Telefonica Deutschland Holding AG
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Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Telefónica Deutschland Q1 2022 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Christian Kern. Please go ahead.
Thank you, Maria. Good morning, and thank you for joining us today. On behalf of our management team, it is my pleasure to welcome you to the Q1 '22 results call of Telefónica Deutschland. Before proceeding with the management presentation, we would like to inform you that the financial information contained in this document has been prepared under IFRS. As usual, this presentation may contain announcements that constitute forward-looking statements, which are no guarantees for future business performance and involve risks as well as uncertainties. Also, Certain results may materially differ from those in these forward-looking statements due to several factors. We invite you to read the full disclaimer on the slides -- on the first slide of this presentation. .
Finally, today's presentation is also available for download on our IR website. With me today are Telefónica Deutschland's CEO, Markus Haas; and CFO, Markus Rolle, who will take you through the presentation followed by a Q&A session. Markus Haas, without further ado, over to you.
Thank you, Christian. Good morning, ladies and gentlemen, and a warm welcome to our Q1 2022 results conference call. We are delighted to present to you again a very strong set of results driven by sustained and profitable growth. Let me highlight the main KPIs, which our CFO will explain in more detail in his following presentation. Revenue grew more than 5% year-over-year. OIBDA posted more than 7% growth on sustained profitable top line growth. CapEx to sales stood at 13.6%, well on track for our targeted normalized CapEx to sales service by year-end. Mobile postpaid net additions were close to $300,000 this quarter, continuing our strong trading momentum, while the O2 postpaid churn rate temporarily came in slightly higher while still at low levels of 1.2%. Overall, we had a strong start to the year confirming our market momentum on the back of achieved network parity and sustained ESG leadership.
This year is the year to celebrate the 20th birth of our core brand, O2 in Germany. Since our launch of O2 20 years ago, we have made mobile access mass market-ready and help digitalization to make our breakthrough with society. Initially, starting as a new challenger in the German mobile market, O2 has to be more innovative than its competition. We delivered the innovations and impulses that developed and changed the German mobile communications market ongoing.
For example, we launched the cost airbag set, a mobile milestone with O2 Free's big bucket tariffs with surf guarantee, not to forget O2 Free's speed-tiered unlimited tariffs. At Telefónica Deutschland we are now lightening up the next stage of digitalization in the occasion of our 20th anniversary, and we are offering with O2 Grow, Germany's first growing data tariff on a promotional basis. With the innovative O2 Grow, we are making mobile data even more accessible for our customers. Starting with 40 gigabytes for our O2 Grow customers automatically receive an additional 10 gigabytes free of charge every year, up to 240 gigabytes.
With the Connect option customer can use the overall data volume across up to 10 mobile devices. This is another key contribution to democratize access to the sustainable digital future to create a better everyday life for everyone.
Moving on to my next slide. Sustainability has become a key success factor for our business. We are delighted to say that sustainability has been an integral part of Telefónica Deutschland's DNA already since 2005. This includes taking responsibility and focusing on our business impact on society and the environment. During our recent annual ESG road show, including our Chairman, Peter Loscher, we have continued our highly constructive dialogue with ESG investors. This is always a great opportunity to showcase our leading ESG position among European telcos.
Most importantly, it allows us to understand even better the constantly evolving investor demand with regards to this important topic. Thanks to our strong ESG performance, we are proud to be top ranked in leading ESG ratings as well as being included in the key ESG indices. We also encourage you to take a look at our just published annual corporate responsibility report, which summarizes well our achieved ESG milestones for the year 2021.
Our ESG delivery is based on the successful execution of our Responsible Business Plan 2025 with a key focus on 3 key pillars: environment by building a greener future; second, social by helping society to thrive; and third, governance by leading by example. With regards to environment, our program reduced repair recycling, is an important building block for applying the principles of the circular economy and extends our commitment to a sustainable future. Conserving resources means above all, reducing the consumption of natural resources, keeping resources in use for as long as possible and finally, recycling them responsibly to reuse valuable raw materials.
For example, we saved over 17 tons of plastic by delivering more than 8 million SIM cards in half SIM card format last year. By no later than 2025, Telefónica Deutschland plans to eliminate completely the use of nonrecycled plastic in its own logistics. On social, we are focused on supporting society as communication is 1 of people's basic needs. In these unprecedented times, this is even more important, especially for people suffering from the war in the Ukraine. Therefore, Telefónica Deutschland is providing free roaming and calls as well as free SIM cards for refugees from Ukraine. Furthermore, we are offering financial support and professional opportunities for interested refugees in Germany via the job platform, UAtalents.
Moving to governance. It is worth highlighting that we have further strengthened the independence of our supervisory board composition. As a result of these ESG initiatives, we are all well recognized with top rankings by leading ESG rating agencies such as Sustainalytics and EcoVadis.
On my next slide, I'm excited to highlight the strong execution focus of our investment for growth program and the excellent progress of our 5G rollout. Let me flag just a few key achievements. Our rapid 5G network expansion has reached another important milestone. We have already successfully passed 40% 5G pop coverage, hence, we are well on track for the targeted 50% mark by the end of this year. Our passive and active network sharing agreements with the current MNOs enhance both network densification and CapEx efficiency. Finally, let me reiterate that Telefónica Deutschland has already passed its CapEx peak last year. So we are well on track to achieve normalized CapEx to sales levels towards the end of this year.
Before handing over to Markus to take you through our strong operational and financial performance in more detail, I'd like to reiterate our full year 2022 outlook and midterm guidance. Our full year 2022 outlook is fueled by our strong operational momentum. As a management team, we remain focused on profitable top line growth and continued cost efficiencies. We are confident to manage the increased inflationary cost pressures since the start of the war in Ukraine within our full year 2022 outlook. Finally, we have announced a dividend proposal of EUR 0.18 per share for 2021 to our AGM on May 19, which is in line with our strong commitment to an attractive shareholder remuneration. Markus, now over to you to take us through the Q1 results and highlights in more detail.
Thank you, Markus, and also good morning, ladies and gentlemen, from my side. Let me now take you through our Q1 operational and financial performance in more detail. Our Q1 revenues continued to post strong growth and were up 5.2% year-over-year to EUR 1.946 billion. This growth momentum was mainly fueled by the sustained and profitable mobile service revenue growth and also strong handset sales. MSR Increased 3.3% year-over-year in Q1 to EUR 1.351 billion. This positive trend is reflecting the continued good commercial traction of the O2 brand.
In fact, O2 postpaid MSR is by far the biggest absolute driver of our year-over-year MSR growth. Also, we had some support from the recovery of international roaming, while the accelerated MTR glide path was a drag of minus 1.7% year-over-year. Handset revenues were supported by the good availability of devices and posted plus 13.2% year-over-year growth to EUR 392 million. Fixed revenues were minus 1.6% year-over-year to EUR 197 million in Q1, mainly as a result of the decline of the low-margin international carrier voice business driven by mainly the lower European termination rates.
More importantly, our retail fixed broadband revenues continued their growth path and were up 1.8% year-over-year, reflecting the increasing share of high-value customers in our customer base.
On my next slide, let's take a closer look at the trading performance. Mobile postpaid delivered strong growth with $287,000 of net additions in Q1 2022, which is an up of 30% year-over-year, driven by the well-received O2 Free portfolio and a solid contribution from our partner brands.
Churn in the O2 brand was plus 0.2 percentage points year-over-year, mainly due to the anticipated temporary effects from the EECC. However, churn levels remain on low levels of 1.2%. O2 postpaid ARPU was broadly stable year-over-year on the back of a combination of the accelerated MTR glide path and some enhanced focus on customer loyalty. This included retention and bundle benefits, for example, for second SIM cards and friends and family offers.
We continued to see strong ARPU uplift from first SIM gross ads. MSR growth is also supported by second and third SIMs, which naturally contribute lower ARPU, [ XMTR ] impact us, the O2 postpaid ARPU continued to grow plus 0.3% year-over-year. Ahead of the recent [indiscernible] of our gigabit cable offers, the fixed broadband business registered minus 10,000 of net disconnections mainly driven by legacy ADSL and some anticipated temporarily higher churn on the back of the EECC introduction. Our technology-agnostic O2 my Home products remained popular with cable and fiber gaining traction as well as sustained demand for our fixed-mobile substitution offers. Including FMS, net additions were positive in the first quarter.
Fixed ARPU maintained its growth path with increasing share of high-value customers in the base and is up 2.8% year-over-year.
Moving on to my next slide. OIBDA posted strong growth of 7.2% year-over-year to EUR 602 million as a result of further improved operational leverage in both fixed and mobile. The excellent OIBDA growth is reflecting own brand momentum, further efficiency gains as well as some international roaming tailwinds, which are more than offsetting the drag from the MTR glide path.
Our OIBDA margin improved to 30.9% in Q1, which is an up of 0.6 percentage points year-over-year. Within our Q1 cost breakdown, let me highlight the following key points. Supplies were flattish at 0.4% year-over-year as the positive effects from the MTR-cut were more than offset by the volume driven higher hardware cost of sales. Underlying personnel costs were flattish at 0.9% year-over-year with a lower FTE base partly compensating for the general pay rise we did in December 2021 with 1.75%. Other OpEx were up 4.9% year-over-year, reflecting the technology transformation and the commercial activity, including an enhanced retention focus and a more normalized marketing spend versus a lockdown quarter in the previous year.
On the right side of the slide, we show our free cash flow with its usual seasonality and our healthy financial leverage. Free cash flow amounted to EUR 222 million in Q1. As usual, we paid the bulk, typically more than 40% of our annual lease payments in Q1, amounting to EUR 275 million. This is only marginally over the last year. As a result, free cash flow after lease stood at negative minus EUR 52 million for the first quarter.
Working capital movements of minus EUR 86 million in Q1 were on a similar level as the prior year, and are mainly driven by the anticipated unwinding of the CapEx payables minus EUR 78 million, increased prepayments for minus EUR 44 million and other working capital movement of EUR 39 million included a reduction in trade and other payables of minus EUR 194 million, which was outweighed by a movement in trade and other receivables of plus EUR 278 million, mainly due to silent factoring.
Our consolidated net financial debt amounted to EUR 3.213 billion as of 31st of March, resulting in an unchanged healthy leverage ratio of 1.3x. On my final slide, we reiterate our full year 2022 outlook, fueled by the strong Q1 performance and the growth momentum carried over from the last year. As a management team, we are highly committed to deliver against strong operational and financial performance in 2022. Unchanged, we expect low single-digit percentage growth for both revenues and OIBDA with further margin expansion while compensating regulatory headwinds and managing the increased inflationary cost pressure.
Also unchanged, we expect the CapEx to sales ratio in the range of 14% to 15%, approaching normalized CapEx to sales levels towards year-end. Finally, as mentioned by Markus, the dividend proposal of EUR 0.18 per share for 2021 is in line with our announced dividend floor for the financial year 2021 to 2023.
Now we look forward to getting your questions. So operator, please go ahead and start the Q&A Session. .
[Operator Instructions]
The first question is from the line of Georgios Ierodiaconou with Citi.
I have 2, please. The first 1 is around the cost phasing for the year. So clearly, very strong margins this quarter. I believe, Markus, you have also a relatively easy [ clubbing ] the fourth quarter given the investments you've done commercially in 2021. But do you mind just perhaps giving us a bit of a color as to how we should think about the different cost drivers during the year? And then my second question is around the fixed line performance, more on the KPI side. I understand the revenues were impacted a bit on some low-margin wholesale. But you did have negative net additions this quarter. So I just wanted to: a, get your views on how the market is evolving both in terms of growth and competitive intensity; and secondly, if you could perhaps address how you plan to reverse this trend in the coming quarters?
Georgios, Markus Haas speaking. Many thanks for your questions. First of all, we clearly expect positive OIBDA growth in every quarter this year. We had a very good start into the year. And we are clearly currently looking forward what is the overall situation from the market. But overall, as said, we are very confident to deliver our full year guidance. And let's see how the year is coming. But we clearly expect growth in every quarter this year. On your second question, on fixed, we were in the process of renegotiating our fixed wholesale terms with the cable operators, and have been able to clearly improve the products and the conditions.
And for that, we clearly, as you have seen with our birthday campaign, relaunched cable on our network with a very attractive offer on competitive levels, but clearly now also being able to match the quality and the product features that competition had before. So we were clearly now seeing or expect a strong uplift for the rest of the year on fixed trading on wire line trading on the back of renewed conditions on the cable networks. So in so far, we already knew in Q1 that this was coming. So we clearly now have -- will see acceleration seen throughout the year.
Georgios, let me add some more details. This is Markus Rolle speaking for the cost phasing. So apart from the one-offs that we had in the previous year, we expect this year, of course, to be a much more linear cost phasing because in the previous year, we were still hit by the lockdowns and all the topics driven by COVID in the last year. So in general, cost saving is -- cost is expected to develop more linear. We will have somewhat less pronounced support from roaming, as you know, because travel activities restarted throughout the mid of last year again. And we also expect some cost increases in line with our plan and expectations, for example, the enhanced rollout will result into a slight cost increases on the network side, but all anticipated in the guidance as well as also the inflationary topic.
The next question is from the line of Ulrich Rathe with Jefferies.
My first question would be on O2 Grow. That's obviously a time-limited offer. But just conceptually, I was wondering how you think about that? I mean nobody knows whether what the price for 240 gigabytes is going to be in 20 years' time and the products that are framed around, the market around this growth towards that end point. Is that a sustainable model that you can translate into other products? Or is this simply a complete one-off and then not in the model for tariff structures in the future?
Second question is on the comments that you made on the ARPU dilution due to churn management in the first quarter. Could you give us a bit more color what exactly you did sort of proactively there and in what way that affected the ARPU growth in the first quarter?
Thanks, Ulrich, for your questions. On the first 1 on the O2 Grow. O2 Grow is clearly an accretive tariff for us. I think it comes with the EUR 30 price point. It's a timely limited offer, as you rightly said. And from that point, it's clearly strengthening again loyalty. And it's clearly also for existing customers who want to do an upsell from the packages they're currently on. And it's a very attractive offer from our perspective, is for us clearly a test -- and what we currently see is, we have no plans so far to increase it beyond the birthday campaign. Also clearly said, but from our perspective, every customer that comes to O2 Grow, will increase our average ARPU in O2 postpaid. So as again, is strengthening our positioning, is strengthening loyalty in the base. And this is an innovation. It's an innovation tariff. It's a different concept to unlimited tariffs. And from that perspective, we clearly hope that many customers will go for the tariff in order to clearly to continue our growth momentum that we have already seen in the first quarter.
Ulrich, let me take your second question on the ARPU development. I think, first of all, our underlying development, our operational development is fully intact. O2 is by far -- the O2 postpaid by far the biggest contribution to our MSR. However, in Q1, of course, we were facing the MTR cut in our ARPU. Without the MTR cut, our growth would have been, again, at similar levels like you have seen in the previous quarters at around 0.3%. But let me explain you also the mechanics behind a little bit more. So we are still very well performing from our perspective on the first SIM card. As Markus was mentioning, O2 Grow is also contributing to that one. We are still gaining customers far above the average ARPU that we have in our customer base. However, we are more and more on the retention side. Also, of course, gaining second SIM card, third sim cards, family and friends offers, et cetera, they come with a lower ARPU contribution. So they could dilute that ARPU KPI, but they are also contributing nicely to the overall MSR growth, and of course, we know the customers, they can also -- with a good profitability into play.
So we should not just -- so lately look at the ARPU KPI, which is still healthy from an underlying perspective, we should also look into the bigger picture where you have some effects that we have to take into consideration, but all I think, going into the right profitable direction.
Right. So the comment in the report on the ARPU sort of impact of the retention refer specifically to the second and third SIM card and friends and family and [indiscernible] you commented on before?
Correct. Correct.
The next question is from the line of Polo Tang with UBS.
I have 2. The first question is really about your 1 gigabit cable broadband offer. So you're promoting it for EUR 30 per month. But can you comment about how the traction you're currently seeing with that product. Can you comment on what you're seeing thus far in Q2 in terms of both postpaid net ads and broadband net ads? My second question is really about free cash flow after leases. So you've seen quite a negative working capital drag of minus EUR 86 million in Q1. But how should we think about working capital for the full year -- if I look at your Q1 results, I guess you scope for consensus, nudged EBITDA higher for the full year, but also to lower CapEx for the full year, but will this be offset by negative working capital movement over the course of the year?
Thanks, Polo, for your question. On your first one, the 1 gigabit birthday promotion offer on fixed based on the cable infrastructure has a price step up after 12 months. So on average, over 24 months, including then the cost for the router, we are matching basically competition. But clearly, the first 12 months is an entry tariff that we give, but you already need to commit to the higher tariff after 12 months with a step-up in pricing. We clearly expect by being able to sell this also actively in our customer base, in our mobile customer base, attractive take rates. We just launched a week ago, and we clearly see that the offer is getting attraction. As you know, we are not communicating forward-looking statements on gross ads in mobile and fixed. But we clearly believe that we can underpin the current momentum going into Q3 and Q2, especially in both quarters, to continue on the very healthy momentum you've seen in the first quarter already kicking in from the very strong Q4 that we have delivered in 2021.
The continuation of the momentum that we see and all these offers will clearly support the current trends that we see.
Let me also take the second question. So first of all, I think from an operational cash flow perspective, we are on similar levels like in the previous year. We have roughly an up of EBITDA of EUR 40 million, and also additional CapEx of EUR 40 million versus the prior year. So here we are marginally at the same level. And also, the working capital movements that we see are nearly on prior year levels. So nothing unexpected is currently happening. We are seeing, of course, the prepayments that we are usually doing with roughly 40% for the full year amount in Q1, kicking in negatively into the working capital changes. And also, of course, the reduction in CapEx payables from the CapEx peak of last year.
We have, as always, that back-end loaded cash flow profile, and we expect that to normalize as it also has done in the last year. So nothing unexpected happening from a working capital perspective, Polo.
The next question is from the line of Andrew Lee with Goldman Sachs.
I just had also a question on the free cash flow generation. So thanks for your commentary just now, Markus on Slide 10. Just trying to understand, even with the kind of Q1 weighting of prepayments, your free cash flow of EUR 222 million, which you highlight on Slide 10, compared to EUR 248 million, a year ago. What are the incremental headwinds? Because as you said, CapEx is flat or very slightly up year-on-year. So what's providing that kind of EUR 30 million headwind, and I think partly, there's some silent factoring or handset financing in there. I wonder if you could explain just what exactly is going on there. Just we're better able to model through the year? That would be really helpful.
And then just secondly, just what's the outlook for cash taxes for this year? Should they remain de minimis for 2022 and into 2023?
Yes, Andrew, let me take both of your questions. So I think we see minor, minor movements on top in working capital from absolute numbers. So you cannot really see an underlying trend of changes. For example, silent factoring tranches that you are doing can be on a higher level or lower level on a quarterly basis. That depends also on the number of handsets being sold, et cetera. So we expect no underlying trend changes, no headwinds that you were anticipating there, but just some movements that you have seasonality driven. And on the cash tax, indeed, we are expecting to pay minimum tax -- taxation level due to the big tax carryforward that we are having. However, we have to have in mind that the cash tax this year will be slightly higher due to also tax payouts of the previous years that has been not yet cash tax relevant, plus also anticipating then an amount for this year -- last year and the prepayment for this year. So you can currently calculate and we are still not finalized about that, but roughly with a cash out of up to EUR 100 million for the full year.
Okay. I still don't fully understand the EUR 30 million decline in the free cash flow from EUR 250 million to EUR 220 million. But I guess, I think you're saying that's just some kind of different phasing of payments.
Correct. it's quarterly phasing that we see. But we can also follow that up, Andrew, with you to get the modeling right with our IR team afterwards. So it's nothing from a structural perspective that moves into the wrong direction, but we will follow up after that call with you with Christian and Marion, okay?
The next question is from the line of Mathieu Robilliard with Barclays.
I had 2 questions, please. first, with regards to the competitive environment in mobile, and is the change in law regarding customer lockup, I just wanted to understand if you're seeing any changes in dynamics in any of the segments? And second, I wanted to confirm that the share of wholesale revenues in postpaid MSR hasn't changed too much versus the previous quarters or years.
Markus speaking. From our perspective, the ECC impact, I think, is as expected. So we saw the technical effects in the first quarter. Also having a look at the mobile number portability base, I think we are -- we've healthy rates. So we really have strong gains, so from that perspective. But clearly, not all SIM cards, as we discussed in the last quarter, are coming back. So we had not used cards, you had cleanups in the base that you also have seen. But overall, as said, very slight increase of churn in the first quarter, full normalization expected in the second half year. So we saw this technical effect, but mainly no impact on the numbers on revenue in OIBDA. So overall, as said, technical effects, but no worry at all going forward.
I'm sorry, if I can interrupt. And no change in competitive behavior from other players around this?
From that perspective, clearly, we have been implemented this in a compliant way. Not all competitors have done it in a first step. Clearly, the regulator now really reminded everyone to be compliant. So from that level, we have here a clear fair level playing field. And also on that level, normal promotional season, rational market, no disruption from that side. And now after everybody has implemented it in a compliant way, we also see a fair level playing field.
Let me take the second part of the question with regards to the wholesale revenues. We also see, again, a solid contribution to our MSR from our partner business, but a steady contribution. As said, by far, the biggest growth comes from the O2 brand, also following our strategy. And here, we are trailing in percentage of the postpaid MSR still in the mid- to high 20s as we have seen it also in previous quarters.
The next question is from the line of Joshua Mills with BNP Paribas Exane.
Two questions from my side. So the first one, which you see on trying to break down the very strong EBITDA beat this quarter and kind of a sense of the operating leverage. So I think in the past, you've indicated that EBITDA contributions can come from all 3 of your revenue segments. So mobile service revenues, plus handsets, plus fixed. Has there been any change in how much handsets, which were up a lot this year have contributed to the EBITDA. And going forward, if you can maintain this low single digit, as you call it, kind of 3%, 4% MSR growth. Do you think that a mid-single-digit EBITDA growth profile is sustainable? And then the second question for me would just be on a comment you made earlier, Markus, around the ARPU inflow in the higher-quality subscribers that you're seeing. I think our own data and what we see in results would suggest that you're capturing more and more customers from Vodafone. And I just wanted to check if that was the case. And if so, how do you think about that potential for a competitive response under the new management team?
Okay. Let me start with the first question, Josh, with regards to EBITDA contribution. Of course, what we said before, you have 3 areas of growth from an operational leverage perspective. Of course, by far, the biggest one is the mobile service revenue contribution, but we see also improvements from the fixed performance that is also there. With regards to your last topic around handsets. Of course, we are always having some margins on the handset business, but not significant margin contribution. We had good momentum now in Q1. We had good availability of handsets also and we were able to bring that across. But asset handset is always just a means to an end for us because -- we just do that in order to sell mobile or fixed line subscriptions to our customers with 0 to very low margins that we can generate. With regards to the forecast, so we feel comfortable with our outlook that we have given of low single-digit percentage growth. And as always, Josh, we will monitor that throughout the year. And if we room for updating the guidance, we would announce that at the appropriate moment.
On your second question, Josh. The key to success is clearly network parity. And also in the first quarter, independent tests have reconfirmed again the same network quality between the other 2 players in the market. So from that perspective, -- we see healthy inflow coming from all networks to our network. And that clearly also allows us to have on an underlying basis also taking into account the MTR-cut, a growing postpaid ARPU on our own brand. So we see clearly inflow from all ends of the market and key basis for that is network parity that has been reconfirmed and continues investment and superb delivery also on 5G rollout in the first quarter. That's the basis, and this clearly drives the financial performance.
Great. So if I could just maybe come back again on the handset point, and sorry to belabor it. But higher handset revenues accounted for more than half of the revenue growth this year. And I just want to understand if there's anything different about how you're selling the handsets or the terms for customers. And can you just give us an idea of whether this is a kind of low single-digit margin or a 5%, 10% EBITDA margin you generate on the handsets in this quarter specifically?
No. So Josh, we did not change the fundamentals. We are still building on our very favorable by handy model that we offer to the customers. And of course, we always monitor the market development below. And if we can -- if we see opportunities to optimize the margins, we will do. But if we need to be competitive, we will also do. We had a good availability, which was the main driver for that positive handset growth in Q1, other than probably other participants in the market, especially Apple and Samsung had with us a very, very good availability. And that drove also then the revenues and as a result, also some margin improvements that we have been able to do. So no structural changes, and we always depend here on the market development.
The next question is from the line of Pilar Vico with Credit Suisse.
I have 2 on my side. So the first 1 after Markus just mentioned that the cash tax could be up to EUR 100 million for this year. This looks like a big step up. So I'm not sure if you could provide a bit of a breakdown here on what are the moving parts, and also what could we expect for 2023 guidance? And now moving back again, sorry for this, on the EBITDA guidance. It has been reported a 7% growth, which looks quite high versus what was announced with the 2022 guidance. So I don't know if you could provide a bit more light on the headwinds that we could expect towards the end of the year?
Thank you, Pilar. And let me take those questions. With regards to the cash tax, so you see an accumulation of the minimum taxes being paid, basically accounting for probably nearly 3 years of taxes that we need to pay. Therefore, you come up to that higher amount of EUR 100 million. And afterwards, you see basically, if you divide it by 3 in that range and normalization, of course, that depends on the profitability levels that we see. But we still expect that minimum tax to be viable for the next years as we discussed it because of the big tax loss carryforward of nearly EUR 15 billion that we still have ahead of us. So I think that's on the first question.
And the second question was with regard the good start into the year. Yes, we can confirm that good start into the year. We do not expect major headwinds apart from the moving parts that I was describing. Some less support from roaming due to the good seasonality that we have seen already in the prior year, some costs increases as anticipated from the network rollout, the transformational activities and also from inflation. And of course, we need to, as always, remain the flexibility, to invest into the market. We want to take our fair share from the market, and therefore, we need to remain the flexibility. So no headwinds expected just trends that we also widely anticipated. And as Markus said, we are expecting also EBITDA to grow in the next quarter.
The next question is from the line of Steve Malcolm with Redburn.
Sorry, Markus, I want to come back on the tax point. I missed some of the answer there. Just to clarify, I think you have about a $70 million liability on the balance sheet for the tower sale from last year. So are you saying that the incremental P&L related taxes for this year are going to be $20 million to $30 million, and is that roughly how we should think about it going forward? I guess, you take 60% of your profits because you can shield those and tax the rest. Is that kind of how to think about it going forward? And then just on your lease exposure. Can you help us understand how much of those leases are directly exposed to inflation and how much are sort of fixed escalators going forward?
So Steve, indeed, you did everything, what you did was appropriate. So, of course, then on the future, you depend on the profitability that you will be able to generate. But from a calculation perspective, you are, from my perspective, spot on. With regards to leases, yes, well, it's a mixed bag. Something is inflation-linked. Others have just graduated leases or even fixed brands that really depends on the different contracts. As you know, we have, yes, nearly 30,000 different leases, sites with different landlords, et cetera. Part of that has been now transferred to ATC, as you know.
But of course, there are many contracts behind with many different structures. And even if you have lease compensation in it, it doesn't necessarily mean that it is drawn and also not drawn for the full amount of leases because only parts are applicable to leases. So from an overall perspective, we do not expect a big amount for this year. We expect an amount in the low teens, as we have anticipated already in the last call, and that is leading then to the before described lease increases that we will see for this year. There's still that annualization of the ATC deal to come, which is starting in July. So then we will have the EUR 90 million increased run rate, which will increase us from the EUR 602 million that we had in 2021 EBIT plus then the low teens number that you can add. So all in line with our expectations and as indicated in the last quarter.
The next question is from the line of David Wright with Bank of America.
Yes, I think everything has been covered reasonably well, but I might just extend a little on Josh's question and the fact that you have got this very strong network momentum. And we see the independent scores, obviously, parity mentioned. But I think in 5G now, you're definitely starting to look ahead of Vodafone. And I think the second derivative of your momentum starts taking past Vodafone on pretty well all metrics over the next 12 months. Would you sort of agree with that, that you feel like you are at some point in 2022, you are the second best network in Germany. Can we be that blunt?
That would be a great birthday present for the O2 brand this year. As I said, I think we are making very good progress. We also feel comfortable with the reduced CapEx envelop compared to last year to achieve our network targets. And as said, there is full momentum. I think we have all the sites. We have all the equipment that we need up to now -- so we also do not see currently supply shortage on network equipment. So overall, the machine is running, and we go full steam on the 1 side to deliver superb 5G network experience and also attract clearly B2B customers. So it's both. I think our strategy on network parity was built on, first getting rural market share, significantly growing B2B and thirdly, achieve 2 or 3 product customers. All 3 revenue pools that we attract are working. And from that perspective, we are in a good position to continue the momentum that we see. And as I said, we are pleased with the current progress of the network rollout and let's see what the next independent tests will tell us. But clearly, as said, the variety of tests is so close now and especially the [indiscernible] test that has been conducted in the first quarter shows that there is network parity. And it depends also on the details of the test. But as said, we will do everything to continue and to accelerate our network position, of course. We will not stop.
The next question is from James Ratzer with New Street Research.
Two questions, please. I think surprising, we've got this far on the call without a question on inflation. So it's just interested any updated thoughts you might be able to give on your ability to pass through inflation directly to consumers. I think in the past, you had indicated that this was difficult. It's clearly not allowed in Germany under existing contracts. But I was wondering if you had any updated thoughts around front book price rises to reflect the impact of increased inflation levels in Germany? And the second question, please, I had, we just love if you could give an update on progress within [indiscernible], how many homes have you now passed within that joint venture, how many customers have you signed up, how many pre-committed customers if you've got when you do start to deploy? Any update on that asset would be much appreciated.
Markus Haas speaking. On your first question, on inflationary environment, I think we remain focused on profitable growth, continued cost efficiencies and clearly managed increased inflationary impacts as that our exposure to inflation is quite limited. We don't run a fixed network, so it's only on mobile, basically, and all the cost levers are actively managed. There's no impact on guidance 2022. And going forward, we clearly see smart pricing initiatives. I mentioned on the last call that we have been able to reduce the number of pack days and allowance within prepaid from 30 to 28 days, 3 years ago. We clearly see opportunities in the B2B segments. We see upsell opportunities to bring customers in higher tariffs, and we clearly constantly monitor the market, if there are also initiatives. For example, we sell 5G only at the price point of EUR 30 as clearly as part of our killer product, the [indiscernible] but we don't sell it in lower tariffs. So there are certain opportunities to clearly increase willingness to pay in tariffs -- and from that perspective, we constantly monitor the market. And from that perspective, we have all levers in our hand to clearly manage the situation to commit our mid- and also short-term guidance on inflationary pressure. And as I said, the best that we have delivered is growth, especially OIBDA growth in the first quarter, and we are clearly committed to deliver profitable growth going forward. At the same time, leveraging cost efficiencies and smart moves, especially on prices with upsell opportunities that we have executed and will execute in the future.
On [indiscernible], I think the business has been fully established, more and more customers are connected. We don't publish the detailed number, but already a 5-digit number of customers we have been able to gain, just to give you a flavor from the momentum that we see and O2 Fiber. So we are the anchor customer of [indiscernible] based on the wholesale agreement being signed between Telefónica Deutschland and [indiscernible]. We make very good progress, especially in the rural area. So the machine is now up and running, and we constantly grow this business. So we are still the anchor customer and continue to be so. And from that perspective, the progress is from our perspective going well.
You said how many homes you've passed as well within that asset?
I think is a JV, and currently, the number is not published. But clearly, if we have a 5-digit number of customers, not all customers are using it, you can assume that the number is higher.
The next question is from the line of Adam Fox from with HSBC.
I had a question on ESG actually. It was very clear in your presentation how important it is to the company. But I wondered if you could talk about it a bit more from the kind of outlook business perspective? Is it an element that's either attracting customers today or 1 you think will attract customers in the future? And I suppose 1 area your net-zero commitments helping you to win business in corporates who are interested in their own Scope 3 emissions in due course?
Many thanks for the questions. First of all, yes, I think from our perspective, it is an essential part of our strategy. And for example, governance and taking care about data is in Germany essential. So data protection, executing in line with compliance is extremely important. So from that perspective, clearly, you could say it's housekeeping or is a hygiene factor because you have to comply with the rules anyhow. But for example, that we give customers choice to use data or to on a constant basis to change their permission to data management. All these kind of things are relevant. So good governance is important for our customers, besides network quality and pricing, of course. And with regards to your second question, also the CO2 neutrality target, clearly, we support in B2B, and is an active part, also the climate balance sheet of our customers. So if they use us, we can have a positive contribution to their climate targets, and that's clearly more and more also becoming a decision criteria because we will be the greenest and the fastest greenest network in the German market in the coming years. And if they use our services, they could clearly also positively contribute to their own climate targets. So it's becoming more and more also a relevant factor for business customers.
At this point in time, no further questions will be taken. I will now hand the call over to Mr. Markus Haas, CEO. Thank you.
Closing remarks from you.
Many thanks for joining our call this morning. We are delighted to have presented to you a really strong start of Telefónica Deutschland in the first quarter, and we are happy to follow up next Friday in person in London.