Preliminary results financial year 2020:Telefónica Deutschland / O2 increases revenues, earnings and customer base in 2020 – confident outlook for 2021

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Telefónica Deutschland / O2 closes financial year 2020 with increases in revenue, operating result and new customer acquisition in crisis year marked by COVID-19 pandemic.
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Underlying revenue grew +1.8% to EUR 7.53 billion and adjusted operating result (OIBDA) up 0.2% during macroeconomic recession. Q4 confirms positive trend.
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Net profit in the past financial year of 328 million euros positively influenced by disposal gain from Telxius deal – Positive net profit also achieved in the fourth quarter.
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Number of mobile customer post-paid accesses grew by 1.26 million thanks in particular to high interest in the core O2 brand, high customer satisfaction and low churn rate – highest growth in Q4 for more than four years (+490,000).
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Investments in 2020 increased by 4.8 % to 1.1 billion euros: 11,000 new LTE elements ensure leap in network quality. Focus of the three-year investment programme planned for 2021.
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National roaming agreement with 1&1 Drillisch provides planning security and continues to deliver significant earnings contribution.
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Medium-term growth targets of over 5 percent in cumulative revenue between 2020 and 2022 confirmed. Telefónica Deutschland /O2 expects financial year 2021 total revenues to be ‘flat to slightly positive’ and OIBDA adjusted for exceptional effects to be ‘broadly stable to slightly positive’ year-over-year, respectively.
Markus Haas
Telefónica Deutschland / O2 closes the financial year 2020 with a strong performance during the overall economic recession. Thanks in particular to strong interest in higher-value mobile and fixed-network products from the core O2 brand, customer base and data volumes increased significantly. As a result, the company was able to increase its revenue and operating results (OIBDA). In terms of revenue and mobile customer accesses, the company grew faster than the competition. Telefónica Deutschland / O2 has fully achieved its targets and confirms its medium-term growth objectives. “We are starting 2021 on a strong footing. Our core business is proving to be very robust during the COVID-19 pandemic and our customers are more loyal and satisfied than ever. Never have we achieved such a leap in network quality. This is also reflected in our figures: In the past financial year, we increased in all key figures and improved again in the fourth quarter. In 2021, we will invest more than ever before and further improve our network quality. On this basis, we want to grow faster than the market and democratise high-tech in Germany,” says CEO Markus Haas.

Significant progress in quality and performance

The company has made decisive progress in the 4G network roll-out and is now on a par with the competition. In addition, O2 launched its 5G network, which is already available in 15 cities. In the fixed business, the telecommunications company reaches more households than any other provider with its complete portfolio of broadband lines. Moreover, customer satisfaction has never been higher in the history of the merged company. The Net Promoter Score, which measures the percentage of customer recommendations, rose by almost 20 points over the past three years. Customer loyalty is at record levels and interest in products of the core O2 brand is also increasing. These developments are also reflected in the operating figures for the financial year.

Highest growth in mobile phone contracts

In terms of figures, every second person in Germany uses the Telefónica Deutschland / O2 network.
In 2020, Telefónica Deutschland / O2 recorded continued customer growth in mobile business. The number of mobile customer postpaid accesses increased by 1.26 million. The fourth quarter in particular showed a strong growth trend with 490,000 additional contract accesses - the strongest increase in over four years. No competitor currently shows higher growth for those types of contracts. In total, the company serves 44.3 million mobile customer accesses, of which 42.9 million were used by people. In terms of figures, every second person in Germany uses the O2 network. No telecommunications company currently provides more people with mobile connection. The development is supported, among other things, by the churn rate, which was at a historically low level of 1.1 % per month on average for postpaid O2 customers. This is directly related to the continued improvement in customer satisfaction regarding network quality and service. Telefónica Deutschland / O2 also recorded growth in the business customer segment in the past financial year. The company gained important customers in the mobile segment or significantly expanded its relationship with them - including not only many customers from small and medium-sized businesses but also with large providers such as Amazon, Tchibo and Aldi. In the fixed business, Telefónica Deutschland / O2 now offers its customers the largest technological and geographical coverage of all providers and is continuing its growth course. Fast VDSL connections in particular drove demand. Their number grew by 8.8 % to 1.8 million compared to the previous year. A total of 2.3 million customers used O2's fixed-line broadband offers, an increase of 2.5 % compared to the previous year.

Growth in all revenue lines

Total underlying revenues increased to 7.53 billion euros.
Total underlying revenues increased by 1.8 % to 7.53 billion euros thanks to growth in mobile business, fixed-line and handset. The company is now growing for the third year in a row. In the fourth quarter, revenue amounted to 2.02 billion euros. Underlying mobile service revenues increased slightly by 0.1 % to 5.31 billion euros. In the fourth quarter, these revenues grew by 1.3 %. Reasons were the strong customer growth, attractive O2 tariffs, increasing interest in large data volumes as well as increasing bundled products. The company was thus able to compensate for negative effects of the COVID-19 crisis amounting to approximately -72 million euros on the revenue level, which resulted primarily from the continued restriction of international roaming. Without these effects, mobile service revenues would have increased by 1.3 % in 2020. Fixed revenues rose by 6.0 % to 785.3 million euros compared to the previous year. Handset revenue grew by 5.7 % to 1.42 billion euros.

Operating results rises slightly despite COVID-19 effects

Revenues, earnings and customer base increased in 2020.
OIBDA adjusted for exceptional and regulatory effects reached growths of 0.2 % to 2.32 billion euros thanks to high-margin O2 mobile products and operational efficiency improvements. Excluding the curtailment of international travel with its impact on the roaming business due to the COVID-19 pandemic, the increase in adjusted OIBDA would have been +2.7 %. Net profit for the financial year is 328 million euros and includes the gain from the transfer of the first tranche of sites to infrastructure provider Telxius, which was completed in early September 2020. The company also achieved a positive net result in the fourth quarter. Free cash flow (FCF) amounted to 1.9 billion euros in 2020 according to IFRS 16.

High investments ensure leap in network quality

Telefónica Deutschland / O2 implemented the fastest and also most extensive network expansion in its company history last year.
Investments (CapEx) increased by 4.8 % year-on-year to 1.1 billion euros. The investment ratio, i.e. investments in relation to revenue, was 14.5 % for the year. The money was primarily used for further intensified network expansion: Telefónica Deutschland / O2 implemented the fastest and also most extensive network expansion in its company history last year. With more than 11,000 new 4G elements, O2 has significantly expanded its 4G network. 2021 is the focus of the three-year investment programme. Telefónica Deutschland / O2 will invest more than ever before in the network, with well over one billion euros. In parallel to its own 4G expansion, the company will close further gaps in coverage, so-called “grey spots”, in the 4G network in cooperation with Telekom and Vodafone. This approach complements the cooperation to close “white spots” where there is still no coverage at all. In addition, investments are increasingly used for the expansion of the 5G network. By the end of the year, Telefónica Deutschland / O2 aims to reach over 30 % of households in Germany with 5G and to have rolled out a nationwide 5G network by 2025. This year, Telefónica Deutschland / O2 will also begin equipping around 1,000 mobile sites with Open RAN technology, which will make the company less dependent on manufacturers and enable it to roll out new services more quickly. In negotiations on national roaming, Telefónica Deutschland / O2 reached an agreement with 1&1 Drillisch in mid-February. Until the network of 1&1 Drillisch is available nationwide, the national roaming agreement now concluded will provide the partner with access to the O2 network. This gives both sides long-term planning security. Telefónica Deutschland / O2 continues to generate significant revenues from the cooperation. These revenues can be invested in the further improvement of the O2 network.

Outlook

Financial Outlook 2021
Based on the 2020 business results, Telefónica Deutschland /O2 aims for sustainable growth, targeting cumulated revenue growth of minimum 5% between 2020 and 2022 while continuously improving its OIBDA margin. For 2021, Telefónica Deutschland /O2 expects financial year 2021 total revenues to be ‘flat to slightly positive’ and OIBDA adjusted for exceptional effects to be ‘broadly stable to slightly positive’ year-over-year, respectively. Regarding the COVID-19 impact, Telefónica Deutschland considers the hard lockdown imposed by the German government until 7 March 2021. Telefónica Deutschland expects roaming revenues to recover only gradually over the course of the year with anticipated easing of travel restrictions and the roaming related MSR drag annualising towards the end of the first quarter of 2021, i.e. the first anniversary of the initial hard lockdown in Germany. Telefónica Deutschland’s assumptions are based on broadly unchanged overall economic conditions, current competitive dynamics, and existing wholesale relationships. At the same time, management is continuously monitoring and analysing the impact on the company from the C-19 restrictions and developments including the start of the country-wide vaccination programme.

Three strategic priorities for growth

Telefónica Deutschland / O2 is pursuing three strategic priorities to achieve its medium-term growth targets: The company plans to gain market share through improved network coverage in rural areas and to consolidate its position in cities on the basis of a high-capacity infrastructure. With a strong network behind it and an individualised service, the company wants to continue its successes in the business customer segment in 2021. In addition, thanks to the largest fixed network coverage in Germany and attractive additional offers, Telefónica Deutschland / O2 plans to increasingly sell bundled offers and thus generate higher revenues per household and customer. Further detailed information on the financial result is available at: https://www.telefonica.de/financial-publications