DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases 2012 full year results

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Preliminary Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases 2012 full year results 27.02.2013 / 07:32

27th February 2013 Telefónica Deutschland releases 2012 full year results MUNICH. Telefónica Deutschland continued its good trend in both financial and operating performance in the fourth quarter of the year relative to the market with strong trading momentum in the postpaid segment and successful monetization of mobile data, thanks to its multi-brand approach. This has delivered profitable growth and consolidated its position as the third largest integrated telco operator in Germany, while strengthening its broadband access platforms with a focused investment in LTE mobile networks, also securing access to the most advanced VDSL platform in Germany. 'The strong financial and operational performance shown by Telefónica Deutschland in 2012 reflects a consistent execution of our strategy in the German market', said Rene Schuster (CEO), and Rachel Empey (CFO) added 'we have the right assets to continue outperforming competitors in our core mobile business'. Fourth quarter operational and financial highlights: - Strong trading momentum maintained in the mobile postpaid segment at 219 thousands, lower year-on-year churn at 1.5% and increased smartphone penetration (+6.3 p.p. year-on-year to 26.4%). - Solid wireless service revenue growth at +4.8%1 year-on-year, which is the result of a successful value management of the base? continuous growth of data revenues due to our consistent focus on smartphones with a data-centric portfolio and strong trading based on a differential multi-brand approach in a competitive mobile market. - Mobile data revenues continued being the main growth lever for the business, with non-SMS data revenues sustaining a strong performance of 27.9% year-on-year. - Broady stable blended ARPU at 13.8 Euros , which is the result from the right balance between customer growth and value management of the customer base. - Sustained strong OIBDA performance (+8.5% year-on-year), reaching 25.5% margin (+1.8 percentage points, year-on-year), leveraging mobile data growth and increased efficiencies. - Accelerated deployment of LTE network, with 15% German population coverage reached at year end. - Strong Operating Cash Flow generation of 670 million Euros up to December, 2012 (+13.3% year-on-year) which translates into Free Cash Flow of 674 million Euros and resulting net debt position of 842 million Euros at the end of the period. Outlook for 2013 and shareholder remuneration: Our strategy will remain focused around gaining scale in the telecommunications market, driven by our innovative multi-brand approach based on data services. We expect the German telecommunication market to remain active and competitive, with significant impacts from mobile termination rate cuts, changing customers' communication behaviors, and the variability of device launches and replacement cycles. We see the introduction of the LTE technology in mobile networks as one of our drivers for future revenues and performance during 2013 and in the future, with timing of impacts depending on the uptake of new LTE-centric devices in the German market. As a challenger in the market we are, of course, impacted by the variability of these diverging trends. Thus, our goal for long term success is to maintain a consistent focus on gaining service revenue market share in our core wireless business and achieve further efficiencies of scale. - For the financial year 2013, we aim to continue outperforming the German wireless market and increase our wireless service revenue market share. - Our wireline business is not expected to be a driver of growth for us within the next year but will strengthen our wireless business through converged product offerings. Total wireline revenues are expected to decline. - In the past periods, we have implemented a series of cost saving measures that, paired with strong revenue performance, has helped us to improve our margins. In the financial year 2013, we aim for our OIBDA margin to sustain this trend on the back of scale effects and efficiency improvements, driven by our focus on market share expansion. - In terms of investments, we consider 2013 and 2014 as being key years for our LTE network roll-out. However, we do not expect capital expenditures to exceed the levels reached in 2010 (680 million Euros) when we were rolling out 3G capacity. Thereafter, we expect CapEx to decline to lower levels again. - We have a clearly stated financing policy to support a strongly funded and stable capital structure, aiming to maintain the leverage ratio below 1.0x for the financial year 2013 and beyond. - The management board of Telefónica Deutschland and the supervisory board have the intention to propose to the General Shareholders' Meeting a cash dividend for the year ending December 31, 2012 of approximately 500 million Euros, and intend to increase the amount of dividends to be distributed in future years, subject to specific solvency protection rules . Key strategic priorities for the business in 2013: - Capitalize on our multi-brand portfolio & superior customer satisfaction, driving additional efficiencies for the business. - Monetize the data opportunity in all segments through innovative products, digital services & LTE network. - Maintain a competitive 3G network while delivering LTE technology to urban areas. Telefónica Deutschland operating performance: At the end of December, 2012, Telefónica Deutschland had 25.4 million customer accesses, a year-on-year increase of 3.6%. Main commercial highlights for the fourth quarter of 2012 include: - Enrichment of our smartphone tariff portfolio with the new 'O₂ Blue Select' and 'O₂ nxt' tariffs. - Soft launch of VDSL-powered 'Speed' option to 50 Mbps from 5th November, with first positive results in retail channels. - First retail mobile payment launching by a mobile operator in Germany using 'mpass' service and NFC technology from 9 October, with the opportunity to use thousands of retail shops in Germany, around 100,000 in Europe and around 500,000 worldwide. - Launching of 'O₂ credit card' in cooperation with the Barclaycard direct banking service. As a result of our differential multi-brand approach in the German market and the increased adoption of integrated mobile tariffs and smartphones through 'O₂ My Handy', mobile postpaid continued its strong trading performance, with 219 thousand net additions in the fourth quarter of 2012 to reach 10.1 million accesses. The mobile prepaid segment registered 33 thousand net disconnections in the fourth quarter of 2012 after the positive figure achieved in the third quarter, mainly following previous years' seasonal trends in a strong competitive market. Prepaid customer base reached 9.2 million at the end of December, 2012. Customer mix improved over the year, with growth in postpaid customer base penetration over total mobile base of 2 percentage points, year-on-year, to 52%. Blended churn in the fourth quarter remained flat over the previous year at 2.5%, with continued good performance of postpaid churn at 1.5% (-0.4 percentage points, year-on-year), a reflection of our successful customer base management and focus on service quality. Smartphone penetration reached 26.4% at the end of December 2012, a continued improvement of 6.3 percentage points over the previous year, mainly due to the success of 'O₂ My Handy' handset distribution model, with an increasing share of prepaid customers using smartphones, as handset prices are becoming more attractive to this segment. Mobile ARPU, excluding the impact from mobile termination rate cut from December, remained broadly stable both quarter-on-quarter and year-over-year at 13.8 Euros (-1.3% year-on-year to 13.6 Euros in reported terms), which is the result from a conscious strategy of balancing customer growth with the right value management of the base. Postpaid ARPU continued to show a similar trend as in the previous quarter at -2.7% year-on-year, excluding the impact of mobile termination rate cuts, reaching 21.3 Euros (21.0 Euros in reported terms). This performance reflects the positive impact in ARPU from the acquisition of new customers and churners in terms of value, which did not fully offset the effect from an early adoption of mobile integrated tariffs within our customer base and the usual renewal cycles after expiration of contracts. Retail fixed broadband accesses declined by 54 thousand in the fourth quarter of 2012 from 61 thousand disconnections in the previous quarter, reflecting customer demand for higher speeds in a declining market. On the other hand, wholesale broadband accesses registered negative net additions of 17 thousands, from positive figures in previous quarters as a result of the usual trading activity with partners. Telefónica Deutschland financial performance: Telefónica Deutschland revenues reached 5,213 million Euros in 2012, a 3.5% year-on-year growth (+3.7% excluding mobile termination rate cuts from December). In the fourth quarter, total revenues totaled 1,342 million Euros (+0.9% year-on-year; +1.6% excluding mobile termination rate cuts). Wireless service revenues continued showing a strong performance over the previous year (+7.0% year-on-year; +7.3% excluding mobile termination rate cuts) to 3,152 million Euros. In the fourth quarter, wireless service revenues reached 793 million Euros, (+3.6% year-on-year; +4.8% excluding mobile termination rate cuts), which is the result of the Company's strategy of carefully managing the value of the customer base. Year-on-year growth trends show the annualization of a particularly strong trading activity in 2011, as well as the annualization of wireless service revenue growth and integrated mobile tariffs' adoption, coupled with lower SMS activity levels in the market which is mainly affecting incoming revenues. Mobile data was the main driver for revenue growth at 1,391 million Euros in 2012 (+16.1% year-on-year in 2012; +10.9% in the fourth quarter), thanks to the increased penetration of mobile integrated tariffs in the base. The Company continued monetizing the data opportunity, with non-SMS data revenues growing by 30.7% year-on-year up to December 2012 (+27.9% year-on-year in the fourth quarter). Non-SMS data revenues as a percentage of total data revenues were 59.9% in the fourth quarter, 8.0 percentage points above the same period of last year. Handset revenues reached 693 million Euros, an increase of 5.1% year-on-year (+6.4% in the fourth quarter), which is a reflection of the continued success of the 'O₂ My Handy' distribution model. Wireline revenues stood at 1,363 million Euros (-4.4% year-on-year; -8.1% in the fourth quarter). The quarterly trend is mainly influenced by the continued erosion of the retail fixed broadband business and lower upfront connection revenues associated with the wholesale broadband business. Operating expenses amounted to 3,995 million Euros, a year-on-year increase of 1.2% (-1.5% in the fourth quarter). Main drivers for the January-to-December 2012 period were: - Growth in supplies of 4.1% year-on-year to 2,131 million Euros (-1.4% in the fourth quarter), driven by the increase seen in handset costs (mainly due to smartphone sales through 'O₂ My Handy') and mobile interconnection expenses (total mobile traffic increasing 5.5% year-on-year). The lower mobile voice termination rate from 1st December and also lower activity in the fixed business were the main reasons behind the different year-on-year performance of this cost category in the fourth quarter vs. the full year. - Personnel expenses increase of 6.1% year-on-year to 465 million Euros. The increase in the fourth quarter was +16.3%, due to general increase in salaries from July 1st, the change in the mix of our employee base towards the commercial areas, overtime payment and higher level of activity across the business made towards the end of the year. - Other expenses decrease of 4.3% year-on-year (-7.1% in the fourth quarter) to 1,399 million Euros, with savings in administration expenses, bad debts and advertising compensating increases in network costs and higher commercial activity through partner channels. As a result, Operating Income before Depreciation and Amortization (OIBDA) reached 1,279 million Euros for the full year 2012 (+11.3% year-on-year; + 8.5% in the fourth quarter). OIBDA margin for 2012 was 24.5% (25.5% in the fourth quarter), a year-on-year increase of 1.7 and 1.8 percentage points, respectively. OIBDA excluding management fees totaled 1,351 million Euros in the January to December 2012 period (+10.8% year-on-year; +4.6% in the fourth quarter). OIBDA margins excluding management fees also showed a positive performance, reaching 25.9% as of 2012 (+1.7 percentage points, year-on-year) and 27.2% in the fourth quarter (+1.0 percentage points, year-on-year). The strong OIBDA performance in 2012 is the result of the increasing contribution from mobile data to the business, coupled with additional efficiencies in commercial and non-commercial areas, with performance in the fourth quarter mainly reflecting revenue trends and the annualization of the cost optimization program in 2011, with visible impacts in OIBDA performance in the second half of the year. Depreciation & Amortization amounted to 1,133 million Euros in 2012, a year-on-year increase of 4.7% (+6.0% in the fourth quarter), mainly driven by the amortization of LTE spectrum licenses that were acquired in 2010, but activated for commercial service in the second half of 2011, as well as purchased software and past investments made in the network. Operating income amounted to 146 million Euros in the January-December 2012 period (42 million Euros in the fourth quarter), which is a significant improvement over previous year's period at 67 million Euros (32 million Euros in the fourth quarter). Net financial expenses for 2012 were 6.1 million Euros, from a positive income of 6.0 million Euros in 2011. This was the result of the new capital structure of the Company from September 2012 onwards. Income Tax was positive by 168 million Euros for the full year 2012 as compared to the negative figure of 2.0 million Euros accrued in the same period of 2011, attributable to changes in deferred taxes driven by the additional recognition of tax losses carried forward. As a result, net profit from continuing operations for the year 2012 amounted to 308 million Euros, a significant improvement over the previous year at 71 million Euros. Total net profit (including results from discontinued operations) resulted in 1,335 million Euros (554 million Euros in 2011) as a result of the corporate restructuring activities performed prior to the listing of the Company at the end of October 2012. CapEx in the year 2012 amounted to 609 million Euros, an increase of 9.2% year-on-year (-15.4% in the fourth quarter), supporting future growth with accelerated investment in the development of the LTE network and increase of capacity in the 3G network, and with a different phasing of investments than in 2011. The perceived quality of the network continued to improve as it was shown, for example, in the recent Connect Netztest published in November 2012 with a second rank position in terms of voice quality and a third position in terms of mobile data quality. Operating Cash Flow (OIBDA-CapEx) increased 13.3% year-on-year to reach 670 million Euros, and this translated into Free Cash Flow pre dividends from continuing operations (FCF) of 674 million Euros in the January-December 2012 period (-3.3% year-on-year). Working capital contributed positively to FCF with 17 million Euros in 2012 (93 million Euros in 2011) as a result of the three silent factoring deals of 'O₂ My Handy' receivables executed in the fiscal year 2012. The Company did not pay taxes neither in 2012 nor 2011 and registered a collaterally provided security deposit in the amount of 15 million Euros in 2012 which will be released over time. Consolidated net financial debt stood at 842 million Euros at the end of December, 2012, resulting in a leverage ratio of 0.7x. APPENDIX - DATA TABLES Please refer to the following link to access the download of the data tables. Thank you. http://www.telefonica.de/data tables Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 23-25 80992 München Victor J. García-Aranda, Head of Investor Relations (t) +49 89 2442 1010 ir-deutschland@telefonica.com www.telefonica.de/investor-relations Disclaimer: The financial information contained in this document (in general prepared under International Financial Reporting Standards (IFRS)) contains in respect of the results for the financial year 2012 only preliminary numbers. The financial information and opinions contained in this document are unaudited and are subject to change without notice. None of the Company, its subsidiaries or affiliates or by any of its officers, directors, employees, advisors, representatives or agents shall be liable whatsoever for any loss however arising, directly or indirectly, from any use of this document its content or otherwise arising in connection with this document. 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 Market Regulator (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). The Company can offer 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, and shall take into account that the numbers published are only preliminary. Past performance cannot be relied upon as a guide to future performance. Except as required by applicable law, Telefónica Deutschland undertakes no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica Deutschland's business or acquisition strategy or to reflect the occurrence of unanticipated events. 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. Finally, it is stated that neither this presentation nor any of the information contained herein constitutes an offer of purchase, subscribe, sale or exchange, nor a request for an offer of purchase, subscription, sale or exchange of shares / securities of the Company, or any advice or recommendation with respect to such shares / securities. This document or a part of it shall not form the basis of or relied upon in connection with any contract or commitment whatsoever. These written materials are especially not an offer of securities for sale in the United States, Canada, Australia, South Africa and Japan. Securities may not be offered or sold in the United States absent registration under the US Securities Act of 1933, as amended, or an exemption there from. The issuer or selling security holder has not and does not intend to register any securities under the US Securities Act of 1933, as amended, and does not intend to offer any securities in the United States. No money, securities or other consideration from any person inside the United States is being solicited and, if sent in response to the information contained in these written materials, will not be accepted. End of Corporate News

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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: Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, Düsseldorf, Hamburg, München, Stuttgart End of News DGAP News-Service

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