on -- in the app, on the website et cetera that is then branded for them.
Typically, why -- a real white label would be something like they want a couple of features different, they want, I don't know, a vertical instead of a horizontal EPG and something and we are not ready to do that. And whenever we talk to a third party, we always make a strict statement right at the beginning, that we are not a B2B partner, but we are a finished product with -- adaptations. I think that should all be possible within anything, well, four to 12 weeks. Typically, we see that at least from Deutsche Glasfaser. We have seen that their internal implementation was very more costly and time-consuming than ours. So rather plug and play.
On the first one, if I got that right, I think the question was on the -- on advertising or subscriber acquisition performance. We have -- I mean, the team there, they're super accurate, very technocratic when they do analysis. And I think over the past two or three years, they continuously tested many different versions of advertising, many different approaches prices, offers et cetera, et cetera and they kept telling us that increasing the subscriber acquisition cost by whatever 10% -- by 20% would destroy margin instead of driving volume at a similar level of profit per customer or less likely result. Well, and now they tell us that obviously, the awareness for IPTV, the awareness for the product, the awareness of the brand has increased good enough. So that these marginal expenses immediately payback.
I think that is ultimately the message -- every time they have spent more, they said, well, we have spent more per customer, but we have not really added volume and now they have found the trick. It's not -- I guess it's not the single or now we have a new headline. It's -- as I said, prompted awareness is now on 43% which is way higher than it was 18 months ago where we still were in the low 20s. I think awareness of IPTV as a category as such has grown significantly in awareness across the board. We have been able to present the product in the press -- in the media -- in the marketing way more and I think it's just becoming easier and that enables us to do so.
Great. Thanks so much.
Exactly. No further questions.
I was about to say the same thing. No further questions. Thanks for your patience. Thanks for your good questions. Thanks for the interesting discussions that we had. As always, Tim and his team are available for further questions next couple of days. We will go -- we will have an Investors roadshow tomorrow and we're happy to talk to any of you in the near future. Goodbye.
Goodbye.
The conference is no longer being recorded.