Telefónica Deutschland releases first half 2014 results

-Positive indications for revenue performance in a competitive market
-Significant increase in postpaid net additions
-Strong generation of Free Cash Flow
MUNICH. Telefónica Deutschland saw an improving trend in wireless service revenue performance throughout the first half of 2014, in a market that remained very competitive and increasingly focused on LTE. This was the result of its data monetisation strategy and the improved momentum in the O2 core brand.
Rachel Empey and Markus Haas
“Our improved operating and financial performance throughout the first half of 2014 is the tangible result of a very consistent mobile data monetization strategy, leveraging a very focused team”, said Rachel Empey (CFO). With respect to the envisaged acquisition of E-Plus Group, Markus Haas (CSO) said: “After the recent completion of the important European Commission conditional clearance milestone, we are confident on the closure of the transaction during the third quarter of the year. We have already taken the first steps to configure the organization that will transform Telefónica Deutschland into a leading digital telco."

Revenues mainly driven by mobile data

At the end of June 2014, Telefónica Deutschland has 25.1 million customer accesses. The mobile access base stands at 19.4 million, while fixed line accesses amount to 5.7 million. The postpaid segment has a positive influence in this context. Postpaid mobile net additions for the first six months of 2014 reach 230 thousand, with second quarter’s figure (152 thousand) more than doubling the average registered over the last four quarters. Mobile data revenues in the first half of 2014 total 704 million Euro (-1.4% year-on-year), representing 49% of wireless service revenues (+0.9 percentage points year-on-year). In the second quarter, mobile data revenues register a 1.5% year-on-year decline to 354 million Euro. Non-SMS data revenues continue being the main driver for revenue growth, reaching 508 million Euro in the first half of 2014 (256 million Euro in the second quarter), with a year-on-year increase of 10.6% and 9.1% respectively. The share of non-SMS data revenues over total data revenues further increases to 72.3% for the first half year, 7.8 percentage points higher than in the same period of 2013, which is the result of the successful execution of the Company’s data monetization strategy. SMS revenues continue to show a stabilization in their rate of decline (-21.6% year-on-year in the second quarter vs. -24.6% in the first quarter). Telefónica Deutschland’s revenues for the first half of 2014 period total 2,284 million Euro (1,162 million Euro in the second quarter), a year-on-year performance of -6.5% ex MTR cuts (-6.6% in reported terms). With reference to the development of the first two quarters of 2014, there is a positive trend. In the second quarter, the revenue performance is -4.3% year-on-year ex MTR cuts (-4.4% in reported terms), a significant improvement compared to the previous quarter (-8.7% year-on-year ex MTR cuts; -8.8% in reported terms). Wireless service revenues amount to 1,435 million Euro in the first half of the year, a decline of 3.0% year-on-year ex MTR cuts (-3.1% in reported terms). In the second quarter, wireless service revenues reach 728 million Euro and show an improved performance over previous quarters (-2.5% year-on-year ex MTR cuts and -2.7% in reported terms). Wireline revenues reach 581 million Euro in the first half of 2014 (287 million Euro in the second quarter) which represents a year-on-year decline of 7.3% and 7.6% respectively, driven by a declining DSL retail customer base and a tougher market environment in the second quarter.

Further growth of smartphone usage in post- and prepaid segment

An important driver for the growing smartphone usage is the increasing demand for LTE from new and existing customers. Thereby, the share of LTE-enabled handsets as a percentage of total smartphones sold further increases to reach 82% in the period from January to June (86% in the second quarter). In the specific segment of O2 consumer postpaid, smartphone penetration improves to 72.1% (+4.8 percentage points year-on-year). Also in the prepaid segment, smartphone penetration continues to show growth, reaching 21.3% in O2 consumer segment (+6.9 percentage points year-on-year) and a remarkable 32.3% in the secondary brand Fonic (+16.4 percentage points year-on-year). In general the smartphone penetration reaches 33.1% at the end of June 2014, further improving by 4.3 percentage points over the previous year. Operating Income before Depreciation and Amortization (OIBDA) totals 486 million Euro in the first half of 2014, a year-on-year decline of 15.1%. For the second quarter, OIBDA amounts to 252 million Euro (-14.5% year-on-year), sustaining the performance seen in previous quarters. The resulting OIBDA margin is down 2.1 percentage points year-on-year to 21.3% for January to June 2014 period and down 2.5 percentage point to 21.7% for the second quarter. The year-on-year OIBDA performance is driven by the negative flow-through from service revenues performance and the continuing commercial investments to gain trading momentum in the market. CapEx amounts to 266 million Euro for the first half year of 2014, lower 10.1% year-on-year. For the second quarter CapEx totals 134 million Euro, -10.9% year-on-year. This is reflecting the focused investments into LTE network deployment and a different year-on-year phasing of investments.

Strong conversion of Operating Cash Flow into Free Cash Flow

Operating Cash Flow (OIBDA minus CapEx) decreases by 20.5%, amounting to 219 million Euro for the January to June 2014 period. Free Cash Flow pre dividends (FCF) reaches 397 million Euro for the first half of 2014, compared to 345 million Euro in 2013. The strong conversion of operating cash flow into free cash flow is the result of a positive change in working capital from 91 million Euro in 2013 to 191 million Euro in 2014. The majority of this increase is explained by a higher deferred income registered in the period, primarily driven by advanced payments.

Forming a leading digital telco in Germany

Focussing on its mobile data strategy and LTE, Telefónica Deutschland continues to pursue its way to become a leading digital telecommunications company in Germany. Besides the positive indications for the operating and financial performance, the company also received an important signal by the European Commission regarding its planned landmark acquisition of E Plus. Telefónica Deutschland expects the closing of the transaction during the third quarter of 2014.
Additional data are available in our investor relations section on Read news in German.
Telefónica Deutschland Holding AG, listed at the Frankfurt Stock Exchange in the Prime Standard, and its wholly-owned, operationally active subsidiary Telefónica Germany GmbH & Co. OHG is part of the Spanish telecommunication group Telefónica S.A. headquartered in Madrid. The company offers its German private and business customers post-paid and prepaid mobile telecom products as well as innovative mobile data services based on the GPRS, UMTS and LTE technologies with its product brand O2. In addition, the integrated communications provider also offers DSL fixed network telephony and high-speed Internet. With a significant presence in 24 countries and a customer base of more than 313 million accesses, Telefónica is one of the largest telecommunications companies around the world.