Preliminary results for the 2015 financial year:

Telefónica Deutschland achieves targets and steps up the pace of the digital transformation

-OIBDA(1) up by a substantial 20.5%(2) in the 2015 financial year
-Mobile service revenues stable (+0.1%) in line with guidance
-Low to mid single-digit percentage OIBDA growth targeted in 2016 as integration continues with a number of major projects
-Mobile service revenues expected to be slightly negative to broadly stable in 2016 in a market that remains challenging
-Proposed cash dividend for 2015 unchanged at 0.24 Euro per share
-CEO Thorsten Dirks: "We have kept our word and achieved all of our targets. In 2016 we will shift focus from integration to transformation to become Germany’s Leading Digital Telco."
MUNICH. Telefónica Deutschland achieved its targets in the first full financial year after the merger with E-Plus. In 2015 the operating income before depreciation and amortisation (OIBDA)(1) increased by 20.5%(2) to 1.76 billion Euro, largely as a result of the ongoing optimisation of the cost base and the accelerated leverage of synergy factors. Despite challenging competition, mobile service revenues remained stable in-line with guidance. In 2016 Telefónica Deutschland will focus on major integration challenges such as bringing together both networks and will complete key projects. At the same time the company will increasingly shift its focus to transformation and will move forward with its 2020 digital strategy. Telefónica Deutschland expects slightly negative to broadly stable mobile service revenues in 2016 in a market that will remain challenging. The company anticipates a low to mid single-digit percentage OIBDA growth, mainly as a result of synergy effects primarily driven by initiatives launched in 2015. As announced, the Management Board plans to propose a cash dividend of 0.24 Euro per share for the financial year just ended.
Thorsten Dirks, CEO of Telefónica Deutschland
"We have kept our word and achieved all of our targets for 2015," said Thorsten Dirks, CEO of Telefónica Deutschland. "We improved the profitability of our operating activities and successfully completed important steps of the integration. And with our Vision 2020 we have given shape to our ambition to become Germany's Leading Digital Telco. This year we will shift our focus from integration to digital transformation." CFO Rachel Empey added: "In 2016, with the network integration, the transformation of our IT systems and the repositioning of some of our brands, we are entering the most important stage of the integration process. Completing these tasks will strengthen our competitive position and give us greater opportunities in new business segments."

Strong OIBDA growth

Backed by the early capture of integration synergies as well as a systematic cost management, Operating Income before Depreciation and Amortisation (OIBDA) rose significantly in 2015 by 20.5% to 1.76 billion Euro. The resulting OIBDA margin was 22.3%, reflecting an improvement of 3.6 percentage points versus the same period of 2014.

Total revenues slightly increased

Mobile service revenues for 2015 were broadly stable year-on-year at 5.53 billion Euro, helped by a strong performance of the partner business. Non-SMS mobile data revenues expanded by 4.9% year-on-year to 2.03 billion Euro for the twelve months period. In total, mobile data revenues rose by 0.2% year-on-year to 2.84 billion Euro. Reflecting the growing demand for LTE enabled devices, handset revenues rose strongly in 2015, reaching 1.30 billion Euro for the full year (+16.3% year-on-year). Total fixed revenues came in at 1.04 billion Euro for the full year. The company’s total revenues slightly increased to 7.89 billion Euro (+1.2% year-on-year) for the twelve months of 2015.

Access base increases to 48.4 million

The mobile access base grew by 2.2% year-on-year growth to 43.1 million. This primarily reflects a strong partner brand contribution. Overall, Telefónica Deutschland registered 1.34 million mobile net additions(3) in 2015 (709,000 in the postpaid segment and 629,000 in the prepaid segment), increasing the total amount of customer accesses in 2015 by 1.5% to 48.4 million.
Smartphone penetration(4) across all brands continued to rise, increasing 5.5 percentage points year-on-year to 54.2% at the end of December. In the fourth quarter the LTE customer base grew 12.6% from the third quarter to almost 8 million, reflecting the opening of the LTE network to the entire O2 postpaid customers as well as the strong demand for LTE-enabled handsets. Monthly mobile data usage of O2 customers with LTE-enabled smartphones continued to show strong growth, rising by 10% from the third to the fourth quarter to 1.2 Gigabyte (GB) per month(5). Fixed accesses amounted to 5.3 million at the end of 2015. For the full year 2015 retail net disconnections came in less than half the equivalent figure of 2014 and stood at 46,000. As a result, the total retail base was 2.1 million at the end of 2015.

Leverage ratio at 0.7x

The result for the full year 2015 came in at -383 million Euro (2014: -689 million Euro) as depreciation & amortisation charges in the course of the integration of E-Plus and the consolidation of both networks still exceed OIBDA. In the past financial year Telefónica Deutschland focused on the preparation of the network integration and the LTE rollout which already led to positive synergy effects. Consequently, CapEx before investments in spectrum was reduced by 11.1% year-on-year to 1.03 billion Euro for the full year 2015. Free Cash Flow(6) (FCF) reached 700 million Euro in 2015, of which 58 million Euro were proceeds from the sale of yourfone GmbH in the first quarter. Consolidated net financial debt stood at 1.23 billion Euro at the end of December 2015. Consequently, the leverage ratio stood at 0.7x. The increase of net financial debt versus prior year was mainly due to the payment for long-term investments in spectrum licenses in June 2015 and other financing activities.

Good integration progress creates a solid basis for digital transformation

By already achieving important milestones of the integration of E-Plus Group, Telefónica Deutschland has laid an important foundation for the transformation of the company. 2015 saw significant progress in terms of the optimisation of the sales structure with the reduction of the number of shops by 480. In this respect, the agreement on the sale of 301 shops and the yourfone brand to Drillisch represented an important factor. At the same time, an agreement was reached on the transfer of approximately 7,700 mobile sites to Deutsche Telekom. Moreover, since mid-April, customers of the Telefónica Deutschland and E-Plus brands have access to national roaming in the UMTS network. At the beginning of 2015, the Management Board and Workers’ Councils already agreed on a leaver program that provides for the downsizing of 1,600 full-time positions, half of which was implemented in 2015. In 2016, Telefónica Deutschland will move ahead with the integration and complete further key projects. In January, work began to technically integrate the UMTS and GSM networks of O2 and E-Plus, and customers will have access to a joint LTE network from the middle of this year.

Focus on the O2 brand in the premium segment - development of new market units

To be even more powerfully positioned in the premium sector Telefónica Deutschland will focus on the O2 brand in this segment in the future. As part of the harmonization of the brand and tariff portfolio, customers of BASE and E-Plus will gradually be transferred to O2 over the coming months. Telefónica plans to reposition the BASE brand as a pure online brand. Other brands are currently not affected as Telefónica Deutschland continues to pursue a focused multi-brand approach. Telefónica Deutschland in the fourth quarter of 2015 set out Vision 2020 and thereby made its digital transformation strategy tangible. As part of this strategy, the company will push ahead with its plans to establish two new market units – Advanced Data Analytics (ADA) and Internet of Things (IoT). Thereby, Telefónica Deutschland aims to launch innovative products and services in order to tap growth markets.

Financial outlook 2016

In 2016 Telefónica Deutschland will continue to push ahead with its transformation into Germany’s Leading Digital Telco. As part of this effort, the company will continue to focus on the opportunity for monetising data growth across all brands. We expect that data growth will continue to accelerate which will fuel top-line growth in the long-term. In the short term, this trend is counteracted by effects: among other things an amplifying shift in new customer acquisition from retail to wholesale. For 2016 the company thus expect mobile service revenues to be slightly negative to broadly stable year-on-year. This outlook already includes expected effects from the elimination of roaming charges in Europe by 2017 and the associated glide path. In terms of synergies, Telefónica Deutschland will continue to benefit from the initiatives executed in 2015 as well as savings from the employee restructuring and site decommissioning. The execution of a range of large projects such as the network integration, the transformation of the IT landscape and the transfer of customers and brands to a joint platform will however cause costs, primarily in the first half of 2016. Savings generated from them will become accretive to earnings in future years. The efficient execution of these projects is of crucial importance for the transformation of Telefónica Deutschland to become the Leading Digital Telco. Primarily as a result of these synergies, the company expects 2016 a low to mid single-digit year-on-year OIBDA percentage growth (post group fees, pre exceptionals). Mainly impacted by the roll-out of the LTE network, capital expenditure is expected to grow in the low tens in year-on-year percentage terms in 2016.
1) OIBDA before exceptional effects and after group fees 2) Unless indicated otherwise, year-on-year comparisons are based on combined figures for 2014. These are approximate and the result of the aggregation and then consolidation of Telefónica Deutschland and E-Plus Group financials according to Telefónica Deutschland Group accounting policies. The combined figures are further adjusted by exceptional effects, such as capital gains or restructuring costs based on estimates made by Telefónica Deutschland management and resulting in combined figures we believe are more meaningful as a comparable basis. Exceptional effects as of 31 December 2015 include restructuring expenses amounting to EUR 73 million (31 December 2014: EUR 414 million on a combined basis) as well as one-off gains from the sale of yourfone GmbH in the amount of EUR 15 million (after adjustment from the final purchase price allocation (PPA)) which was closed on 2 January 2015. Furthermore, EUR 104 million income and EUR 3 million expenses resulting from the agreement with KPN on the final purchase price of E-Plus are included in exceptional effects. 3) Figures adjusted mainly by an impact from a business customer base harmonisation at the E-Plus Group in the fourth quarter. 4) Defined as the number of active mobile data tariffs over total mobile customer base, excluding M2M and data-only accesses. 5) Average data monthly usage (in MB) from O2 consumer customers with a LTE-enabled smartphone (all tariffs). 6) Free cash flow pre dividends and payments for spectrum as well as pre-acquisition of E-Plus (FCF) is defined as the sum of cash flow from operating activities and cash flow from investing activities. FCF includes restructuring effects but excludes the effect from the agreement with KPN on the final purchase price of E-Plus. 7) Excluding investments in spectrum in June 2015 amounting to EUR 1,198m (including capitalised costs on borrowed capital).