DGAP-News: Telefónica Deutschland Holding AG: Telefónica Deutschland has progressed further with integration while keeping momentum in a dynamic yet rational market environment
DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Quarter Results/Preliminary Results Telefónica Deutschland Holding AG: Telefónica Deutschland has progressed further with integration while keeping momentum in a dynamic yet rational market environment 28.04.2016 / 07:30 The issuer is solely responsible for the content of this announcement.
MUNICH, 28 April 2016 Preliminary results for January to March 2016 Telefónica Deutschland has progressed further with integration while keeping momentum in a dynamic yet rational market environment - Solid OIBDA growth of +6.2% year-on-year reflects successful synergy capture - Operating cashflow savings related to synergies of ca. EUR 55m primarily from 2015 roll-over effects with customer migration and network integration progressing rapidly - MSR shows a continuation of trends in line with guidance (-1.3% year-on-year), reflecting a continued strong development of the partner business, as well as legacy base and regulatory effects - VDSL uptake drives continues improvement of retail DSL trends; 3 thousand positive net additions First quarter 2016 operational & financial highlights - Net additions in mobile postpaid came to 181 thousand on the back of a continued strong performance of partners. Contract churn remained low at 1.8% and broadly stable year-on-year as the Company maintained its focus on retention and customer base management. - Mobile prepaid registered net disconnection of 236 thousand mainly due to seasonality effects. - The LTE customer base stood at 8.7 million, +10.2% quarter-on-quarter as of the end of March, reflecting the successful data monetisation strategy. Data usage for LTE customers in O2 consumer postpaid continued to benefit from the demand for music and video streaming services and stabilised quarter-on-quarter at 1.2 GB per month, up 50% year-on-year. - Revenues reached EUR 1,858 million (-2.3% year-on-year) mainly as a result of lower year-on-year mobile services revenues and handset revenues. The reduction in handset revenue reflects seasonality as well as lower demand for handset in the market. - Mobile service revenues was EUR 1,336 million (-1.3% year-on-year), showing a continuation of trends from previous quarters, as MSR continues to be impacted by continued strength of the partner business, legacy base drag and regulatory effects. The company continues to focus on retention and the development of our customer base. - OIBDA excluding exceptional effects grew 6.2% year-on-year to EUR 401 million, benefitting particularly from the rollover effect from synergy initiatives executed in 2015. At the same time there were upfront costs related to the larger integration projects running in parallel in the first half of 2016. - CapEx came to EUR 218 million (-1.2% year-on-year), as Capex phasing across the year is back-end loaded due to the expected intensification of the network integration effort in the second half of 2016. - Consolidated net financial debt was EUR 1,266 million at the end of March 2016 and with a leverage of 0.7x, in line with the stated target of at or below 1.0x. Progress of integration and transformation activities Telefónica Deutschland made further progress with the execution of its integration and transformation initiatives and is executing according to plan. During 2016 the company focusses on a number of core projects which include the network integration, IT landscape transformation and customer migration. - After the successful execution of the first wave of the restructuring programme or 800 FTEs in 2015, Telefóncia Deutschland has now finalised the future target organisation of the company. After constructive negotiations with the workers council another 500 FTEs will be given clarity about their employment situation by the middle of 2016. The company continues to target a reduction of 1,600 FTEs in total by 2018. - As part of the integration process Telefónica Deutschland has started to unify its brand and tariff portfolio and will henceforth focus on the O2 brand in the premium sector. The transfer of BASE and E-Plus customers to O2 has already started. We thus simplify our offer in the premium segment and provide customers with high-quality products and services under one brand. Over the coming months the company will continue with the migration in other customer segments. - After the realisation of 3G national roaming and preparation of the key phase of the network integration in 2015, Telefónica Deutschland pushed ahead with the physical integration of O2 and E-Plus networks in the first quarter. At the same time the company continues to focus significant efforts on rolling out LTE with the target of integrating the 4G networks from summer 2016. - Telefónica Deutschland has sold its passive tower infrastructure of approximately 2,350 towers to Telxius, Telefónica S.A.'s infrastructure company for a purchase price of EUR 587 million. The company is hereby taking advantage of the current favourable market conditions for infrastructure assets. The transaction will have no impact on the targeted synergies related to the merger with E-Plus. Recent developments in Telefónica Deutschland's commercial offer and network The company retained market momentum in a dynamic yet rational market environment driven by investments into the repositioning of the O2 brand while at the same time keeping a clear focus on retention and the development of the customer base. Telefónica Deutschland has taken some important steps to enhance its network quality and focus on customer service as confirmed by independent surveys. - Positioning of the O2 brand for customers in the premium segment through a number of campaigns with a clear focus on supporting their digital lifestyle plus excellent network and customer service quality. - LTE was launched for smartphone plans for new O2 prepaid customers in February 2016; the LTE network will be opened for the existing O2 consumer prepaid base from summer 2016. - In early February 2016 the company launched 'Blue One', bringing together various fixed/mobile product combinations under a single brand name to facilitate ease of access for customers. - At the end of February the company presented the first smartwatch with eSIM at the World Mobile Congress in Barcelona. The Samsung Galaxy Gear S2 has been available since April and the embedded SIM allows the remote, electronic installation of customer profiles. - For six month, COMPUTERBILD has asked 60 of its readers to test the combined network of Telefónica Deutschland all over Germany. All trail users confirmed that the network clearly improved in all regions. - Connect "Netzwetter", a customer perception-based test of mobile data usage in 3G and 4G, sees Telefónica Deutschland's network at eyes level with competitors. LTE coverage clearly improved in rural areas due to the ongoing rollout. - Network planning is one of the first areas where Telefónica Deutschland applies ADA (Advanced Data Analytics) to customer solutions. With new algorithms the company tailors the deployment of its LTE network to customer demand as data specialists are able to predict and data usage. - Financial outlook 2016 The financial outlook for 2016 remains unchanged as published in the Annual Financial Report 2015 (page 60ff). Exceptional and special effects are excluded from our guidance. Exceptional effects include the capital gain from the sale of Telefónica Deutschland's passive tower infrastructure to Telxius, Telefónica S.A.'s infrastructure company, in the second quarter. The OIBDA impact resulting primarily from higher operating lease expenses between May and December 2016 will also be treated as a special effect for 2016 and thus excluded from our guidance. Financial outlook 2016:
Base line 2015 Outlook 2016 (year-on-year) (EUR million) MSR 5,532 Slightly negative to broadly stable OIBDA 1,760 Low to mid single-digit % growth Before exceptional effects CapEx 1,032 % growth in the low tens
Telefónica Deutschland's operating performance in the first quarter of 2016 At the end of March 2016 Telefónica Deutschland's access base was 48.3 million, +1.2% year-on-year driven by a 2.0% year-on-year growth of the mobile base, which stood at 43.0 million. Mobile postpaid saw 181 thousand net additions in the first quarter 2016 versus 141 thousand in the same period of 2015. Telefónica Deutschland maintained its focus on retention over acquisition and partner brands sustained their strong performance, contributing 45% of gross additions (43% in the fourth quarter of 2015). At the end of March mobile postpaid base consisted of 19.3 million accesses (+1.8% year-on-year), representing a broadly stable 44.8% share of total mobile customers. The mobile prepaid customer base was up 2.1% year-on-year with a strong performance from partners to 23.7 million while the first quarter of 2016 registered 236 thousand net disconnections, mainly due to seasonality. Postpaid churn was broadly stable year-on-year and quarter-on-quarter at 1.8% in the first three months of 2016 while the O2 consumer brand reported an even lower churn of 1.4% again, clearly supported by the Company's retention focus. Smartphone penetration across all brands continued to rise and was up 5.6 percentage point year-on-year to 55.4% at the end of March (+1.2 percentage points quarter-on-quarter) driven by the steady increase of demand for data both in the postpaid and the prepaid customer base; 77.8% and 26.9% smartphone penetration respectively within the O2 consumer brand. The LTE customer base was up 10.2% quarter-on-quarter to 8.7 million as of 31. March 2016, reflecting the success of the company's data monetisation strategy. Mobile ARPU was EUR 10.3 (-3.3% year-on-year) in the first quarter. Postpaid ARPU7 came to EUR 16.6 and reflects the high share of wholesale gross adds, the legacy customer base mix and regulatory effects with the rate of year-on-year decline slowing to 3.8% (from -4.3% in the prior quarter). As a result of the growing demand for data amongst prepaid customers the prepaid ARPU continued to rise, reaching EUR 5.7 in the first three months of 2016 (+1.3% year-on-year). On the back of continued strong demand for VDSL - up 4.6% quarter-on-quarter to 76 thousand net additions - retail fixed broadband registered 3 thousand net additions in the quarter after 5 years of net losses. The total retail DSL customer base stabilised at 2.1 million. Fixed wholesale accesses continued to decline as expected (61 thousand net disconnections until March) due to the progressive decommissioning of the ULL (unbundled local loop) broadband access infrastructure. Telefónica Deutschland's financial performance in the first quarter of 2016 Revenues came to EUR 1,858 million, 2.3% lower year-on-year mainly as a result of the performance of mobile service revenues and the handset business. Mobile service revenues (MSR) reflect the continued strength of the partner business and the associated higher share of wholesale revenues as well as the company's ongoing focus on the development of its customer base and regulatory effects. As a result, MSR declined 1.3% year-on-year to EUR 1,336 million. Mobile data revenues rose 5.4% year-on-year to EUR 729 million for the three months period and increased their share over MSR by 3.4 percentage points year-on-year to 54.6% as revenue growth in non-SMS data outweighed the further decline in SMS revenues. Non-SMS data revenues amounted to EUR 550 million, a strong 12.7% year-on-year growth and increased their share of data revenues to 75.4%, up 4.9 percentage points. Handset revenues fell 5.5% year-on-year to EUR 267 million, mainly due to a lower demand for handsets after a particular strong Q4 2015 as well as growing smartphone saturation in the market. Fixed revenue trends stabilised with a year-on-year decline of 3.1% (-3.2% in the prior quarter) and came to EUR 253 million on the back of the growing traction of VDSL in the retail business while we continued to benefit from spot trading opportunities in the carrier voice business. DSL retail revenue performance was broadly stable year-on-year at -3.9%. Other income was EUR 31 million with the year-on-year decline resulting from the exceptional gain from the sale of yourfone in the first quarter of 2015. Operating expenses including restructuring costs of EUR 23 million amounted to EUR 1,509 million until March 2016, down 2.7% year-on-year mainly driven by savings from integration projects. Restructuring costs were mainly related to the leaver programme. - Supplies came to EUR 629 million, 4.6% lower year-on-year mainly due to lower hardware costs of sales (44% of supplies) and lower connectivity-related cost of sales (47% of supplies). - Personnel expenses were EUR 173 million (including restructuring costs of EUR 18 million) with the decline of 3.1% year-on-year mainly resulting from the successful execution of the first wave of the employee restructuring programme in 2015. - Other operating expenses were broadly stable year-on-year (-0.9%) at EUR 707 million, including restructuring expenses of EUR 4 million. Commercial costs and non-commercial costs made up 56% and 40% respectively. Savings resulted from the 2015 synergy initiatives while at the same time we registered costs related to the 2016 integration activities and investments into the company's commercial positioning and brands. Operating Income before Depreciation and Amortisation (OIBDA) in the period up to March 2016 benefitted from the roll-over effect of synergies executed in prior year and were affected by the before-mentioned cost positions. OIBDA in reported terms fell 4.2% year-on-year to EUR 379 million, as the company had a capital gain from the sale of yourfone in the prior year period. Excluding exceptional effects OIBDA rose 6.2% year-on-year to EUR 401 million with in-year savings from integration activities (OPEX & revenue) amounting to EUR 55 million. The OIBDA margin increased by 1.7 percentage points year-on-year to 21.6% Group fees amounted to EUR 13 million in the first quarter of 2016 Depreciation & Amortisation amounted to EUR 540 million in the first three month of 2016, a slight increase of 2.1% year-on-year compared to the same period of 2015 (EUR 529 million). The operating result for January to March 2016 was negative in the amount of EUR 161 million as depreciation & amortisation charges still exceed OIBDA. The net financial result for the three months period was negative in the amount of EUR 8 million resulting from various financing activities including the bonds issued in November 2013 and February 2014 as well as promissory note executed in March 2015, as well as interest expenses from finance lease obligations. The Company did not report income tax expense for January to March. The result for the first quarter of 2016 came to EUR -170 million. CapEx was EUR 218 million (-1.2% year-on-year) in the first quarter of 2016. Telefónica Deutschland is executing according to plan with back-end loaded Capex phasing across the year due to the expected intensification of the network integration effort in the second half of 2016. Operating cash flow (OIBDA minus CapEx) for the three months period of 2016 was EUR 161 million. Excluding exceptional effects9, operating cash flow was up 16.7% year-on-year. Free Cash Flow (FCF) for the first quarter of 2016 reached EUR -20 million in 2015. Working capital movements of EUR 159 million were mainly driven by seasonal prepayments (mainly rents) of EUR 186 million as well as regular working capital movements which include silent factoring transactions for O2 myHandy receivables. Consolidated net financial debt stood at EUR 1,266 million at the end of March 2016, maintaining a leverage ratio of 0.7x. The slight increase compared to year end 2015 mainly comes from different financing activities that resulted in offsetting effects as well as from the negative FCF that was generated in the period. 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- 2016.html Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 23-25 80992 München Veronika Bunk-Sanderson, Director Investor Relations Marion Polzer, Senior Manager Investor Relations Pia Hildebrand, Investor Relations Officer (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 summarised 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; Terminbörse EUREX TecDAX End of News DGAP News Service