Full year 2013 financial results:Telefónica Deutschland continues to focus on data monetisation

At the end of December 2013, Telefónica Deutschland had 25.2 million customer accesses. The mobile access base grew slightly to reach 19.4 million. The total postpaid base reached 10.3 million customers and the prepaid customer base 9.1 million at the end of December 2013. In the last year Telefónica Deutschland continued to monetise data successfully with mobile data revenues including SMS of 1,443 million Euro, representing an increase of 3.7% year-on-year. Non-SMS data revenues registered growth of 21.7% in the full year 2013. SMS contributed only 33.5% to total data revenues. The growth in mobile data is also reflected in the continued intensive use of smartphones by the customers. As a consequence, smartphone penetration reached 31.4% at the end of December 2013, an improvement of 5.0 percentage points over the previous year. In the specific segment of O₂ consumer postpaid, smartphone penetration reached 68.8%. The adoption rate of LTE-enabled handsets from new and existing customers showed a remarkable improvement to make up approximately 80% of total sales in the fourth quarter, which is a leading indicator for further monetisation of mobile data. Telefónica Deutschland's revenues reached 4,914 million Euro in 2013, a 5.7% year-on-year decline (-3.5% excluding the impact from mobile termination rate cuts). Similarly, wireless service revenues showed a continuation of the market trends and amounted to 2,989 million Euro in 2013 (-5.2% year-on-year; -1.5% excluding the impact from mobile termination rate cuts). Wireline revenues stood at 1,235 million Euro in 2013 (-9.4% year-on-year), mainly resulting from a lower retail DSL base (mitigated by an increasing uptake of VDSL) and a stable evolution of the retail DSL ARPU. This revenue line was also impacted by a further reduction of revenues from the low margin voice transit business.

The Operating Income before Depreciation and Amortisation (OIBDA) declined in the last year and reached 1,237 million Euro (-3.3% year-on-year). OIBDA margin was up 0.6 percentage points year-on-year in 2013 to 25.2% (-0.9 percentage points to 23.6% excluding capital gains from the sale of assets). The year-on-year OIBDA performance was mainly due to an increase in commercial investments focused on mobile customer base retention activities and specific promotions on devices attached to high value tariffs. This added to the negative flow-through effect from revenues to results. Telefónica Deutschland continued to invest in its technology capability for the future, which is reflected in a rise in CapEx (+9.4% year-on-year) to 666 million Euro. The company focused on supporting future growth with accelerated investments in the development of the LTE network in urban and suburban areas where most O₂ customers live. In total, the LTE network coverage exceeded 40% of the total German population in 2013. Operating Cash Flow (OIBDA-CapEx) reached 571 million Euro in the full-year 2013. Underlying performance of 2013 Operating Cash Flow (excluding capital gains) was -26.2% year-on-year. Despite the downward trend in Operating Cash Flow the Free Cash Flow pre dividends from continuing operations (FCF) developed positively and amounted to 699 million Euro. The strong conversion from Operating Cash Flow to FCF was the result of a positive working capital development of 132 million Euro. The acquisition process of E-Plus is proceeding. The company reached a further important milestone with the approval of the capital measures for the acquisition at the extraordinary general meeting on 11 February 2014. Nevertheless, the merger still needs to be approved by the European Commission. Telefónica Deutschland expects the closure of the transaction by mid-2014. Additional data are available in our investor relations section on www.telefonica.de.