Interim statement for the third quarter of 2020 of Telefónica Deutschland / O2:Revenue and operating result increase slightly
- Telefónica Deutschland / O2 increases revenue and operating result slightly during economic downturn
- Successful completion of Telxius transaction leads to extraordinary effect of 407 million euros and first positive net result since 2016
- Number of mobile postpaid accesses grows by 308,000, in particular thanks to strong demand for tariffs of the core brand O2
- Investments of 251 million euros primarily in the network: Almost 6,000 4G stations installed since the beginning of the year – 5G launched
- Financial outlook for the full year 2020 is confirmed
- CEO Markus Haas: "We have once again delivered a robust performance in the third quarter. Our core business is proving to be very resilient in the midst of an overall economic downturn. We are confident that we will achieve our targets for the full year, which we had already set ourselves before the outbreak of the pandemic.“
The business of Telefónica Deutschland / O2 performed well in the third quarter. Thanks to high customer interest, especially in mobile tariffs of the core brand O2 and fixed-network offers, the company was able to slightly increase revenue and its operating result (OIBDA). In the mobile business, a positive seasonal development in the demand for prepaid tariffs could be seen in addition to a strong development in the number of postpaid accesses. The company is thus on track to achieve the targets it has set itself for the year as a whole. “We have once again delivered a robust performance in the third quarter,” said Markus Haas, the company’s chief executive officer. “Our core business is proving to be very resilient in the midst of an overall economic downturn. We are confident that we will achieve our targets for the full year, which we had already set ourselves before the outbreak of the pandemic.”
Continued strong growth in mobile accesses
In the past three months Telefónica Deutschland / O2 recorded strong customer growth in mobile communications. Since the beginning of July, the number of mobile phone contract accesses (postpaid) increased by 308,000, mainly due to the demand for O2 tariffs. In addition, the churn rate was at a historically low level of 1.4 percent per month on average. For the O2 brand, the churn rate was even lower at 1 percent. This development is due, among other things, to a continuing improvement in customer satisfaction with regard to network quality and service. Significant growth was also recorded in the business customer segment. The prepaid business also saw high demand for seasonal reasons and growth for the first time in 15 months. The number of these connections increased by 208,000 in the past quarter. In total, the number of mobile accesses grew to 44 million, of which 42.7 million were used by people. Measured purely by numbers, every other person in Germany thus uses the O2 network. Growth also continued in the fixed network. Fast VDSL connections in particular met with great interest. Their number increased by 33,500. A total of 2.25 million customers used broadband fixed network offers from O2, which corresponds to an increase of 2.7 percent compared to the same quarter last year.
Revenue growth driven by O2 tariffs and fixed network
Revenues of Telefónica Deutschland / O2 increased slightly by 0.4 percent to 1.87 billion euros in the third quarter. Even during the pandemic, revenues from mobile services remained at the same level as in the same quarter of the previous year at 1.36 billion euros. Revenue from terminal equipment decreased by 2.1 percent to 311 million euros as some new model generations were launched later than in the previous year. Sales of fixed-network products increased by 6.7 percent to 198 million euros compared with the third quarter of 2019. The company was thus able to compensate for the negative effects of the COVID-19 crisis amounting to 30 million euros, which mainly resulted from the continued restrictions on international roaming, while still posting higher revenues. Without these effects, mobile service revenue would have increased by 2.0 percent in the quarter.
Operating result rises thanks to profitable business segments
OIBDA adjusted for exceptional effects increased by 0.8 percent to 595 million euros in the third quarter. This was due to the higher share of high-margin O2 mobile communications products as part of total revenue as well as efficiency improvements in the operating business. Without the restriction of international travel due to the COVID-19 pandemic, adjusted OIBDA would have been 23 million euros higher. Net income for the third quarter was 390 million euros. This is the first time since the second quarter of 2016 that the company has reported a quarterly profit. The main reason was a one-time effect from proceeds from the sale of the first tranche of rooftop sites to infrastructure provider Telxius, which was completed at the beginning of September 2020 amounting to 407 million euros. The negative net results of the past have mainly been due to depreciation and amortisation on mobile communications frequencies acquired years ago and to scheduled depreciation and amortisation from the merger with E-Plus. A significant portion of these effects expire at the end of 2020.
Important steps on the way to the network infrastructure of the future
Investments from July to September amounted to 251 million euros, an increase of 0.3 percent over the second quarter. The investment ratio, i.e. capital expenditures in relation to revenue, was 13.2 percent after nine months. Investments in the further expansion of 4G continue to be high. Around 6,000 4G stations have been installed since the beginning of the year, putting the company on track to meet the Federal Network Agency's expansion obligations by the end of the year. On 3 October, O2 launched its 5G network, which will initially operate in 15 cities. By the end of 2021, more than 30 percent of the population should be able to benefit from the new mobile communications technology. By 2025, coverage of the entire country is planned. In recent months, the company has also reached significant agreements to expand its infrastructure portfolio, thus laying the foundation for future growth: In November, the marketing of cable connections on the Vodafone network will start. An agreement reached in October with Deutsche Telekom ensures long-term access to the country's largest VDSL network and, at a later date, for the first time to fibre-optic connections. In combination with HomeSpot offers which can replace fixed-network accesses using its own mobile network, O2 will reach more households with fast broadband than any other provider.