Preliminary figures for January to March 2016:

Telefónica Deutschland starts new year with higher profits

  • Continued solid growth in OIBDA(1): 6.2 percent increase in first quarter
  • Mobile service revenues (MSR) down slightly in line with expectations
  • LTE customer base reaches 8.7 million
  • Growth in retail fixed broadband for the first time in almost five years
  • Sale of wireless towers to Telxius for EUR 587 million expands scope for investments
  • CEO Thorsten Dirks: "After a good start to the new year, we are now fully on track to meet our strategic and operational goals. We are maintaining our momentum in the market, pushing ahead with our integration and speeding up our transformation towards Germany's leading digital telco."

Telefónica Deutschland is fully on track after the first quarter of 2016. Operating income before depreciation and amortisation (OIBDA) rose 6.2 percent versus the already strong first quarter of 2015 to EUR 401 million. As expected, mobile service revenues (MSR) were down slightly by 1.3 percent to EUR 1.34 billion in a competitive market environment. At the same time, Telefónica Deutschland made further progress with the monetisation of the increasing data traffic. The number of LTE users increased substantially to 8.7 million. In the retail fixed broadband business, the company achieved the first increase in customers since the second quarter of 2011. To solidify the strong trend, Telefónica Deutschland made investments at the beginning of the year in the repositioning of O2 as its premium brand and the integration of the mobile networks and IT operations. The sale of approximately 2,350 wireless masts to the infrastructure company Telxius creates additional scope for investments in network quality and new growth areas. The implementation of this year’s integration and transformation projects will have a positive impact on business performance in the second half of this year and in the following years. The company reiterates its outlook for the current fiscal year.

"After a good start to the new year, we are fully on track to reach our strategic and operational goals," said Thorsten Dirks, the CEO of Telefónica Deutschland. "We are maintaining our momentum in the market, pushing ahead with our integration and speeding up our transformation towards Germany's leading digital telco." CFO Rachel Empey added: "Once again, we were able to improve our operating result through the ongoing capture of synergies. As announced, we plan to propose a cash dividend of EUR 0.24 per share at the annual general meeting on May 19 to ensure that our shareholders benefit from our steady progress."

Continued success in the mobile data business

In the first quarter of 2016, Telefónica Deutschland made substantial investments in major projects as part of the integration of E-Plus. In addition to the integration of networks and IT operations, this included the repositioning of O2 as the company’s premium brand. Despite these expenditures, OIBDA rose 6.2 percent to EUR 401 million, owing mainly to synergy effects from the rapid success in the integration process in the previous year. Including exceptional effects(2) , OIBDA for January to March stood at EUR 379 million (Q1 2015: 395 million). Mobile service revenue reached EUR 1.34 billion in the first quarter. The slight year-on-year decline of 1.3 percent was in line with expectations. It reflects the growing importance of the partner business as well as regulatory effects. Telefónica Deutschland remained focused on the development of the existing customer base and successfully expanded the mobile data business. Data usage among O2 postpaid-customers using LTE continued to benefit from the strong demand for music and video streaming services and increased 50% year-on-year to 1.2 gigabytes (GB) per month(3). The successful monetisation of data led to a 12.7 percent year-on-year increase in non-SMS mobile data revenue to EUR 550 million. Including SMS, mobile data revenue increased 5.4 percent to EUR 729 million. Handset sales were down slightly, slipping 5.5 percent year-on-year to EUR 267 million. This was in line with the overall market trend. Total fixed-line revenues in the quarter were EUR 253 million (Q1 2015: EUR 261 million). Total revenue in the first three months amounted to EUR 1.86 billion (Q1 2015: EUR 1.9 billion).

LTE demand continues strongly

The total amount of customer accesses rose 1.2 percent versus Q1 2015 to 48.3 million. The mobile access base increased 2 percent to 43.0 million. Through the end of March, the number of postpaid customers jumped 349,000 to 19.3 million year-on-year. Compared with the previous quarter, the increase was 181,000. In the prepaid segment, Telefónica Deutschland ended the quarter with 23.7 million customers (Q1 2015: 23.3 million). Thanks to the continuing strong demand for LTE, smartphone penetration(4) increased by 5.6 percentage points to 55.4 percent from Q1 2015 across all brands. The number of Telefónica Deutschland customers using LTE-enabled devices and the matching tariffs reached 8.7 million. This represents an increase of 69 percent as compared with the same period a year earlier, and a 10.2 percent gain since the end of December. There were 5.2 million fixed-line accesses at the end of March. With an increase of 3,000 accesses versus December 31, the retail fixed broadband business posted its first quarterly gain since mid-2011. As a result, the number of retail DSL accesses stabilised at 2.1 million at the end of March. At the end of 2015 there were already around 5 million private households with technical access to ultra-fast VDSL connections from Telefónica Deutschland. This number is set to increase to about 10 million by the end of 2016.

Unified network to be implemented from the second half of the year

To further bolster its position in the market, Telefónica Deutschland enhanced its offering for customers in the first quarter. The consistent focus on O2 as its premium brand represents a significant step in the integration of E-Plus into the company’s brand and tariff portfolio. In mid-January the company launched its new O2 shop concept to offer customers an even more realistic experience of the digital world. Since February, new prepaid customers of O2 have also had access to the LTE network. Starting in March, the distinction between the O2 and E-Plus networks for billing telephony and messaging was abolished, eliminating potential additional costs for customers. Following the countrywide implementation of 3G national roaming in 2015, the physical migration of the O2 and E-Plus networks started in January. At the same time, the company continues to expand both coverage and throughput of its LTE network. The 4G networks of Telefónica Deutschland and E-Plus will be integrated starting in summer. Already, the company’s network as a whole is at eyes level with that of its competitors, according to Connect “Netzwetter”, a customer perception-based test of mobile data usage in 3G and 4G. Telefónica Deutschland is making further progress regarding its previously announced plan to cut 1,600 positions by 2018, after half of the program was complete by the end of 2015. The company has reached an agreement with the works councils to provide clarity to employees regarding the reduction of another 500 full-time positions under the existing social plan. Telefónica Deutschland consequently pursues its strategy to become Germany's leading digital telco and is moving ahead in the new business segments Advanced Data Analytics and Internet of Things. Since February, the company has been using advanced data analytics to help with its network expansion. This makes it easier to take customer requirements into account during the network planning process. At CeBIT fair the company presented numerous innovations in the area of machine-to-machine (M2M) communication. In the coming weeks, Telefónica Deutschland will unveil O2 Banking, Germany’s first mobile-only bank account, which was developed in cooperation with Fidor Bank AG.

Sale of mobile telecommunication masts to Telxius

In April, Telefónica Deutschland capitalised on the favourable market valuation of network infrastructure to sell about 2,350 wireless towers to Telxius, a subsidiary of Telefónica S.A. The sale does not affect the transmission equipment mounted on the masts. The cash proceeds of EUR 587 million provides added flexibility to make investments in network quality and new growth segments. The transaction has no impact on the synergy targets announced at the time of the merger with E-Plus. For the first three months of 2016, Telefónica Deutschland recorded a net result of minus EUR 170 million. This is the result of ongoing depreciation and amortisation charges in the course of the integration of E-Plus and network consolidation. As expected, these expenses still exceeded OIBDA. CapEx totalled EUR 218 million, remaining near the level of the year-earlier period (minus 1.2 percent). Spending will increase over the course of the year as planned. Free cash flow(5) (FCF) for the first quarter of 2016 reached minus EUR 20 million. Consolidated net financial debt(6) stood at EUR 1.27 billion at the end of March 2016, maintaining a leverage ratio of 0.7.

2016 business outlook reaffirmed

In the current financial year, Telefónica Deutschland will continue on its path to become Germany's leading digital telco. It will focus on a range of large projects such as network and IT integration and the positioning of O2 as a premium brand. Over the course of the year, the focus will move increasingly from integration to digital transformation. After the successful first quarter, Telefónica Deutschland reaffirms outlook for the current fiscal year.

1) Excluding exceptional effects; as of 31 March 2016 these include restructuring expenses amounting to EUR 23 million while the first quarter of 2015 saw a one-off gain from the sale of yourfone GmbH. 2) Exceptional effects as of 31 March 2016 include restructuring expenses amounting to EUR 23 million, while the first quarter of 2015 saw a one-off gain from the sale of yourfone GmbH. 3) Average data monthly usage (in GB) of O2 customers with LTE-enabled smartphones (all tariffs). 4) Defined as the number of active data tariffs over total mobile customer base excluding M2M and data-only access. 5) 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. 6) Net financial debt includes current and non-current interest-bearing financial assets and interest-bearing liabilities as well as cash and cash equivalents and excludes payables for the spectrum auction. 7) Excluding spectrum investments