DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases first quarter 2014 results

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Preliminary Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases first quarter 2014 results 08.05.2014 / 07:31

May 8, 2014 Telefónica Deutschland releases preliminary results for January to March 2014 MUNICH. In the first quarter of 2014, the German mobile market remained very dynamic and competitive, with a strong focus on LTE from core network brands. Against this background, Telefónica Deutschland continued executing its strategy of monetising data, leveraging a strong set of assets and brands. "With the refresh of our "O₂ Blue All-in" portfolio for the consumer segment and the launch of "O₂ Unite" for SMEs we have again successfully demonstrated that Telefónica Deutschland remains at the forefront of data monetisation in the German mobile market", said Rachel Empey (CFO). With regards to the planned acquisition of E-Plus by Telefónica Deutschland, CSO Markus Haas stated: "We are building a strong foundation on data monetisation today and with the planned integration of E-Plus, German consumers will benefit from a faster and accelerated 4G network roll out and more innovative and attractive offers for all segments in the market." First quarter 2014 operational & financial highlights: - Net additions in the mobile postpaid segment at 78 thousand compared to 30 thousand net disconnections registered in the previous quarter. - Smartphone penetration continued its positive trend reaching 32.8% (70.7% in the O₂ consumer postpaid segment and 21.2% in the O₂ consumer prepaid segment) with an encouraging share of LTE-enabled devices sold over total (approx. 78%). - Fixed broadband business further improving its operating performance, with 18 thousand retail DSL net disconnections (vs. -22 thousand in the fourth quarter and -29 thousand in the third quarter of 2013, respectively), reflecting the success of the new "O₂ DSL All-in" portfolio and increased demand for higher speeds on VDSL technology. - Telefónica Deutschland total revenues totalled 1,122 million Euro (-8.8% year-on-year), driven by a continuation of trends in mobile and fixed service revenues and declining handset revenues. - Wireless service revenue excluding the impact from mobile termination rate cuts decreased by 3.4% year-on-year (-3.6% year-on-year in reported terms), a similar performance as in the previous quarter, with increasing LTE adoption in the postpaid segment being offset by the impact from tariff renewals to lower price levels, acceleration of SMS declines and lower performance of the prepaid segment. - OIBDA margin showed a moderate decline (-1.8 percentage points year-on-year), mainly driven by increased commercial spend to drive commercial performance. OIBDA reached 234 million Euro, a decline of 15.8% year-on-year. - CapEx was lower year-on-year by 9.3%, totalling to 132 million Euro, reflecting the focused investments into LTE network deployment and a different year-on-year phasing of investments. - Free Cash Flow pre dividends (FCF) reached 107 million Euro (from 105 million Euro in 2013), with silent factoring transactions playing a major role in the positive evolution of working capital in both years. - Consolidated net financial debt increased moderately by 13 million Euro to 481 million Euro at the end of March 2014, reaching a leverage ratio of 0.4x. Telefónica Deutschland's operating performance At the end of March 2014, Telefónica Deutschland had 25.0 million customer accesses, a year-on-year decrease of 1.3%. The mobile access base remained stable year-on-year at 19.3 million, while fixed line accesses declined by 4.6% year-on-year to 5.7 million. Main commercial highlights for the first quarter of 2014 include: - On March 25, the Company announced a complete refresh of its "O₂ Blue All-in" portfolio, including access to LTE in all tariffs and attractive data roaming packages starting April 8, plus the introduction of the "O₂ Blue All-in Premium" - a carefree tariff for high usage customers. Attractive bundles with the latest LTE enabled smartphones complete the new offer, which is already gaining traction in the market. - Launch of a revolutionary new proposition for the business segment from March 10: "O₂ Unite", a single tariff proposition with a pool of minutes, SMS and data volume that can be shared by all employees of the firm with an easy to use self-management digital interface. - New "O₂ DSL" high-speed offers for young people (O₂ DSL Young), families (O₂ DSL All-in), and self-employed (O₂ DSL Professional) available from March 13, extending VDSL into tariffs specifically tailored to new customer segments. The NGA cooperation with Telekom Deutschland GmbH allows Telefónica Deutschland to reach almost 15 million households all over Germany with speeds of up to 50 Mbit/s. Postpaid mobile net additions in the first quarter of 2014 were 78 thousand, compared to the negative figure reported in the previous quarter (-30 thousand ) with an improving trend of gross additions on the back of increased commercial investments. Total postpaid base increased to 10.4 million customers (+1.6% year-on-year) and its share over total mobile base grew by 1.0 percentage points year-on-year, to reach 53.8%. The mobile prepaid segment registered 204 thousand net disconnections in the quarter driven by the O₂ consumer segment, main reasons being disconnection of inactive customers and more targeted acquisitions across channels. Prepaid customer base declined by 2.3% year-on-year to reach 8.9 million at the end of March 2014. Blended churn in the first quarter was stable year-on-year at 2.4%. Postpaid churn excluding M2M stood at 1.6% (+0.1 percentage points, year-on-year) reflecting the intense competition seen in the German mobile market. Smartphone penetration reached 32.8% at the end of March 2014, an improvement of 5.0 percentage points over the previous year. In the specific segment of O₂ consumer postpaid, smartphone penetration reached 70.7%; +5.7 percentage points year-on-year. In the prepaid segment, penetration further improved to 21.2% in O₂ consumer segment (+8.0 percentage points year-on-year) and 28.4% in Fonic (+15.2 percentage points year-on-year). The share of LTE-enabled handsets as a percentage of total handsets sold, stood almost stable compared to prior quarter at 78%, with the overall number of LTE-enabled handsets sold to customers in the O₂ consumer postpaid segment having exceeded the mark of 1 million at the end of April. Mobile ARPU in the first quarter of 2014 was 12.1 Euro, a decline of 3.3% year-on-year (-3.1% excluding the impact from mobile termination rate cuts). Postpaid ARPU excluding M2M4 declined 5.0% year-on-year to 18.5 Euro (-4.8% excluding mobile termination rate cuts), showing a better year-on-year performance over previous quarters. The positive contribution from new customers driven by the uplift in LTE and the increasing data consumption did not yet offset the impact from the repositioning of the current customer base and the acceleration of declines of SMS usage. The ARPU performance is further impacted by the increasing usage of discounted online channels from our customers and a stronger commercial focus on selective bundles of handsets with tariffs from the "O₂ Blue All-in" portfolio. Prepaid ARPU reached 5.0 Euro in the first quarter, an increase of 0.4% year-on-year excluding the impact from mobile termination rate cuts. The higher adoption of data tariffs from prepaid customers is offsetting the reduction of traditional voice and messaging services which also applies to this segment. Retail fixed broadband accesses continued the improving trend over prior quarters, declining by 18 thousand in the first quarter (-22 thousand in the last quarter of 2013), leveraging the increased demand for the VDSL speed option and the good acceptance of the new "O₂ DSL All-in" portfolio, leading to lower churn. Wholesale broadband accesses registered net additions of 3 thousand in the quarter. Telefónica Deutschland's financial performance Telefónica Deutschland's revenues totalled 1,122 million Euro in the first quarter of 2014, a year-on-year decline of 8.8% (-8.7% excluding the impact from mobile termination rate cuts). Wireless service revenues reached 707 million Euro , declining 3.4% year-on-year excluding the impact from mobile termination rate cuts (-3.6% in reported terms), a similar performance to the previous quarter. The O₂ consumer segment continued to be the main driver: continuous decline of SMS usage, lower trading momentum for new customers and declining prices for tariff renewals in the postpaid base added to the negative year-on-year performance seen in the prepaid segment from a lower customer base. The share of bundled revenues over total wireless service revenues in the first quarter continued to grow by 7 percentage points year-on-year to reach 68% in the specific O₂ consumer postpaid segment. Mobile data continued to be a main driver for revenue performance, reaching 350 million Euro in the first quarter, with the accelerated decline of SMS revenues (-24.6% year-on-year) being the reason for an overall decline of data revenues of 1.3% year-on-year. Non-SMS data revenues registered growth of 12.1% year-on-year in the first quarter, representing 72.0% of total data revenues in the quarter, an increase of 8.6 percentage points compared to prior year. Handset revenues, mainly through "O₂ My Handy" distribution model, reached 120 million Euro in the first quarter of 2014, a decline of 33.2% year-on-year, mainly driven by overall lower volumes of handsets sold and selective hardware campaigns. Wireline revenues reached 293 million Euro in the quarter, already showing a better sequential trend (-7.0% year-on-year, vs -9.2% in the previous quarter), reflecting a lower retail DSL base which is partly mitigated by the uptake of VDSL. Operating expenses amounted to 909 million Euro, a year-on-year decrease of 6.1% year-on-year. This performance was mainly driven by: - Decline in supplies of 14.8% year-on-year to 427million Euro in the first quarter as a result of lower handset sales and lower termination cost from outgoing SMS. - Personnel expenses increased by 2.8% year-on-year to 108 million Euro as a consequence of general increases in salaries from July 2013. - Other expenses increased by 3.5% year-on-year to 373 million Euro mainly driven by the increase in both mobile acquisition and retention cost from intensified commercial activities. Operating Income before Depreciation and Amortisation (OIBDA) totalled 234 million Euro in the first quarter of 2014 (-15.8% year-on-year). OIBDA margin was down 1.8 percentage points year-on-year to 20.9%, a largely stable year-on-year performance relative to the underlying performance in the previous quarter. OIBDA excluding group fees reached 251 million Euro in the quarter (-14.6% year-on-year) with an OIBDA margin of 22.3% (down 1.5 percentage points year-on-year). The year-on-year OIBDA performance was driven by the negative flow-through effect from service revenues as well as focused commercial investments to gain trading momentum, including selected offers with discounted devices. Depreciation & Amortisation in the first quarter 2014 totalled 267 million Euro, a decrease of 4.7% year-on-year, driven by the year-on-year impact of full depreciation of assets, mainly within the software category. Operating income amounted to -33 million Euro in the first quarter of 2014, compared to -2 million Euro in the same period of prior year. Net financial result as of March 31, 2014 stood at -8 million Euro (-11 million Euro in the previous year). In the first quarter of 2014 the Company registered a positive income from prior year income taxes of 14 thousand Euro (18 thousand in the previous year). Profit for the period in the first quarter 2014 was -40 million Euro compared to -13 million Euro in the same quarter of previous year. CapEx was lower year-on-year by 9.3%, totalling to 132 million Euro, reflecting the focused investments into LTE network deployment and a different year-on-year phasing of investments. LTE outdoor coverage already reached approximately 50% mark at the end of April, 2014. Operating Cash Flow (OIBDA minus CapEx) reached 102 million Euro in the first quarter of 2014 compared to 133 million in the same period of 2013. Free Cash Flow pre dividends (FCF) reached 107 million Euro (from 105 million Euro in 2013). The conversion from Operating Cash Flow to FCF was the result of a positive working capital development of 17 million Euro, with silent factoring transactions executed in both years having a major role. In 2014 the Company registered a net interest payment of 4 million Euro (4 million Euro also in the same period of prior year) and a contribution to a term deposit in the amount of 8 million Euro which will be released over time. The Company did not pay income taxes neither in the first quarter of 2014 nor in the same period of 2013. Consolidated net financial debt at the end of March 2014 increased moderately from December 2013 by 13 million Euro to 481 million Euro due to a 500 million second Eurobond issuance in February 2014. The effect was largely compensated by an increase in liquidity of 477 million Euro, while financial assets declined by 116 million Euro mainly due to lower "O₂ My Handy receivables". The Company further early redeemed 125 million Euros of its inter-company loan. The leverage ratio remained constant at 0.4x. Telefónica Deutschland continued its successful positioning in the debt capital market and achieved a very attractive funding and spread levels, with a 2.375% coupon in the 7-Year issuance in February. This transaction strengthened the Company's liquidity position, extending its maturity profile while diversifying its investor base. APPENDIX - DATA TABLES Please refer to the following link to access the download of the data tables. Thank you. https://www.telefonica.de/investor-relations-en/financial-reports/q1-2014.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 - March 2014 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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