Telefónica Deutschland with positive momentum during the first nine months

-374 thousand net additions in mobile postpaid customer segment
-Sustained improvement in revenue trend
-Strong conversion of operating cash flow into free cash flow
-Integration of E-Plus Group started at full speed
-Confirmed synergies of more than 5 billion Euro
MUNICH. Telefónica Deutschland continued with its data monetization strategy and benefited from the increasing mobile data usage among customers during the first nine months of 2014. In a competitive market, the third quarter confirmed the improving trend in mobile service revenues which had been achieved since the beginning of the year. The positive momentum was also reflected in significant net additions of postpaid mobile customers. The nine months results do not yet include E-Plus Group which has been consolidated as of October 1, 2014.
“The integration of the two companies provides us with the unique opportunity to drive the digital transformation of our business and create real added value for our customers and shareholders. Our clear goal is to build the leading digital telecommunications company in Germany,” said Thorsten Dirks, CEO of Telefónica Deutschland. Rachel Empey, CFO, added: “Our financial and operational performance in the third quarter demonstrates an improved momentum based on the consistent execution of our mobile data monetization strategy, leveraging the uptake of LTE.”

Considerable growth of postpaid customer base

Telefónica Deutschland added 374 thousand net new mobile postpaid customers in the first nine months of 2014, which was a significant increase over the 207 thousand in the prior year period. The positive momentum was supported by a successful third quarter which saw the number of net new postpaid customers almost triple to 143 thousand year-on-year. The Company also added 70 thousand net new prepaid customers in the third quarter. In total, Telefónica Deutschland slightly increased its mobile access base to 19.6 million by the end of September 2014. Including 5.6 million fixed line accesses, this resulted in an almost stable customer access base of 25.3 million after nine months. The growing demand for LTE from new and existing customers continued to drive smartphone usage. LTE-enabled handsets increased their share of total smartphones sold to 88% in the third quarter. In the O2 consumer postpaid segment, smartphone penetration was up 4.2 percentage points to 74.1%.

Mobile service revenues with sustained quarter-to-quarter improvement

Mobile service revenues amounted to 2,189 million Euro for the nine months period, reflecting a -2.4% decline year-on-year ex MTR cuts (-2.6% in reported terms). The third quarter performance confirmed the upward trend of the previous quarters with a decline ex MTR cuts of -1.3% (-1.5% in reported terms) to 754 million following a decrease of -2.5% in the second and -3.4% in the first quarter. This was mainly driven by the dynamic growth of non-SMS mobile data revenue, which grew by 10.1% to 778 million Euro in the first nine months (+9.3% in the third quarter). The share of non-SMS data revenues over total data revenues rose by 7.3 percentage points to 72.8% in the first three quarters, reflecting the successful execution of the Company’s data monetization strategy. Overall Telefónica Deutschland achieved mobile data revenues including SMS revenues of 1,070 million Euro (-0.9% year-on-year) in the first nine months on the back of 0.2% growth to 366 million Euro in the third quarter. Mobile data revenues thus contributed 48.9% to total mobile service revenues in the period from January to September 2014. Telefónica Deutschland generated total revenues of 3,503 million Euro (-4.6% year-on-year) in the first nine months. Supported by the improving trend in mobile service revenues and strong handset sales, revenues in the third quarter amounted to 1,219 million Euro, reinforcing an upward trend towards -0.5% year-on-year after a decline of -4.4% and -8.8% in the second and first quarters, respectively. Fixed-line revenues in the first nine months reached 864 million Euro (-7.9%), mainly as a result of a lower DSL customer base.
Operating Income before Depreciation and Amortization (OIBDA) was impacted by the decline in revenues and continued commercial investments to drive trading momentum in the market. It amounted to 726 million Euro (-16.0% year-on-year) in the first nine months. In the third quarter Telefónica Deutschland generated an OIBDA of 240 million Euro (-17.8% year-on-year). This translated into an OIBDA margin of 20.7% for the nine months period and 19.7% in the third quarter. Excluding the impact from initial restructuring costs in the third quarter related to the acquisition of E-Plus Group, the underlying OIBDA was down 15.1% in the third quarter, resulting in an OIBDA margin of 20.3%, which was in line with the performance during the first half of 2014. CapEx of 411 million Euro (-12.1% year-on-year) in the nine months period reflected the focused investments into LTE network deployment and a different year-on-year phasing of investment ahead of the E-Plus Group acquisition. The third quarter saw CapEx decrease by 15.6% year-on-year to 145 million Euro.

Strong free cash flow of 529 million Euro

Operating Cash Flow (OIBDA minus CapEx) reached 315 million Euro (-20.6% year-on year) for the January to September 2014 period. Free Cash Flow pre dividends (FCF) in the first nine months amounted to 529 million Euro (2013: 543 million Euro) due to lower OIBDA, partially offset by a positive working capital development from higher non-current deferred income from other advanced payments for future service to be received.

Work on numerous integration initiatives has started

Following completion of the E-Plus Group acquisition effective from October 1, 2014 Telefónica Deutschland has started the integration process for the two companies. The merged company is one of the largest providers of telecommunication services in Germany with almost 47 million customer connections and pro forma revenue of around EUR 7.9 billion in the fiscal year 2013. The company is the number one in the market by mobile accesses. Telefónica Deutschland confirms its goals to build the leading digital telco and to realize synergies of more than 5 billion Euro within five years after completion of the transaction. As part of the integration, the Company has already installed the first three management layers and announced parameters of a restructuring involving a planned reduction of 1,600 jobs until 2018, mainly related to the removal of duplicate functions. Negotiations with the Workers Council about the implementation of the measures are on-going. The Supervisory Board approved the planned downsizing measures on November 3, 2014. CEO Thorsten Dirks commented: “We are committed to offer our customers the best experiences with regard to network, products, services and tariffs for their digital lives. Following an initial planning phase, we are now working on numerous integration initiatives at full speed. The digital transformation will touch every aspect of our business: from investment in our network and the future design of physical and digital customer touch points to the simplification and digitalization of our internal structures and processes.” For further details on KPIs and developments, please see the Investor Relations section.
Telefónica Deutschland Holding AG, listed at the Frankfurt Stock Exchange in the Prime Standard, and its wholly-owned, operationally active subsidiaries Telefónica Germany GmbH & Co. OHG and E-Plus Mobilfunk GmbH & Co. KG 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 brands O2 and BASE as well as several second and partner brands. 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.