DGAP-News: Telefónica Deutschland Holding AG: Telefónica Deutschland delivers on key integration milestones with a strong financial performance
DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Preliminary Results/Quarter Results Telefónica Deutschland Holding AG: Telefónica Deutschland delivers on key integration milestones with a strong financial performance 05.05.2015 / 07:30
MUNICH, 05 May 2015 Preliminary results for January to March 2015: Telefónica Deutschland delivers on key integration milestones with a strong financial performance - Revenues +2.9% y-o-y with mobile data-centric strategy driving MSR to +1.5% y-o-y - Strong +5.7% y-o-y OIBDA reflects focus on customer base development - Network enhancement and new propositions provide tangible customer benefits - Financial outlook and synergy target on track with key integration milestones achieved First quarter 2015 operational & financial highlights1: - Net additions in mobile postpaid at 141 thousand driven by lower churn in the Consumer area and further contribution from partners. Prepaid net additions were seasonally negative with 87 thousand. - Smartphone penetration at the end of March 2015 showed a year-on-year increase of 5 percentage points to 76% within the O2 premium consumer base. - Mobile service revenues positive performance at +1.5% year-on-year leveraging a favourable customer mix in acquisition and retention for premium brands adding to higher LTE-driven mobile data monetisation. - Revenues reached EUR 1,901 million (+2.9% year-on-year), with mobile service revenues (+1.5% year-on-year) and handset sales (+28.8% year-on-year) outweighing a 10.9% year-on-year decline in fixed revenues. - OIBDA excluding extraordinary effects2 totalled EUR 378 million (+5.7% year-on-year) with improved flow-through from revenues and a commercial approach focused on customer base retention and a value-based handset sales model. - CapEx amounted to EUR 221 million (+2.9% year-on-year). Investments continued to be focused on the development of one LTE network, with an outdoor coverage target of approximately 75% by the end of 2015. - Free Cash Flow pre dividends (FCF) for the first quarter of 2015 reached EUR 100 million, a decrease of 8 million compared to 2014. - Consolidated net financial debt was EUR 120 million at the end of March 2015, reaching a leverage ratio of 0.1x. Progress of integration and transformation activities: During the first quarter of 2015, Telefónica Deutschland achieved several important integration milestones which will help the Company to deliver on its EUR 250 million synergy target (OIBDA-CapEx) for the full year 2015, with a positive impact in profitability from the second half of the year: - In February, the Company finalised its agreement with the Workers' Councils on the social framework for the announced redundancy program for 1,600 employees until 2018, with an immediate start of the communication process to the respective candidates. The Company is progressing well to achieve 50% of the full target already in the current year, with a tangible impact in personnel costs savings to be seen from the second half of the year. - The consolidation of the Company's distribution footprint showed a significant progress with the takeover of 301 shops by Drillisch to be executed during the second half of the year, which is a significant portion of the Company's long term target. - Telefonica Deutschland is further advancing in the vendor selection process for the consolidation of the two networks and to enable the expected benefits from increased scale and the investment focus in only one LTE network. - Telefonica Deutschland new sales and service organisation has started to enable its distribution network to manage its whole customer base and improve the geographic reach of the different brands. This adds to the initial cross-selling activities, which included the introduction of O2 mobile and fixed portfolio in BASE shops. Recent developments in Telefonica Deutschland's commercial offer and network Telefónica Deutschland is making some important steps to improve network quality and enhance mobile data consumption within the customer base, leveraging new commercial propositions to further monetise mobile data: - In February 2015, the new postpaid O2 Blue portfolio was launched, including access to LTE in every tariff as well as a customer-friendly data automatic upselling mechanism. At the same time, the Company opened the access to LTE to the whole O2 postpaid customer base under their existing contract terms and conditions. - With the introduction of 3G National Roaming from mid-April 2015, Telefónica Deutschland customers have already started to experience the first tangible benefits from the merger. By combining the strengths of the O2 and E-Plus networks, the Company aims to offer the best 3G network experience in Germany. Since mid-April this customer benefit is the key element of an attention-grabbing advertising campaign. - From mid-April 2015, Telefonica Deutschland activated the Voice over LTE feature in the whole O2 LTE network. This functionality, which significantly improves the quality of voice calls, will be progressively available across the smartphone portfolio. Reiteration of 2015 financial outlook and proposal for dividend on 2014 results: Base line for 2014 Outlook for 2015 (EUR million) (y-o-y pct. growth) Mobile 5,528 Broadly stable Service Revenues OIBDA 1,461 >10% CapEx 1,161 High single digit pct. decline For the year ending 31 December 2014, the management suggested to the annual general shareholders' meeting (AGM), which will take place on 12 May 2015 in Munich, a cash dividend of approximately EUR 714 million, to be paid the day after the AGM takes a favourable resolution. Telefónica Deutschland's operating performance in the first quarter of 2015 At the end of March 2015, Telefónica Deutschland's access base reached 47.7 million, an increase of 1.6% year-on-year on the back of continued growth of the mobile base, which stood at 42.2 million (+2.5% year-on-year), while fixed accesses declined by 4.4% year-on-year to 5.5 million. Postpaid mobile net additions in the first quarter of 2015 amounted to 141 thousand, lower than in the previous quarter (318 thousand ). This resulted from further contribution from partners and the Company focus on customer base development, especially in consumer premium brands. Total postpaid mobile base reached 18.9 million accesses at the end of March 2015, with their share over total mobile customer base ending at 44.8%. Mobile prepaid net additions were seasonally negative with 87 thousand in the first quarter of 2015. At the end of March 2015, mobile prepaid base was 23.3 million. Postpaid churn was 1.7% at the end of March 2015, 0.2 percentage points better than the 1.9% registered in the fourth quarter of 2014. This was mainly driven by Telefónica Deutschland's focus on retention of its customer base. Smartphone penetration at the end of March 2015 reached 76% in the O2 premium consumer postpaid base (5 percentage points year-on-year increase) as a result of the continued commercial focus on data monetisation and a value-based approach to handset sales from the beginning of the year. LTE customer base stood at 5.1 million at the end of March 2015, with a strong sequential improvement over previous quarters as a result of a conscious approach from the Company to maximise the usage of the LTE network via portfolio design, including handsets and the opening of the LTE network to the whole O2 postpaid customer base. Mobile ARPU in the first quarter of 2015 was EUR 10.6 (-1.0% year-on-year). Postpaid ARPU9 was EUR 17.2 in the same period (-4.1% year-on-year), with new additions and renewals to O2 core brand showing a better sequential ARPU performance on the back of the set of mobile data stimulation activities in place from February 2015. Prepaid ARPU for the first quarter of 2015 was EUR 5.6, stable over the previous quarter. Retail fixed broadband access base declined by 4.4% year-on-year to 2.1 million at the end of March 2015, showing a similar number of net disconnections (-16 thousand) as seen in the previous quarter (-17 thousand), with VDSL contributing 66 thousand net additions. Wholesale broadband fixed accesses registered 28 thousand net disconnections in the quarter, a sequential increase of 4 thousand net disconnections over the previous quarter. Telefónica Deutschland's financial performance in the first quarter of 2015 Revenues for the first three months of 2015 totalled EUR 1,901 million, an increase of 2.9% over the previous year. Mobile service revenues showed a positive performance in the quarter of 1.5% year-on-year to EUR 1,354 million, leveraging the strong trading activity in previous quarters and a continued focus on mobile data monetisation, mainly in premium brands. Other effects, such as the lower usage of traditional text messaging and the renewal of expired long-term contracts to lower prices within the customer base of premium brands are having a less dilutive impact than seen in previous quarters. Mobile data revenues totalled EUR 692 million in the first quarter of 2015. The share of mobile data revenues over total mobile service revenues was 51.1% and the share of non-SMS data revenues over total data revenues was 70.5% in the same period (68.9% in the fourth quarter of 2014). In the specific O2 consumer area, the Company saw a sequential improvement in the adoption mix of tariffs under the new O2 Blue portfolio, with 32% of gross additions in the first quarter of 2015 taking a tariff with more than 1 Gb monthly allowance (25% in the previous quarter). The new data automatic feature, which provides an unrestrained mobile data experience for the customer and a clear upselling path from increased usage, proved very popular amongst customers from its launch date (3rd Feb). Handset revenues amounted to EUR 282 million in the first three months of 2015 (+28.8% year-on-year increase) reflecting continued strong demand from customers and the Company's value-based approach to handset sales from the beginning of the year. Fixed business revenues amounted to EUR 261 million in the first quarter of 2015, a decline of 10.9% year-on-year. This reflects the ongoing balance between retail DSL dynamics (contribution of -6.9 percentage points to the year-on-year evolution) and a declining fixed business (contribution of -4.0 percentage points to the year-on-year evolution) for wholesale ADSL and voice carrier. Operating expenses in the first quarter of 2015 totalled EUR 1,552 million: - Supplies amounted to EUR 659 million, of which 45% are hardware costs of sales and 47% connectivity cost of sales. - Personnel expenses amounted to EUR 179 million, with base salaries making up 77% of total. - Other operating expenses amounted to EUR 713 million, of which commercial costs and non-commercial costs represent 57% and 38%, respectively. Operating Income before Depreciation and Amortisation (OIBDA) for the first quarter of 2015 amounted to EUR 395 million. Excluding the EUR 17 million capital gain from the sale of yourfone GmbH, OIBDA in the quarter would have been EUR 378 million, which represents a 5.7% year-on-year growth on improved flow-through from revenues and a commercial approach focused on customer base retention and a value-based handset sales model. OIBDA margin was 20.8% for the first quarter of 2015. Before extraordinary effects, it reached 19.9%, an improvement of 0.5 percentage points over the previous year and 2.3 percentage points over the previous quarter. OIBDA excluding group fees amounted to EUR 408 million in the first quarter of 2015 (21.5% margin). Before extraordinary effects, it was EUR 390 million, which represents a 20.5% margin. Depreciation & Amortisation totalled EUR 555 million in the first quarter of 2015, compared to EUR 267 million as reported in 2014. This is mainly driven by the incorporation of E-Plus Group in 2014 and first impacts from the consolidation of both networks. Operating income was negative in EUR 160 million for January to March 2015 on higher depreciation & amortisation charges. Net financial result for the first quarter of 2015 was negative in the amount of EUR 16 million. This was mainly the effect from the different financing activities executed in the past e.g. the bonds issued in November 2013 and February 2014 as well as interest expenses from finance lease obligations. The Company did not report material income tax expense for January to March 2015. The result for the first quarter of 2015 was EUR -176 million as a result of the depreciation and amortisation expenses not being compensated by OIBDA. CapEx in the first quarter of 2015 amounted to EUR 221 million (+2.9% year-on-year). Investments continued to be focused on the development of one LTE network, with an outdoor coverage target of approximately 75% by the end of 2015. Operating cash flow (OIBDA minus CapEx) for the first quarter of 2015 was EUR 175 million. Before extraordinary effects, it amounted to EUR 157 million, which compares positively to the combined figure of EUR 143 million in the first quarter of 2014. Free Cash Flow pre dividends (FCF) for the first quarter of 2015 reached EUR 100 million, of which EUR 68 million were proceeds from the sale of yourfone GmbH. Working capital movements of EUR -107 million were mainly driven by the usual prepayments (mainly rents) of EUR -230 million at the beginning of the year, a CapEx reversal of EUR -87 million from the fourth quarter of 2014, as well as the usual working capital movements which included silent factoring transactions for O2 myHandy receivables. Consolidated net financial debt was EUR 120 million at the end of March 2015, reaching a leverage ratio of 0.1x. The resulting strong liquidity position increases the Company's financial flexibility ahead of expected cash payments in 2015, such as the upcoming spectrum auction, the dividend for the financial year 2014 and the cash-out related to the restructuring measures to be executed in the year. APPENDIX - DATA TABLES Please refer to the following link to access the download of the data tables. Thank you. https://www.telefonica.de/investor-relations-en/financial-publications/q1- 2015.html Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 23-25 80992 München Victor J. García-Aranda, Director Investor Relations Marion Polzer, Senior Manager Investor Relations Pia Hildebrand, Office Coordinator Investor Relations (t) +49 89 2442 1010 firstname.lastname@example.org www.telefonica.de/investor-relations Disclaimer: This document contains statements that constitute forward-looking statements and expectations about Telefónica Deutschland Holding AG (in the following "the Company" or "Telefónica Deutschland") that reflect the current views and assumptions of Telefónica Deutschland's management with respect to future events, including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which may refer, among others, to the intent, belief or current prospects of the customer base, estimates regarding, among others, future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company. Forward-looking statements are based on current plans, estimates and projections. The forward-looking statements in this document can be identified, in some instances, by the use of words such as "expects", "anticipates", "intends", "believes", and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements, by their nature, are not guarantees of future performance and are subject to risks and uncertainties, most of which are difficult to predict and generally beyond Telefónica Deutschland's control and other important factors that could cause actual developments or results to materially differ from those expressed in or implied by the Company's forward-looking statements. These risks and uncertainties include those discussed or identified in fuller disclosure documents filed by Telefónica Deutschland with the relevant Securities Markets Regulators, and in particular, with the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). The Company offers no assurance that its expectations or targets will be achieved. Analysts and investors, and any other person or entity that may need to take decisions, or prepare or release opinions about the shares / securities issued by the Company, are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this document. Past performance cannot be relied upon as a guide to future performance. Except as required by applicable law, Telefónica Deutschland undertakes no obligation to revise these forward-looking statements to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica Deutschland's business or strategy or to reflect the occurrence of unanticipated events. The financial information and opinions contained in this document are unaudited and are subject to change without notice. This document contains summarized information or information that has not been audited. In this sense, this information is subject to, and must be read in conjunction with, all other publicly available information, including if it is necessary, any fuller disclosure document published by Telefónica Deutschland. 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Language: English Company: Telefónica Deutschland Holding AG Georg-Brauchle-Ring 23-25 80992 München Germany Phone: +49 (0)89 24 42 0 Internet: www.telefonica.de ISIN: DE000A1J5RX9 WKN: A1J5RX Listed: Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich, Stuttgart TecDAX End of News DGAP News-Service