Earnings Transcript for O2D.DE - Q4 Fiscal Year 2021

Christian Kern: Good morning to you, and thank you for joining us today. On behalf of our management team, it is my pleasure to welcome you to Telefonica Deutschland's full year 2021 results call. 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 first slide of this presentation. Today's presentation is also available for you to download from our IR website. With me today are Telefonica 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 now.

Markus Haas: Good morning, ladies and gentlemen, and welcome to our full year 2021 results conference call. Focused on executing our winning growth strategy, we have continued to deliver sustained and profitable growth in 2021. In fact, we are posting today the highest full year revenues in OIBDA in the company's history. After the second year of strong delivery within our 3-year investment for growth program, we are well on track to deliver our midterm guidance by the end of this year. As part of this midterm targets and in line with the program, we have passed the CapEx peak last year with CapEx to sales levels expected to reach normalized levels by the year-end 2022. As momentum creates momentum, the achieved strong growth momentum in 2021 continues, also fueling our confident full year 2022 outlook. Let me share with you the key financial highlights of 2021. Revenues increased by 3.1% driven by continued strong mobile service revenue performance. OIBDA grew by 3.9% on the back of strong top line growth, efficiency gains and effective cost management, resulting in a 0.3 percentage points improved full year margin. CapEx to sales came in at 16.5%, driving mobile network modernization and coverage delivering well-recognized network parity. Net customer additions of more than 1.5 million in postpaid result in market share gains and reflect the ongoing success in the trading momentum of O2 as well as solid partner performance. The well-managed O2 churn continued at historic low level of 0.9%. These strong KPI trends only confirm the success of our well-received marketing campaigns such as the visible net in Q4, enhancing brand perception while promoting our well-recognized high-quality mobile network. We also like to highlight that we are well recognized for our leading ESG strategy, which is based on our responsible business plan 2025. On my next slide, we'd like to share more details of our excellent ESG progress with you. Our strong ESG delivery is based on the executing of our Responsible Business Plan 2025 with a focus on 3 key pillars

Markus Rolle: Thank you, Markus. Ladies and gentlemen, also good morning and a warm welcome from me. Let me now take you through our strong Q4 operational and financial performance in more detail. My first slide shows that the Q4 revenues were up 1.6% year-over-year, reaching €2,055 million. This growth momentum was mainly driven by the continued strong performance of mobile service revenues with the O2 Free portfolio fueling sustained ARPU growth. Our full year revenues increased at even stronger 3.1% year-over-year, standing at €7,765 million with an underlying growth rate of 2.6% year-over-year. MSR grew 2.6% year-over-year in Q4 to €1,394 million, mainly driven by the ongoing success of the O2 brand and a solid partner performance, which more than compensates the impact of the MTR cut effective of 1st July last year and less sequential support from roaming and tougher comps in Q4. On a full year basis, our MSR grew by 3.5% year-over-year to €5,492 million with an underlying growth of 2.7% year-over-year. Our Q4 handset revenues declined by minus 1.1% year-over-year to €446 million, which is mainly reflecting the launch cycles of devices and also a steady customer demand for high-value handsets. We see tougher comps with a record Q4 a year ago, while still our recent Q4 is our second highest quarter over the -- more than past 5 years. Our full year handset revenues were up 1.9% year-over-year to €1,450 million. The Q4 fixed revenues continued to grow up 4.4% year-over-year to €211 million, reflecting the increasing share of high-value customers in the base and was also somewhat supported by late revenue recognition. For the full year, the fixed revenues increased by 3.6% year-over-year to €814 million. On my next slide, let's take a closer look at our strong Q4 trading performance. Mobile postpaid posted strong growth with 518,000 of net addition, which is an up of 19% year-over-year in Q4 and more than 1.5 million customers, which is even a higher up of 46% year-over-year for the 2021, driven by the sustained customer demand and historic low churn levels for the O2 Free portfolio as well as a solid contribution from our partner brands. The churn in the O2 brand remained at historic low levels with 1% in Q4, flat year-over-year and at 0.9% for the full year, which is an improvement of 0.2 percentage points year-over-year. Following the recent introduction of the EECC German Telecommunication Act, we anticipate some short-term churn effects in the first half year of this year. Supported by our strong commercial traction, we are confident to manage these temporary effects well and have already fully reflected these in our full year guidance. The O2 postpaid ARPU continued its upward trend, posting 0.7% year-over-year growth in Q4 and 0.2% year-over-year for the full year 2021. The fixed broadband business posted a second consecutive quarter of growth with a sequential improvement to 7,000 of net additions, while fixed churn remained flat year-over-year at low levels of 0.9%, both in Q4 as well as for the full year. Fixed ARPU continued to grow, reflecting the increasing share of high-value customers in the base as well as the some late revenues, posting 2.1% year-over-year growth to €24.40 in Q4 and up 1.7% to €24.20 for the full year. Moving to my next slide. Q4 OIBDA reached €624 million and is down minus 2.3% year-over-year, mainly due to some COVID related phasing of marketing spend into half year 2 as already anticipated as well as technology transformation, including the 3G switch-off in combination with ongoing top line performance and of course, further efficiency gains. Our full year OIBDA increased by 3.9% year-over-year to €2,411 million with an underlying growth of 1.8% year-over-year. Our OIBDA margin stood at 30.4% in Q4, which is down minus 1.2 percentage points year-over-year, while we are improving by 0.3 percentage points year-over-year to 31% for the full year. Within our Q4 cost breakdown, let me highlight the following

Operator: Ladies and gentlemen, at this time, we will begin the question-and-answer session. The first question is from the line of Akhil Dattani from JP Morgan.

Akhil Dattani: Could you maybe start on the revenue versus growth outlook -- sorry, revenue versus margin outlook as we go into 2022? I guess you've explained quite clearly in Q4 why the margin was down year-over-year, the incremental investments you've made. But I guess I was keen to understand a bit better how you think about the journey into 2022? You're guiding for margin expansions. Maybe you could explain to us what the moving parts are here. Is it operating leverage? Are there other cost items you'd want to draw out? So that's the first question. And then the second question is on cash flow and shareholder returns. You've obviously been very clear in terms of the CapEx reduction, but presumably, your leases go up with regards to the Telxius contracts. If you could maybe just talk us through how you're thinking about cash flow into 2022? Any sort of steer or help you can give us there? And I guess the follow-on part of that is that you're moving into a journey where, obviously, you've got a very strong balance sheet and your dividend is now going to be covered. Can you talk us about balance sheet priorities going forward as well, please, in terms of what you might want to do there going forward?

Markus Haas: Thank you for your question. Let me start with Q4. I think you have noted in Markus presentation that we fueled our net add performance in Q4 with another 67,000 net adds, momentum builds momentum and that clearly helps us to clearly deliver also 2022. So it was a one-time investment we did, especially on the commercial side and the marketing side on the back of the connect test. And we clearly saw the momentum coming by clearly delivering a very strong Q4 on own net adds, and that is clearly also giving us tailwinds for 2022.

Markus Rolle: Yes and let me take the second part of your question, Akhil, of course, debt expresses our confidence to translate also the revenue growth into further margin expansion for 2022. So as always, the momentum builds momentum, and we are fueling that growth momentum on the revenue side in order to further expand also in the -- on the margin side. That expansion is, of course, including all cost increases that are visible in the market, temporary inflations, et cetera, that is all embedded into the guidance that we have given. Our CapEx is also to significantly depeak as we have already suggested, then definitely leading to an improved operational cash flow. There is one thing which will increase but fully in line with our expectations, that is the lease cost, which will increase. We always flagged that already when we announced the Telxius transaction back in 2022, that after the annualization of the second tranche that was due in July of last year, we will have roughly €90 million of additional lease expenses from these transactions. This annualization will be in place, and we will be on full run rate then from August next year, but that is all anticipated in the suggestions that we have made. And then over time, we will see further lease increases from the build-to-suit sites in order to cover the white spot, but that will definitely come over time.

Operator: Mr. Dattani, have you finished your question?

Akhil Dattani: Yes, that's perfect.

Operator: The next question is from the line of Andrew Lee from Goldman Sachs.

Andrew Lee: I had just a couple of questions around those lease costs, which obviously are much more important part of your free cash flow journey now and more than half the CapEx on an absolute number for next year. You explained that the explanation on the uplift in terms of the larger contracts on your lease cost for FY '21 and FY '22. But inflation is obviously now higher than it was when you were soft guiding to around €650 million of lease costs in FY '22. So how does inflation impact those lease costs, what is the inflation linkage of your lease contracts? And how much high is that driving lease costs versus your anticipation before this new world we find ourselves in. And then just when you guide to OIBDA margins rise in FY '22, obviously, that's before leases. So should we anticipate OIBDA after lease margins fall and how should we think about that? That would be great.

Markus Rolle: Andrew, let me take your first questions. So inflation, as we always said, that is not affecting all the lease contracts. There are fixed leasing contracts available. There are lease contracts with some lease compensation. And there are anyhow some staggered contracts that we have in place, which have regular lease increases. That is all reflected in the guidance that we have given and the indication that you have also said is not pointing into the wrong direction for the full year 2022. And that is an all in, of course, from our side, including all other effects that we currently envisage. So I think here, we do not have any surprises, also not from the temporary inflation that we see in Germany. With regards to our operational cash flow, clearly, we see the margin expansion and also the CapEx decrease, which are more than compensating, of course, the least -- already planned lease increases from the Telxius transaction that we just talked about.

Markus Haas: So net, what could you expect from us from free cash flow in 2022, CapEx down, as stated, OIBDA up and the lease cost increase that has been already planned in 2020 will clearly show or bring us into a position to improve our free cash flow position.

Andrew Lee: Okay. Understood. I think it's a bit more clarity on the inflation linkage, I guess, it's just as we look to FY '23, obviously, we're trying to make longer-term assessments of your free cash flow generation are still and fully understand how to model the inflation impacts on those leases. Maybe that's something is better to take off-line, but it sounds like without the CapEx reduction, your OIBDA after leases margin is down for FY '22, maybe I'm misinterpreting that.

Markus Rolle: Let's -- Andrew, let's indeed follow that up in more details with the IR team. So we will guide you through the modeling with that. And then I think you have more clarity on that.

Operator: The next question is from the line of Polo Tang from UBS.

Polo Tang: So I have two. The first question is really just around the new German Telecoms Act. So we've obviously had new rules coming into effect regarding auto renewals for customers coming to the end of their contracts. So in your view, how is this impacting the market currently? And what's going to be the impact in terms of Telefonica Deutschland? And my second question is really, can you give us your latest thoughts in terms of the allocation process for the 800 megahertz spectrum. Can you remind us what you see as the potential range of outcomes? And how are you thinking -- what is your latest thinking actually in terms of your evolution in terms of partner revenues over the coming years, given that 101 is still only just getting started with this network build?

Markus Haas: On the first question, we clearly see a technical effect because win back time is a little bit shorter on third and second contracts. All that we expect for this year is part of our guidance. So we do not expect any negative surprises, but we could clearly see in the first half year that churn, postpaid churn could slightly increase. But as said, everything is in the guidance, it's low value churn. So customers use the opportunity to do cleanups, but we also see stronger trading on the other side. So from our perspective, it might not fully outweigh on balance out on trading net, but value-wise, we are financed all included in the guidance. Second question, on the 800, we have seen another cornerstone paper by the German regulator, reducing the option space from 5 to 2 options. And it's clearly that not only 800, so the whole package should be dealt with. So also the 1,800 and the 2.6, and there was a very long section on the extension on a midterm extension of that spectrum due to all the arguments brought forward as well as a theoretical option to auction that spectrum. But clearly, the argument for an extension from our perspective outweigh all other options in that scenario. Next steps, we need now to take part in the consultation and a decision is not expected for 2022. The regulator clearly set a final decision to be expected in 2023. That's the current status. And I think if you object the market longer than we all do, I think we have never been at this stage to discuss an extension with the regulator. So that's from our perspective, clearly an encouraging signal, but no final decision has been taken so far.

Polo Tang: And then your evolution of partner revenues over the next couple of years?

Markus Haas: From our perspective picture, I think we are still in the midterm guidance. As you know, and we will definitely achieve and over-achieve the minimum 5 percentage targets we've given until end of 2022 in operating revenue. And it's clearly now we built now this great mobile network and our clear target to profitably fuel and grow on the back of the great mobile network we built, clearly also beyond 2022.

Operator: The next question is from the line of Jakob Bluestone from Credit Suisse.

Jakob Bluestone: A couple of questions, please. Firstly, just to come back to the free cash flow question. I mean you said you expect free cash flow to improve in 2022. Can you maybe just give a little bit more color on some of the other items. I mean you obviously had a large negative working capital movement. And specifically, do you actually expect to cover the dividend in 2022. And so is the improvement in free cash flow big enough to get to sort of cover dividend? And then just secondly, just coming back to the changes in -- the ECC changes in rules. We've obviously seen a few quarters of very strong net adds, 400,000, 500,000 postpaid net adds, would you be willing to give us sort of a rough guide of where do you think your net adds might end up as a result, so we can get a sense of how big are the churn impacts that you're expecting from these new rules?

Markus Rolle: Jakob, from a working capital perspective, in 2021, indeed, we had somewhat lower silent factoring transactions that caused that negative outflow. However, also here, we are structurally fully in line with regards to working capital management. In times of interest rates and of course excess liquidity that we have in our company its always balancing between the different working capital items and to optimize the net-net result from our perspective. For 2022, of course, we still expect parts of the CapEx peak €1.3 billion of this year to outflow in the working capital changes of 2022. But as always said, we expect structural coverage of the dividend. There is 1 year where we build a depot. There's another year where we might be slightly lower. But from an overall perspective, we are structural. And with our confident midterm guidance and also the '22 outlook, we expect for the future structural dividend coverage.

Markus Haas: On the trading physicals for Q1, as said, we would expect technical impacts from low-value churn or postpaid contracts with very little ARPU. So it could impact a few thousands, but we are still 1 month food trading. We now expect February results too early to conclude. As that more technical effect, we do not expect financial impact coming from this regulation.

Jakob Bluestone: If I can just ask a follow-up on the free cash flow. I mean if we take your free cash flow after leases and deduct the disposal proceeds, I think you did about €360 million of free cash flow. And I guess, from what you're saying around leases, they got by about €50 million this year. Your CapEx comes down by about €100 million. And then just looking at the consensus EBITDA pre leases, I think it's growing by about €80 million. So the sort of -- the part of the equation that's missing, I guess, is net working capital. I mean if that stabilizes, then you sort of roughly be able to cover dividend? Is that the right way to think about the math or?

Markus Rolle: Exactly. At the moment, when that stabilizes, this is why I was referring also to operational cash flow in what I suggested, then there is exactly what you -- you have exactly the topic that you have described. You still have some working capital movements on which we do not guide. We are using that also opportunistically to optimize our overall position in relation to liquidity, et cetera. And therefore, this is the only swing factor that you have exactly.

Operator: The next question is from the line of Joshua Mills from BNP Paribas.

Joshua Mills: Two questions from me. The first is just if you could give an update on the UGG fiber rollout and your thoughts there, any developments, et cetera, would be helpful. And just generally, any comments you can give on your view of old net within the German fiber landscape would be appreciated? And then I guess the second question, I'm sorry to keep coming back to this question around leases and free cash flow, but it is quite important. I guess most of your peers now guide on an EBITDA after lease basis or free cash flow after lease basis and TEF Deutschland notably one of the few that doesn't. So to kind of rephrase some of the questions that have already been asked, if I take your guidance on reported EBITDA, it looks like that should be going up by €50 million or so this year. I think Jakob just referenced €50 million of lease increase on a year-on-year base in 2022, which I think is a bit higher than I think most people have in. But if reported EBITDA was going up by €50 million this year, should lease expenses be going up by more or less than that amount. And if you were giving guidance on a reported EBITDA after lease basis, would you be guiding for growth or not?

Markus Haas: I can start with the first question, Josh. On UGG, I think as you know, we are -- Telefonica Deutschland is a 10% shareholder, together with Telefonica's 40% and Allianz 50%. And the JV started last year to roll out in areas I think there's a clear rollout plan committed, and there's good progress. And currently, O2 is the anchor customer of UGG. So that means we sell under the O2 brand fiber product of UGG. And in the areas where we are, we see an overwhelming feedback from the customers and also contract signature. So we get a good share in these areas under the O2 brand with fiber. Clearly, it ramps up now, one municipality after the other. But the success in sales in these areas is strong. So we get more than a fair share in these areas, I would say. And this is clearly encouraging also going forward. There's more to come. But currently, O2 is the key anchor customer for UGG, and we are developing step by step. Clearly, now also the end of the pandemic is helping in order to further ramp up the rollout and sales activities. But so far, we are pleased with the development of the rollout and the sales.

Markus Rolle: Josh, with regards to your question and the market trend to guide on OIBDA after lease, yes, we see that also clearly in the market, but for us, it's not the time because we are not yet in the steady state. We have had just that transaction of Telxius, the second tranche effective by July last year. So from that perspective, for us, it's first to come into the steady state to have an apple-to-apple comparison, and then we might reconsider also guiding on different metrics on an yearly basis than from next year onwards. But one thing is for sure, without guiding into it, of course, the management has the target to not just decrease the OIBDA, but also to increase the OIBDA after leases that must be the management ambition to further increase the profitability of this company.

Joshua Mills: Okay. That's helpful. But just to going back and be a little bit more specific, and Jakob, I mean, made a good point on the €50 million increase on leases. And would you say that's too high. I mean, the guidance you're talking about growth in EBITDA after lease sounds more like a midterm target. So it just be great, I think, for everyone to understand whether this is a 2030 or €50 million increase in these expenses to model in for this year or not?

Markus Rolle: No. So the direction of travel, so we came just over that €600 million for 2021 and the direction of travel is the right one that Jakob indicated, and we have heard also before, yes.

Joshua Mills: Right, the €50 million this year.

Operator: The next question is from the line of Georgios Ierodiaconou from Citi.

Georgios Ierodiaconou: A couple of questions from my side. Firstly, around commercial expenses and the EBITDA phasing for the year. I'd be curious if you could perhaps remind us as to how the commercial investment was phased during 2021 and what to expect for 2022? I think you mentioned earlier, for example, some of the changes in the contract terms that you need to implement now to comply with regulation. Just it would be great to get an idea if that will mean that there are more costs incurred during the first half of the year as a result of that? And then my second question is more broadly on the commercial side. You're clearly winning more than your fair share perhaps of postpaid growth. Do you mind just running us through your thinking about this commercial investment, perhaps what you can do on pricing to improve ARPU or any other different levers perhaps of driving revenue growth than postpaid?

Markus Rolle: George. So indeed, as you mentioned, 2021 was still a special year with a kind of odd phasing that we had due to the COVID-19 pandemic and the long lockdown that we had in Germany other than in other European countries. And we indicated already very early to you that we had a very back-end loaded phasing of the investment scheme and that we delivered according to what we suggested here. So nothing as a surprise. 2022 from my perspective, will be more linear than the previous year because we expect now that at least for spring/summer, we are getting out of the restrictions to 20th of March is the so-called Independence Day also in Germany. From that moment onwards most restrictions will be gone, and we expect then also from that perspective, a rather linear phasing. With regards to the ECC implementation and extra cost, we do not see that to a big extent, as Markus was mentioning, it's more technical effects that we see, but we do not expect big margin drags from this ECC implementation in our business.

Georgios Ierodiaconou: So just to clarify, is it fair to assume that EBITDA in the first half of the year will probably be towards a flattish side, maybe the negative as a result of this phasing? Or is that to exaggerate, let's say...

Markus Rolle: So as said, we have a more linear phasing here. Of course, let's take into account that there were some one-offs in Q2 last year, which have tougher comps then. But from an organic perspective, we expect a rather linear phasing in line with the guidance that we have given.

Georgios Ierodiaconou: Okay.

Markus Haas: On your second question, I think we were able to grow ARPU by and what we clearly see while we sell 5G only under the €30 tariff upwards, and also the high value share has also slightly again increased. And as I said, every high-value customers ARPU accretive to our overall mobile service revenue growth. So from that perspective, we clearly see with the commercial strategy that we have up to now to create more high-value customers by giving 5G in these tariffs and further push into these tariffs, while this ARPU is above the average retail ARPU that we shared with you last January at our strategy update, I think we are well on track to monetize. I think we are maybe the only operator with a growing ARPU currently in the German market and clearly on the back of the network quality that clearly encourages us to further push.

Georgios Ierodiaconou: If I could ask a follow-up Markus. Obviously, I understand you're not discounting or promoting, but you are winning the lion's share of the growth in the market. Does that worry you in terms of perhaps forcing your competitors to retaliate? Is there perhaps any other measures you are thinking of taking to just push the growth more on the ARPU side rather than the number of customer side?

Markus Haas: I think it's a more segmented approach that we have. I think what we publish as the overall number of B2B and B2C customers that we gain and also rural versus urban. Again in rural areas and clearly also bundle customers to mobile customers. So I think the market overall is growing, as we all know. And I think that's for everybody, a good proportion on the back of fueled mobile data growth in order to push further into higher tariffs or to push into additional products. Second, third SIMs with tablets, with IoT devices for smart watches. So I think it's a mix. So not every net add that we report is always a new or first SIM customers, and I think this opportunity is open for everyone. So we believe as that is a rational market with dynamic promotions, as always. But I think the commercial strategy will allow us and where the market currently stands with the significant additional mobile data demand that we see in all segments, I think, will allow to grow everybody in the current environment going forward.

Operator: The next question is from the line of Ulrich Rathe from Jefferies.

Ulrich Rathe: So the first of my 2 questions would be on CapEx. We had some debate already on the guidance. But I would just like to -- for you to sort of put the history today to look into perspective. At the end of 2019, you obviously guided for 2 years of '17 to '18, and I don't think you have actually delivered a single year. In fact, there was only 1 year now of elevated CapEx. So what's got in the way of the original plan? Is it that you achieved every single thing in terms of coverage and capacity that you are planning at a materially lower cost? And if that's the case, why is that because equipment costs have come down or are you sourcing it differently? Or what is that? And also -- or have you indeed scaled back a little bit on what you originally thought you need in order to fulfill the regulatory requirements that were at risk at the end of 2019? The second question is on the ARPU in the fourth quarter. If you simply look at the -- how the ARPU growth changed for total postpaid ARPU and how it changed for just the O2 branded ARPU, it seems that the O2 branded ARPU growth sort of more or less was maintained versus the third quarter, but the total ARPU growth was down quite a bit. So that suggests there's either some upward dilution in the overall segment of your own activities or the partner was actually down quite a bit. Could you sort of shed a bit of color on what's going on in the ARPU outside of the O2 where things are obviously going quite well?

Markus Rolle: Yes. Ulrich, indeed, you figured out that -- and that is right that we never reached the 17% to 18% CapEx peak that we originally envisaged. And I can confirm that we delivered what we wanted to reach from an operational perspective as also visible in the effects that we have reached coverage obligations, et cetera. So during the fly, we gained further efficiencies and I want to mention a few of them. Indeed, we renegotiated equipment prices. We also renegotiated transport prices. We switched off our 3G network already 1 year earlier than originally planned, and we're able to use some intelligent refarming of our frequencies that gained further efficiencies. We can really build on a future-proof network grid that we are having. And in that circumstances, we have been able to gain further efficiencies. So coming to your second question, which is the Q4 ARPU development, indeed, we are very pleased with the O2 Free ARPU development, which is still in growth territory, of course, also reflecting the things that Markus was mentioning, that is a net-net result reflecting, of course, also second SIM and third SIM card sales, et cetera, that are also embedded in that figures, and they are fully reflected here. The other ARPU, we see no abnormalities from our point of view. We see a normal seasonal development also with the partner ARPUs. So nothing unexpected from our side. We are pleased also with a solid partner performance, as I said already in my opening remarks.

Operator: Next question is from the line of David Wright from Bank of America.

David Wright: I think I'm broadly covered with the questions, but just maybe a little more detail just on the commercial growth. And whose market share do you feel you're taking? Where are you winning customers from if that makes sense, I guess the sense was that your network quality was definitely starting to nipper the heels of Vodafone a little more. Is there a sense that you're winning market share from a specific operator? Or do you just feel like you're participating better in the wider churn pool?

Markus Haas: David, thank you for your question. I think it's a mixed bag. I think first of all, the market is growing. So there are additional subscribers, especially coming from fixed mobile substitution that we report under the mobile service revenue and the physicals. And secondly, I think the trading balance, we have positive trading balance towards the market. And clearly in B2B is more the incumbent players that we see. But overall, as I said, it's a mixed bag, but overall its growing. And I think this is good especially the fixed mobile substitution products that also come with an ARPU of €30 are clearly fully supporting the growth story in many instances.

Operator: Next question is from the line of Stephane Beyazian from ODDO BHF.

Stephane Beyazian: A couple of small ones, if I can. The growth in the SME market is interesting. Can you remind us how much B2B is of your percentage of your revenues and some indication on what's growing the fastest between the different segments that you mentioned on the slide, such as mobile, fixed, SD-WAN, IoT, cloud, et cetera. A question also on data usage, which grew pretty fast, especially in Q4. Could you give us some indication of what is the sort of data usage of your top, let's say, 10%, 15% top end users. I'm just trying to guess potentially where you could be expecting your average data usage to stabilize within a couple of years? And finally, just a quick one on the Lebara contribution. Is it possible to have an idea of the phasing and how fast it's going to have an impact on the partner revenues?

Markus Haas: On the SME segment. I think the overall mobile market, especially in Germany, is roughly €1.6 billion, €1.7 billion out of the overall market of €18 billion. So it's roughly 10% of the overall market. And we are clearly underrepresented in that market. I've seen we've shown double-digit growth last year in the SME segment. And clearly, the core contribution still mobile because it clearly also comes with the highest profitability compared to all other products we sell. But as said, we also connected the biggest SD-WAN deal in Europe by connecting all Aldi retail stores is 8,000 retail stores in all over Europe. So the discounter here in Germany, expanding in Europe. And clearly, this also could sum up to a double-digit million number over 5 years. So that gives you a little bit feeling that we do not announce single deals and the value of single deals, of course, that gives you a feeling that there's a huge potential in SD-WAN by striking these big deals. Clearly, IoT is also a double-digit contribution to our P&L overall and the 5G private networks are now starting to kick off. So we expect significant deals also coming in 2022 coming from that size. But the key contribution is clearly now utilizing the mobile network for SME in urban and rural areas where I think we have a great position to grow our market share here.

Markus Rolle: Stephane, let me take the second and third question. So first of all, data usage is consistently growing over the last years with a CAGR of 50%. When that is going to end, I do not have currently the crystal ball available, but I see that also positive because it offers us the opportunity to upsell to bring customers to higher commitments. And just as a reminder, as already said last year, we are still gaining customers, for example, on the gross add side, which come in with a 20% higher ARPU than our average customer base contributing them with their first SIM cards to the overall ARPU development. We see that as a positive. We have sized our network accordingly, and we are following that growth path of the following -- meeting the data demand of our customers. Lebara, your third question is indeed only starting in this year. We are starting around midyear with Lebara and then they will start migrating gradually their customer base. So we will be only in full swing by the end of '23, '24 in that direction. So it will take time. So from asking your question, the contribution in the first year will be accordingly also limited to the overall size of our P&L.

Stephane Beyazian: And just a quick follow-up. Can you remind us how many 5G private networks you're currently working on?

Markus Haas: Well, we have roughly 10 customers in place, but there are also big names on there. So like Daimler, where we provide -- we work with Airbus. So I think it's really big names and Helios is the hospital provider here in Germany. So I think it's a mixed bag over different industries. We learn and then we want to scale up in dedicated industries.

Operator: In the interest of time, we only take one final question, the IR team will follow-up with all remaining questions. Mathieu Robilliard from Barclays.

Mathieu Robilliard: I have 2 questions, please. The first one is on the revenue guidance. I think when we look at the guidance you gave in 2020 and '21, both proved conservative. In '20, you met guidance, but the context was much tougher because of COVID and in '21, you raised the guidance. And so typically, I think you have a little bit of a buffer for unpredictable things, and I just wanted to understand if that was still the spirit for the 2022 guidance? And the second question is on dividend. When we look at your free cash flow generation, and what you expect in the coming years when we look at the market in general and how you're performing in Germany, when we look at your leverage, I mean, it seems that you definitely are in the position to start increasing the dividend. I was wondering why that decision wasn't taken this year? And what do you need to see to feel contractable increasing the dividend?

Markus Rolle: Yes, Mathieu. Thank you. So indeed, we have had the pleasure to upgrade our guidance in the last year. And based on that good momentum that we have had, we have also reconfirmed that with a low single-digit percentage growth that we guide now for also to 2022. That is the actual guidance that we can give to you if we see room for further changes, et cetera, we will inform you in due course about that as always. And with regards to dividend, I think we are trading still on a very good yield at this moment of time. And we are still in that cycle that we started with our investment for growth program. Therefore, we think that this dividend of 18 euro cents that we will propose to the AGM is appropriate for this year. Everything to come for the future, we decide based on the metrics that we see in 1 year from now.

Mathieu Robilliard: And those metrics being -- what are the key elements from your point of view in terms of determining the dividend evolution?

Markus Rolle: Mathieu as always, free cash flow generation and that net free cash flow, we discussed it before. So free cash flow after lease is the determining factor for the future.

Operator: At this time, no further questions will be taken. Mr. Christian Kern, I would like to turn the conference back over to you for closing remarks.

Christian Kern: Thank you, operator. I appreciate everyone's participation in the Q&A and also on behalf of our management team, thank you for your time. And any follow-up questions, please direct to the IR team. We will be delighted to take those up. We are aware there were 1 or 2 more extra questions we couldn't take because of time, but we will take those offline. Thank you so much. Appreciate it. Bye-bye.