DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases first half 2013 preliminary results

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Half Year Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases first half 2013 preliminary results 23.07.2013 / 07:54

23rd July 2013 Telefónica Deutschland releases first half 2013 preliminary results MUNICH. Telefónica Deutschland financial and operational performance in the first half of the year reflects the consistent execution of its strategy in a more complex competitive environment, with a significant impact in the top line from mobile termination rate cuts. The Company is very well positioned to lead the market in the transition process to better address a data-centric, digitally oriented customer base in order to create new business opportunities through a more agile and lean organisation. 'Amidst increased competition in the market, we are already seeing strong early indicators of improved monetisation of data services, with the next generation of high-speed services beginning to get traction', said René Schuster (CEO), and Rachel Empey (CFO) added 'Our performance in the first half of the year reflects the overall transition process that this Company is driving to sustain profitable growth in the future'. Second quarter operational and financial highlights: - Net additions in mobile postpaid at 60 thousands, reflecting the continuation of trends seen in previous quarters with increased focus on retention and customer base in the market. Telefónica Deutschland also traded well in this environment with a lower year-on-year and quarter-on-quarter churn rate of 1.3% and increased smartphone penetration (+14 p.p. year-on-year to 67% in core mass market postpaid O₂ brand). - Mobile prepaid had a strong performance relative to previous quarters, with positive net additions of 27 thousands, already reflecting increased demand for smartphone tariffs from customers in this segment (+5 p.p. year-on-year to 14% in core mass market prepaid O₂ brand smartphone penetration). - Successful management of tariff renewals from customers after contract expirations with the new O₂ Blue All-in portfolio, with improved data monetisation metrics. - Improved retail fixed broadband disconnections at 40 thousands in the second quarter. In the VDSL-available regions ca. 28% of new customers are taking the VDSL 'Speed' option. - Wireless service revenues declined 1.3% year-on-year , which is a continuation of recent trends. Mobile data revenues continued being the main growth lever for the business, with non-SMS data revenues accelerating growth to 24.6% year-on-year. - Stable OIBDA margin performance at 24.2% (-0.3 percentage points, year-on-year). This performance reflects both the positive contribution from mobile data services and focused commercial spend to improve the quality of the customer base and additional efficiencies across different units. - LTE network available in the High Speed metropolitan areas at the end of the quarter, with top quality connectivity service ready for most of our O₂ mass market postpaid customer base, anticipating increasing demand for speed and volume in the medium term. - Strong Free Cash Flow pre dividends year-on-year increase to 345 million Euros. Net financial debt position at the end of June 2013 was 940 million Euros (leverage ratio of 0.7x). Telefónica Deutschland's operating performance: At the end of June 2013, Telefónica Deutschland had 25.3 million customer accesses, a year-on-year increase of 0.7%. Mobile accesses continued showing growth at 3.1% year-on-year to 19.4 million. Main commercial highlights for the second quarter of 2013 include: - New O₂ Loop smart and Fonic smart S prepaid tariffs, including very attractive 200 Mb data packages from just 9.99 Euros/month. - LTE network deployment in all high speed metropolitan areas already completed, improving the attractiveness of the O₂ Blue All-in L and XL packages (top LTE speed, multi SIM and multi-Gb capacity from 39.99 Euros/month). - O₂ Kombi-Vorteil refresh into a broader and progressive fixed-mobile convergent proposition, mainly addressed to digital households demanding seamless connectivity services and excellent customer service. In the second quarter of 2013, the German mobile market continued to show a high commercial activity level around postpaid smartphone tariffs. Retention activities in the high end segment and a very dynamic discount/no-frills segment continued in the quarter, with an increased relevance of indirect online channels. As a result, postpaid mobile net additions in the quarter were 60 thousand, and total postpaid base reached 10.3 million customers (+5.6% year-on-year). The mobile prepaid segment registered 27 thousand net additions in the second quarter of 2013, mainly reflecting positive trends from second brands (Fonic, Tchibo, Türk Telekom) and increased adoption of prepaid smartphone tariffs that more than compensated strong competition and migration to all-in postpaid propositions. Prepaid customer base reached 9.2 million at the end of June 2013 (+0.4% year-on-year). Customer mix improved over the year, with growth in postpaid customer base penetration over total mobile base of 1.3 percentage points, year-on-year, to 53%. Blended churn in the second quarter remained flat over the previous year at 2.1%, with continued good performance of postpaid churn at 1.3% (-0.1 percentage points, year-on-year), which is a reflection of the successful management of our high value customer base, including retention and focused tariff migration activities. Smartphone penetration reached 29% at the end of June 2013, a continued improvement of 6 percentage points over the previous year. In the specific segment of O₂ branded consumer postpaid, smartphone penetration reached 67%; +14 percentage points year-on-year, with also a positive progression in the O₂ branded consumer prepaid segment of 5 percentage points to 14%. The adoption of LTE-enabled handsets from our new and existing customers is increasing (approximately 40% of total sales in the second quarter), which is an encouraging trend for further data monetisation. Mobile ARPU, excluding the impact from mobile termination rate cut from December 2012, declined 4.5% year-on-year to reach 13.3 Euros in the second quarter of 2013 (-8.4% year-on-year to 12.7 Euros in reported terms). Postpaid ARPU, excluding mobile termination rate cuts, declined 6.9% year-on-year to reach 20.2 Euros in the second quarter (-10.4% to 19.5 Euros in reported terms). The year-on-year decline was mainly the result of the ongoing process of long-term contract renewals within the customer base to lower market pricing levels and the general market trend of traditional SMS usage substitution by social media and messaging applications (mostly affecting incoming revenues). After the launch of the new O₂ Blue All-in tariff portfolio at the beginning of March 2013, the mix of adoption from new customers and tariff renewals continued its positive progression relative to the previous portfolio, with 'O₂ Blue All-in M' being the most contracted tariff. Retail fixed broadband accesses declined by 40 thousand in the second quarter of 2013, a continued improvement over the previous quarters which shows the increased traction of demand for speed amongst customers. In regions where VDSL is available, ca. 28% of gross additions in retail broadband during the second quarter were taking the VDSL 'Speed' option. On the other hand, wholesale broadband accesses registered positive net additions of 14 thousand in the quarter. Telefónica Deutschland's financial performance: Telefónica Deutschland's revenues reached 2,445 million Euros in the first half of 2013, a 4.2% year-on-year decline (-1.9% excluding mobile termination rate cuts from December 2012). Revenues in the second quarter were 1,216 million Euros, a decline of 6.2% over the same period of last year (-3.8% excluding mobile termination rate cuts). Wireless service revenues amounted to 1,481 million Euros in the first half of 2013 (-4.3% year-on-year; -0.4% excluding mobile termination rate cuts), while in the second quarter they amounted to 748 million Euros (-5.2% year-on-year; -1.3% excluding the impact from mobile termination rate cuts). The postpaid segment was the biggest driver for the year-on-year performance of wireless service revenues. The main factors behind this performance were, on the one side, the different trading activity seen vs. same period 2012, and on the other, the increase of tariff renewals in the base and the lower contribution to revenues from incoming SMS traffic due to customer behaviour change. Relative to the first quarter of 2013, the second quarter saw a less positive contribution from trading that did not fully offset the lower sequential negative impacts from tariff renewals and incoming SMS revenues. Mobile data continued to be the main driver for revenue performance, reaching 714 million Euros in the first half and 359 million Euros in the second quarter (+5.0% and 4.5% year-on-year, respectively). As a result of the continued increase of smartphone-centric tariffs in the base, non-SMS data revenues accelerated in the second quarter to 24.6% year-on-year, 3.6 percentage points higher than associated growth in data traffic, resulting in a ratio of non-SMS data over total data revenues of 65.4% in the second quarter, 10.5 percentage points above the same period of last year. Handset revenues, mainly through 'O₂ My Handy' distribution model, reached 335 million Euros in the first half of 2013, an increase of 9.2% year-on-year. The different performance seen in the second quarter (-3.8% year-on-year) compared to the first quarter (+23.5% year-on-year) is due to the inherent seasonality of handset sales during the year. Wireline revenues stood at 626 million Euros in the first half of the year (-10.2% year-on-year), with 311 million Euros in the second quarter (-9.6% year-on-year), which is a continuation of the impacts from a lower retail DSL base and further reduction of revenues from the low margin voice transit business. Operating expenses in the January-June 2013 period amounted to 1,911 million Euros, a year-on-year decrease of 3.8% (-5.0% in the second quarter to 944 million Euros). Main drivers for expenses evolution were: - Decline in supplies of 5.2% year-on-year to 974 million Euros (-9.4% in the second quarter), driven by a reduction in mobile voice and SMS interconnection expenses (voice rates were cut in December, 2012) and the lower costs associated with the fixed business. Quarter-on-quarter performance was mainly due to lower handset sales in the second quarter. - Personnel expenses increase of 0.6% year-on-year to 208 million Euros (+0.5% in the second quarter) as a result of the general increase in salaries from July, 2012 compensated by different year-on-year phasing of variable payroll expenses. - Other expenses decrease of 3.1% year-on-year to 729 million Euros (-0.4% in the second quarter), mainly leveraging reductions in bad debt provisions and commercial costs that are compensating increases in network and customer care expenses. Quarter-on-quarter performance was mainly due to higher commercial costs in wireless, as customer base management activities increased in the second quarter. Operating Income before Depreciation and Amortisation (OIBDA) reached 572 million Euros in the first half of 2013 and 294 million Euros in the second quarter (-4.1% and -7.2% year-on-year, respectively). OIBDA margin was flat year-on-year in the first half at 23.4%, with a slight year-on-year decline of 0.3 percentage points in the second quarter to reach 24.2%. OIBDA excluding management fees totaled 603 million Euros in the January to June 2013 period (-4.0% year-on-year; -7.2% in the second quarter). OIBDA margin excluding management fees was flat year-on-year in the first half to reach 24.7% (-0.3 percentage points to 25.5% in the second quarter). The year-on-year OIBDA performance was mainly influenced by revenue evolution and focused spend in growth-related areas, partially compensated by evolution of direct costs (such as mobile termination and handset costs) and additional efficiencies from ongoing transformation of the business to a more data-centric and agile organisation. Depreciation & Amortisation in the first half of 2013 amounted to 566 million Euros (286 million Euros in the second quarter), a year-on-year increase of 3.4% (+2.5% in the second quarter), mainly driven by the increased trend of investments in the network. Operating income amounted to 6 million Euros in the January-June 2013 period (49 million Euros in the previous year), while in the second quarter it was 8 million Euros (38 million Euros in the previous year). Net financial expenses result in the first half of 2013 were -16 million Euros (-5 million Euros in the second quarter), from a positive income of 4 million Euros in the previous year (+2 million Euros in the second quarter of 2012). This was the result of the new capital structure of the Company from September 2012 onwards. As a result of the above and a nil Tax expense in the quarter, net profit from continuing operations in the first half of 2013 was negative in 10 million Euros (+3 million Euros in the second quarter), which compares with a positive figure of 55 million Euros in the same period of the previous year (+40 million Euros in the second quarter of 2012). CapEx in the first half of 2013 amounted to 296 million Euros, an increase of 9.4% year-on-year, supporting future growth with accelerated investments in the development of the LTE network. At the end of June, LTE is available in the High Speed metropolitan areas and ready to support the upcoming acceleration of demand for speed and capacity foreseen amongst smartphone users. Operating Cash Flow (OIBDA-CapEx) reached 276 million Euros in the first half of 2013, a year-on-year decline of 15.4%, and this translated into Free Cash Flow pre dividends from continuing operations (FCF) of 345 million Euros (from 152 million Euros in 2012). This was the result of an improved working capital contribution of 267 million Euros amongst others caused from a silent factoring transaction in June. The Company did not pay income taxes either in the first half of 2013 nor in the same period of 2012, registered a net interest payment of 10 million Euros (3 million Euros income in the first half of 2012) and a collaterally provided security deposit in the amount of 12 million Euros which will be released over time. Consolidated net financial debt stood at 940 million Euros at the end of June 2013, 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/page/18156/q2-2013.html Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 23-25 80992 München Victor J. García-Aranda, Head of Investor Relations Marion Polzer, Manager Investor Relations Pia Hildebrand, Office Coordinator 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 January - June 2013 period 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 document 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 TecDAX End of News DGAP News-Service

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