July - September 2021:Telefónica Deutschland / O2 upgrades OIBDA guidance again for fiscal year 2021 after strong third quarter

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Telefónica Deutschland / O2 again achieved strong revenue and earnings growth in the third quarter and raised its OIBDA guidance for the financial year 2021 once again
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Number of contract mobile customer increased by 415,000 (excluding M2M) due to the strong core brand O2
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Revenue climbed by 5.1 percent to EUR 1.967 billion driven primarily by a significant increase in the core brand O2
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Mobile communications service revenue reached a new record level of EUR 1.421 billion (+4.4 percent)
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Adjusted operating profit OIBDA increased by 3.0 percent to EUR 613 million
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Capital expenditures increased as planned in Q3 to 303 million euros, "Investments for Growth" program on target / Peak expected in Q4
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"We again delivered a very strong performance in the third quarter. Our very good O2 network is the basis for growth, increasing customer numbers and higher revenue per customer. And we are continuing to invest at record levels as planned. This is paying off. Our 5G network is currently the fastest in Germany," said Telefónica Deutschland CEO Markus Haas.
Telefónica / O2 again delivered strong operational and financial momentum in the third quarter of fiscal year 2021 driven by strong demand for the core O2 brand and a good partner business. The number of contract mobile customers (excluding M2M) increased by 415,000, while revenue grew by more than 5 percent and adjusted operating income OIBDA by 3.0 percent. Based on this good financial development, the company upgraded its guidance for OIBDA adjusted for special effects and now expects OIBDA growth in the low mid-single-digit percentage range for the fiscal year 2021. Telefónica Deutschland is also expanding its wholesale partnerships with Lebara as a new partner. In order to further increase its growth potential, Lebara will implement its mobile business via Telefónica Deutschland's network infrastructure in the future. The switch is planned for the coming year.
Markus Haas
"We again delivered a very strong performance in the third quarter. Our very good O2 network is the basis for growth, increasing customer numbers and higher revenue per customer. And we are continuing to invest at record levels as planned. This is paying off. Our 5G network is currently the fastest in Germany," said Telefónica Deutschland CEO Markus Haas. Revenue increased by 5.1 percent to EUR 1.967 billion in the third quarter. This development was again driven by continued strong customer growth and demand for the core O2 brand. The number of new mobile contract customers increased by 415,000 in the third quarter; including M2M, the increase was 455,000. The churn rate decreased again and was 1.2 percent, below the prior-year figure of 1.4 percent. At O2, this figure was 1.0 percent, as in the prior-year period. Customer loyalty thus remains at historic highs.

Record mobile service revenues

Revenue from mobile services climbed by 4.4 percent to a record EUR 1.421 billion. This development was driven by the core brand O2 and a further increase in average revenue per customer (ARPU). This amounted to EUR 10.3, compared with EUR 10.1 in the prior-year period. Handset revenue increased by 9.0 percent to EUR 339 million. The launch of the new Samsung Flip and Fold models and the iPhone 13 had a positive effect here. Revenue from fixed-network business increased by 2.8 percent to EUR 203 million. This development was driven by further growth in the customer base for VDSL lines. In addition, the company began actively marketing fiber-optic lines in the past quarter. Adjusted operating profit OIBDA increased by 3.0 percent to EUR 613 million in the third quarter. On the one hand, this development reflects the continued strong revenue growth of the past quarters. On the other hand, a good balance between channel and rate mix in customer acquisition and retention had a positive impact here. Added to this were the effects of ongoing cost measures such as the optimization and digitization of customer service. These positive developments were partially offset by the increase in marketing expenses as planned, which had been partially deferred at the beginning of the year due to Corona, the EU and non-EU roaming mix, and inflationary cost pressure. In the third quarter, special effects included a gain on disposal of EUR 262 million. These are related to the spin-off and sale of the final tranche of approximately 4,000 mobile sites with passive infrastructure to Telxius. As a result, profit for the period amounted to EUR 227 million.

Capital expenditure increases as planned in the third quarter

In the third quarter, investments in the expansion of networks and services increased as planned and amounted to 303 million euros - compared with 251 million euros in the prior-year period and 280 million euros in the previous quarter. The investment ratio, the ratio of capital expenditure to revenue, was 15.4 percent. For the 4th quarter, the company is planning a record level of investment as part of its "Investing for Growth" program. The share of investments in the new 5G technology is steadily increasing. Since the beginning of the year, the company has continued to expand its 5G network with great strides. Currently, Telefónica / O2's 5G network is transmitting with around 3,300 antennas in 115 cities. By the end of 2021, the company will cover a total of over 30 percent of the population with 5G. For 2022, the company is aiming for coverage of 50 percent, and by the end of 2025 at the latest, 5G should be available throughout Germany.

Upgrade of FY 2021 outlook

As a result of Telefónica Deutschland’s continued focus on profitable growth, the company posted good financial performance with MSR growth accelerating despite some remaining travel restrictions still limiting roaming and some headwinds from the MTR-cut effective since 1 Jul-21. At the same time, Telefónica Deutschland continues to pursue its path of digital transformation to make its business model ‘simpler, faster and better’ and to benefit from revenue growth as well as efficiency gains. Telefónica Deutschland emphasises sustainable growth and, as part of its ESG targets, is committed to achieve net zero carbon emissions by no later than 2025. Against this background, Telefónica Deutschland is upgrading its FY2021 outlook for OIBDA adjusted for exceptional effects to "low mid-single digit percentage growth" year-over-year.
The company’s CapEx deployment comes with backend-loaded annual phasing in 2021 as Telefónica Deutschland is executing its network-focused ‘investment for growth’ programme. One year after its start, the O2 5G network is live in more than 100 cities and Telefónica Deutschland is well on track to achieve its target of 30% population coverage in Germany by year end 2021 and nationwide coverage by 2025. As a result of more efficient Capex spend, the expected Capex to Sales ratio is reduced to <17-18% in FY2021. 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 analyzing the further C-19 developments.
1)Includes tailwinds from non-recurrent special factors in the amount of EUR -25m and EUR +14m in 9M 20 and 9M 21, respectively.
2)Includes tailwinds from non-recurrent special factors in the amount of EUR -25m and EUR +12m in 9M 20 and 9M 21, respectively; as well as received social security payments.