DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases first quarter 2013 results

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Preliminary Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases first quarter 2013 results 03.05.2013 / 07:30

3rd May 2013 Telefónica Deutschland releases first quarter 2013 results MUNICH. Telefónica Deutschland continued delivering on its strategy in a more active and competitive environment focused on smartphones. Proof points for this are the good acceptance amongst customers of the new 'O₂ Blue all-in' portfolio, the ongoing expansion of LTE into new high speed areas, and the recent non-binding memorandum of understanding signed with Deutsche Telekom for a long-term cooperation for the future development of next generation fixed networks. 'Telefonica Deutschland is strengthening its capabilities to exploit the increasing demand for converged high-speed mobile and fixed services thanks to our innovative portfolio and seamless access to the most advanced fixed network infrastructure in Germany', said Rene Schuster (CEO), and Rachel Empey (CFO) added 'Our first quarter results are a reflection of the successful management of our customer base in a transition to the next wave of mobile data services to sustain our strong challenger position in the market'. First quarter operational and financial highlights: - Net additions in mobile postpaid at 92 thousands, reflecting an increased customer retention activity from competitors within our target customer segments. Telefonica Deutschland also traded well in this environment with a lower year-on-year churn at 1.5% and increased smartphone penetration (+6.8 p.p. year-on-year to 27.9%). - Encouraging adoption trends of new 'O₂ Blue all-in' portfolio from 1st of March, with 'O₂ Blue all-in M' being the single most contracted tariff in the portfolio by current and new customers, with good progression of sales in the L/XL tariff range as customer demand for mobile data increases and new LTE high speed areas are covered. - Mobile ARPU declined 3.4% year-on-year to 13.0 Euros , reflecting the ongoing effects from contract renewals within the postpaid customer base, the lower incoming SMS revenues and the increased migration trend of high ARPU prepaid customers to postpaid, that were not fully compensated by the increased adoption of smartphone tariffs. - Wireless service revenues grew +0.5% year-on-year excluding mobile termination rate cuts. The continuation of trends from previous quarters was mainly due to declining ARPU performance in the postpaid segment. - Mobile data revenues continued being the main growth lever for the business, with non-SMS data revenues growing 24.1% year-on-year. - Stable OIBDA performance (-0.7% year-on-year), reaching 22.6% margin (+0.4 percentage points, year-on-year), reflecting revenue performance and higher efficiencies in the business. - Ongoing expansion of the LTE network, with the high speed metropolitan areas of Munich and Berlin already open since the end of March, and Düsseldorf from the end of April. - Free Cash Flow increase of 19.7% year-on-year to 105 million Euros and resulting in a net debt position of 762 million Euros at the end of the period (leverage ratio of 0.6x). Telefónica Deutschland operating performance: At the end of March, 2013, Telefónica Deutschland had 25.3 million customer accesses, a year-on-year increase of 1.3%. Main commercial highlights for the first quarter of 2013 include: - Launch of 'O₂ Blue All-in' tariff portfolio. - Munich and Berlin High Speed LTE areas live. - Introduction of mobile-to-mobile instant money transfers ('mpass Geld senden') and digital wallet ('O₂ Wallet') for contactless (NFC technology) payments at PayPass-enabled points of sale. - 'Live Check' application on iOS and Android aimed to test quality status of customers' nearest O₂ base station and provide improved coverage maps, supporting great customer experience. - Launch of the first games flat rate for O₂ smartphone and tablet customers from EA (Electronic Arts). The German mobile market showed a high commercial activity level around postpaid smartphone tariffs, with retention activities in the high end segment and a continued very dynamic discount/no-frills segment. As a result, postpaid mobile net additions in the quarter were 92 thousand, reaching a total postpaid base of 10.2 million (+7.0% year-on-year). The mobile prepaid segment registered 68 thousand net disconnections in the first quarter of 2013, reflecting strong competition and migration to postpaid, mainly influenced by smartphone adoption. Prepaid customer base reached 9.1 million at the end of March, 2013 (+0.6% year-on-year). Customer mix improved over the year, with growth in postpaid customer base penetration over total mobile base of 1.5 percentage points, year-on-year, to 53%. Blended churn in the first quarter remained flat over the previous year at 2.4%, with continued good performance of postpaid churn at 1.5% (-0.2 percentage points, year-on-year), which is a reflection of the successful management of our high value customer base. Smartphone penetration reached 27.9% at the end of March 2013, a continued improvement of 6.8 percentage points over the previous year. The value mix of handsets sold also improved, further increasing potential for mobile data monetization. In the specific segment of O₂ branded consumer postpaid, penetration reached 65%; 15.4 percentage points year-on-year, with a positive progression of 5.6 percentage points to 13.2% in the O₂ branded consumer prepaid segment. Mobile ARPU, excluding the impact from mobile termination rate cut from December 2012, declined 3.4% year-on-year to reach 13.0 Euros (-7.1% year-on-year to 12.5 Euros in reported terms). Postpaid ARPU, excluding mobile termination rate cuts, declined 6.2% year-on-year to reach 20.0 Euros (19.3 Euros in reported terms). The year-on-year decline was the result of the ongoing process of long-term contract renewals within our customer base to lower market pricing levels and the general market trend, which accelerated in the first quarter, of traditional SMS usage substitution by social media and messaging applications in smartphones (mostly affecting incoming revenues). As a result of our strategy to balance value and volume, new smartphone postpaid customers coming from other networks continued to support ARPU, and customers leaving our network had lower than average ARPU. Retail fixed broadband accesses declined by 41 thousand in the first quarter of 2013, an improvement over the 54 thousand disconnections seen in the previous quarter. In the first quarter, close to 11% of gross additions in retail broadband were VDSL, which reflects the growing demand for higher data speeds in the market. On the other hand, wholesale broadband accesses registered positive net additions of 25 thousand. Telefónica Deutschland financial performance: Telefónica Deutschland revenues reached 1,230 million Euros in the first quarter of 2013, a 2.3% year-on-year decline (flat year-on-year excluding mobile termination rate cuts from December 2012). Wireless service revenues amounted to 733 million euros in the first quarter of 2013 (-3.3% year-on-year; +0.5% excluding mobile termination rate cuts). The continuation of trends from previous quarters (excluding mobile termination rate cuts) was due to the declining ARPU trend in the postpaid segment, mainly reflecting tariff migrations to lower price levels and changes in customer behaviour. Mobile data continued to be the main driver for revenue performance, reaching 354 million Euros in the first quarter (+5.5% year-on-year). As a result of the increased penetration of smartphones in the base, non-SMS data revenues grew by 24.1% year-on-year, resulting in a ratio of non-SMS data over total data revenues of 63.4% in the first quarter, 9.5 percentage points above the same period of last year. Handset revenues reached 180 million Euros, an increase of 23.5% year-on-year, which is a reflection of the continued success of the 'O₂ My Handy' distribution model and an increasing mix of high-end smartphones sold over the previous year. Wireline revenues stood at 315 million Euros (-10.7% year-on-year), driven mainly by the year-on-year erosion seen in the broadband retail customer base in a stable ARPU environment, and the further reduction of revenues from the low margin voice transit business. The good start of 'Speed option' lines based on VDSL technology did not yet have a material influence in the first quarter. Operating expenses amounted to 967 million Euros, a year-on-year decrease of 2.6%. Main drivers for the January-to-March 2013 period were: - Decline in supplies of 1.0% year-on-year to 502 million Euros, driven by the reduction in mobile voice interconnection expenses (impacted by rate cuts from December, 2012) as well as the positive impact from lower traditional SMS sent by our customers to other mobile networks partially compensated by the increase seen in handset costs (mainly due to more expensive smartphones sold through 'O₂ My Handy'). - Personnel expenses increase of 0.7% year-on-year to 105 million Euros as a result of the general increase in salaries from July, 2012 compensated by different year-on-year phasing of variable payroll expenses. - Other expenses decrease of 5.7% year-on-year to 361 million Euros, mainly leveraging reductions in bad debt provisions and commercial costs from a more selective spend in a lower trading environment that are compensating increases in network and customer care expenses. Operating Income before Depreciation and Amortization (OIBDA) reached 278 million Euros in the first quarter of 2013 (-0.7% year-on-year). OIBDA margin was 22.6%, a year-on-year increase of 0.4 percentage points. OIBDA excluding management fees totaled 294 million Euros in the January to March 2013 period (-0.3% year-on-year). OIBDA margin excluding management fees increased 0.5 percentage points year-on-year, reaching 23.9%. This performance is the result of revenue performance and mix, coupled with additional efficiencies. Depreciation & Amortization amounted to 280 million Euros in the first quarter, a year-on-year increase of 4.4%, mainly driven by the increased trend of investments in the network. Operating income was negative in 2 million Euros in the January-March 2013 period (+12 million Euros in the previous year). Net financial expenses in the first quarter of 2013 were 11 million Euros, from a positive income of 2 million Euros in the previous year. This was the result of the new capital structure of the Company from September 2012 onwards. As a result of the above and a nil Tax expense in the quarter, net profit from continuing operations in the first quarter of 2013 was negative in 13 million Euros, which compares with a positive figure of 15 million Euros in the previous year. CapEx in the first quarter amounted to 146 million Euros, an increase of 9.4% year-on-year, supporting future growth with accelerated investments in the development of the LTE network. Operating Cash Flow (OIBDA-CapEx) reached 133 million Euros in the first quarter of 2013 (-9.8%), and this translated into Free Cash Flow pre dividends from continuing operations (FCF) of 105 million Euros (+19.7% year-on-year). Working capital improved by 44 million Euros compared to the same period of last year, leading to a slightly negative working capital contribution of 17 million Euros in the first quarter of 2013 as a result of a silent factoring deal of 'O₂ My Handy' receivables executed in March. The Company did not pay taxes either in the first quarter of 2013 nor in the same period of 2012, registered a net interest payment of 4 million Euros (3 million Euros income in the first quarter of 2012) and a collaterally provided security deposit in the amount of 7 million Euros which will be released over time. Consolidated net financial debt stood at 762 million Euros at the end of March, 2013, resulting in a leverage ratio of 0.6x. APPENDIX - DATA TABLES Please refer to the following link to access the download of the data tables. Thank you. http://www.telefonica.de/page/18153/q1-2013.html Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 23-25 80992 München Victor J. García-Aranda, Head of Investor Relations Marion Polzer, Manager Investor Relations (t) +49 89 2442 1010 ir-deutschland@telefonica.com www.telefonica.de/investor-relations Disclaimer: The financial information contained in this document (in general prepared under International Financial Reporting Standards (IFRS)) contains in respect of the results for January - March 2013 period only preliminary numbers. The financial information and opinions contained in this document are unaudited and are subject to change without notice. None of the Company, its subsidiaries or affiliates or by any of its officers, directors, employees, advisors, representatives or agents shall be liable whatsoever for any loss however arising, directly or indirectly, from any use of this document its content or otherwise arising in connection with this document. This document contains statements that constitute forward-looking statements and expectations about Telefónica Deutschland Holding AG (in the following 'the Company' or 'Telefónica Deutschland') that reflect the current views and assumptions of Telefónica Deutschland's management with respect to future events, including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations which may refer, among others, to the intent, belief or current prospects of the customer base, estimates regarding, among others, future growth in the different business lines and the global business, market share, financial results and other aspects of the activity and situation relating to the Company. Forward-looking statements are based on current plans, estimates and projections. The forward-looking statements in this document can be identified, in some instances, by the use of words such as 'expects', 'anticipates', 'intends', 'believes', and similar language or the negative thereof or by forward-looking nature of discussions of strategy, plans or intentions. Such forward-looking statements, by their nature, are not guarantees of future performance and are subject to risks and uncertainties, most of which are difficult to predict and generally beyond Telefónica Deutschland's control, and other important factors that could cause actual developments or results to materially differ from those expressed in or implied by the Company's forward-looking statements. These risks and uncertainties include those discussed or identified in fuller disclosure documents filed by Telefónica Deutschland with the relevant Securities Markets Regulators, and in particular, with the German Market Regulator (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). The Company can offer no assurance that its expectations or targets will be achieved. Analysts and investors, and any other person or entity that may need to take decisions, or prepare or release opinions about the shares / securities issued by the Company, are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this document, and shall take into account that the numbers published are only preliminary. Past performance cannot be relied upon as a guide to future performance. Except as required by applicable law, Telefónica Deutschland undertakes no obligation to release publicly the results of any revisions to these forward-looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica Deutschland's business or acquisition strategy or to reflect the occurrence of unanticipated events. This document contains summarized information or information that has not been audited. In this sense, this information is subject to, and must be read in conjunction with, all other publicly available information, including if it is necessary, any fuller disclosure document published by Telefónica Deutschland. Finally, it is stated that neither this document nor any of the information contained herein constitutes an offer of purchase, subscribe, sale or exchange, nor a request for an offer of purchase, subscription, sale or exchange of shares / securities of the Company, or any advice or recommendation with respect to such shares / securities. This document or a part of it shall not form the basis of or relied upon in connection with any contract or commitment whatsoever. These written materials are especially not an offer of securities for sale in the United States, Canada, Australia, South Africa and Japan. Securities may not be offered or sold in the United States absent registration under the US Securities Act of 1933, as amended, or an exemption there from. The issuer or selling security holder has not and does not intend to register any securities under the US Securities Act of 1933, as amended, and does not intend to offer any securities in the United States. No money, securities or other consideration from any person inside the United States is being solicited and, if sent in response to the information contained in these written materials, will not be accepted. End of Corporate News

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Language: English Company: Telefónica Deutschland Holding AG Georg-Brauchle-Ring 23-25 80992 München Germany Phone: +49 (0)89 24 42 0 Internet: www.telefonica.de ISIN: DE000A1J5RX9 WKN: A1J5RX Listed: Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, Düsseldorf, Hamburg, München, Stuttgart TecDAX End of News DGAP News-Service

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