DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases full year 2013 preliminary results

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Final Results/Preliminary Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases full year 2013 preliminary results 26.02.2014 / 07:30

26th February 2014 Telefónica Deutschland releases full year 2013 preliminary results MUNICH. The operating and financial performance of Telefónica Deutschland in 2013 reflects the execution of its strategy in a very dynamic competitive environment, with a clear focus on mobile data monetisation. The strong conversion of operating results into Free Cash Flow exceeded the proposed dividend of 525 million Euro for financial year 2013. "We are facing 2014 with renewed optimism for the future as we see significant value creation opportunities to be materialised with the envisaged transaction with E-Plus", said Markus Haas (CSO) and Rachel Empey (CFO) added, "We have been able to demonstrate our ability to increase Free Cash Flow in a particularly demanding environment while strengthening our financial profile". Full year 2013 financial highlights: - Telefónica Deutschland total revenues amounted to 4,914 million Euro, a decrease of 5.7% year-on-year, of which 2,989 million Euro were wireless service revenues (-5.2% year-on-year; -1.5% excluding mobile termination rate cuts). - OIBDA reached 1,237 million Euro, 3.3% below 2012 and -9.2% year-on-year if adjusted for capital gains of 76.2 million Euro from the sale of assets in the fourth quarter of 2013. As a result, OIBDA margin was 25.2% (23.6% if adjusted for capital gains, -0.9 percentage points year-on-year). - CapEx increased 9.4% year-on-year to 666 million Euro, and after a net positive contribution of 127 million Euro from Working Capital and other effects, Free Cash Flow pre-dividends increased 3.3% year-on-year to 699 million Euro. - Net debt decreased year-on-year by 375 million Euro to reach 468 million Euro at the end of December, 2013, with a leverage ratio of 0.4x . The Company successfully debuted in the debt capital market with a 600 million 5-year Eurobond issuance in Mid-November 2013, followed by a 500 million 7-year Eurobond at the beginning of February, 2014. Summary of achievements on 2013 Strategic Priorities for the business: - Capitalise on our multi-brand portfolio & superior customer satisfaction, driving additional efficiencies for the business. - Tariff portfolio updates for a more smartphone-centric customer demand: "O₂ Blue All-in" for the consumer postpaid segment; "O₂ Loop Smart" and "Fonic Smart S" tariffs for prepaid customers. - Development of new distribution channels and special propositions for digital customers: O₂ Facebook shop launch, online tariffs for specific segments (e.g. young people). - Further development of a fixed-mobile convergent approach, also leveraging Telefónica Deutschland's strong partnership with Deutsche Telekom in fixed access: improved "Kombi-Vorteil", new "O₂ DSL All-in" portfolio. - Monetise the data opportunity in all segments through innovative products, digital services & LTE network. - Consolidation of "O₂ My Handy" handset model with the design of specific bundles to foster LTE adoption (summer campaign "Alles Drin" and Christmas campaign "Hol alles raus" with one year access to LTE when selecting the "O₂ Blue M" tariff). - Key partnerships in the Digital space to foster penetration and usage of mobile data: "Games Flatrate", "Napster Music-flat", new "O₂ Protect". - New financial services, such as "O₂ Wallet" and "O₂ Smartphone Insurance", digital advertising solutions ("O₂ More", "O₂ Pad") and machine-to-machine developments, such as "Telefónica Insurance Telematics". - Maintain a competitive 3G network while delivering LTE technology to urban areas. - Acceleration of LTE network deployment: All planned high speed areas on air, reaching more than 40% population coverage at the end of 2013, with a much focused investment approach in the areas where most O₂ customers live. - Delivering online, accurate information to customers on network quality and geographical network availability ("Live check" smartphone application): solid position in mobile data quality as per recent independent network tests (e.g. "Chip", "Connect"). - Further densification of the 3G network with the enhancement of HSPA+ technology with Dual Cell deployment in selected areas (up to 42 Mbps downstream speed). Fourth quarter 2013 operational and financial highlights: - Sustained net additions in mobile postpaid O₂ consumer segment, with approx. 100% of new customers taking data-centric tariffs, while total postpaid net additions were negative in 30 thousand, due to the disconnection of lines in the business segment and a change of platform in some partners. Smartphone penetration continued its positive trend in both postpaid and prepaid segments, with a significant quarter-on-quarter increase in LTE-enabled devices sold (approx. 80% off total). - Operating improvement in the fixed broadband business, with 22 thousand retail DSL net disconnections (vs. -29 thousand in the previous quarter), reflecting the success of the new "O₂ DSL All-in" portfolio. - Continuation of trends for wireless service revenue performance (-3.4% year-on-year vs. -1.8% in the previous quarter, excluding the impact from mobile termination rate cuts), with an acceleration of the decrease in SMS volume in the quarter. Mobile data continued to be the main growth lever for the business (+18.6% year-on-year in non-SMS data revenues), leveraging increased demand of mobile data from customers. - OIBDA increased 8.8% year-on-year, mainly due to a capital gain from the sale of assets in the quarter. The underlying OIBDA performance (excluding the capital gain) of -13.4% year-on-year and 23.9% margin (-1.7 percentage points, year-on-year) continued to reflect the flow through from revenues and sustained commercial investments in the second half of the year. - CapEx increased 26.6% year-on-year, with strong performance in the quarter due to a different year-on-year phasing of investments and a continued focus on the deployment of the LTE-based network, while maintaining the quality of mobile data services through the densification of the 3G network. Telefónica Deutschland's operating performance: At the end of December 2013, Telefónica Deutschland had 25.2 million customer accesses, a year-on-year decrease of 0.8%. Mobile access base remained stable (+0.5% year-on-year) to reach 19.4 million. Main commercial highlights for the fourth quarter of 2013 include: - New "O₂ DSL All-in" portfolio; the first all-net offer in the market with speed as main differentiator, further facilitating a converged approach in combination with the new "Kombi-Vorteil". - Christmas campaign "Hol alles raus", offering a combination of the newest smartphones (e.g. "Samsung Galaxy S4 mini" or "HTC One mini") with the "O₂ Blue All-in M" tariff and one-year access to LTE from 29.99 Euro/month. - Launching of value added digital services: "O₂ Protect", "Napster Music-flat" and the new O₂ Facebook shop, a full-dedicated space to deal with customers in their own digital environment. In the fourth quarter of 2013, Telefónica Deutschland continued executing its strategy in a very dynamic market, with commercial activities designed around bundles of smartphones and related tariffs, especially the ones introducing LTE to new and existing customers. The demand for higher speeds was also prevalent in the fixed business, with initial encouraging results from the new "O₂ DSL All-in" portfolio. Postpaid mobile net additions in 2013 were 178 thousand, while in the fourth quarter they were negative in 30 thousand, mainly due to the disconnection of lines in the business segment and a change of platform in some partners. The O₂ consumer segment progressed well in the fourth quarter, with a sustained number of net additions over the previous quarter. Close to 100% of new customers in that segment took one data-centric tariff in 2013. Total postpaid base reached 10.3 million customers (+1.8% year-on-year) and its penetration over total mobile base grew 0.6 percentage points year-on-year, to 53.0%. The mobile prepaid segment registered 76 thousand net disconnections in 2013, with 146 thousand net disconnections in the fourth quarter due to the usual seasonal behaviour of prepaid customers in both O₂ consumer and partner segments. Prepaid customer base reached 9.1 million at the end of December 2013 (-0.8% year-on-year). Blended churn in 2013 was 2.4%, while in the fourth quarter it reached 2.8% (+0.1 and +0.3 percentage points over the previous year, respectively). Postpaid churn in 2013 was 1.6% (+0.1 percentage points, year-on-year) while in the fourth quarter, it reached 2.1% (+0.6 percentage points, year-on-year), due to the effects mentioned before, and the intense competition seen in the German mobile market. Smartphone penetration reached 31.4% at the end of December 2013, an improvement of 5.0 percentage points over the previous year. In the specific segment of O₂ consumer postpaid, smartphone penetration reached 68.8%; +7.1 percentage points year-on-year. In the prepaid segment, penetration is also improving to 17.3% in O₂ consumer and 22.7% in Fonic (+5.8 and +11.2 percentage points year-on-year increases, respectively). The adoption rate of LTE-enabled handsets from new and existing customers showed a remarkable improvement to make up approximately 80% of total sales in the fourth quarter vs. 55% in the previous quarter, which is a leading indicator for future monetisation of mobile data. Mobile ARPU, excluding the impact from mobile termination rate cuts, declined 4.3% year-on-year in 2013 and 5.1% in the fourth quarter (-7.9% year-on-year in 2013 and -8.0% in the quarter to 12.7 Euro and 12.5 Euro, respectively, in reported terms). Postpaid ARPU in the fourth quarter, excluding mobile termination rate cuts, registered a similar performance over the previous quarter (-6.6% year-on-year, also in the full year). In reported terms, postpaid ARPU declined 9.8% year-on-year in 2013 and -9.2% in the fourth quarter to 19.4 Euro and 19.1 Euro, respectively. This performance was a continuation of trends seen in previous quarters, as tariff migrations, plus the acceleration in the quarter of SMS substitution by IP messaging within the customer base, was not fully compensated by the positive contribution from the addition of new customers. The increased share of online channels in trading activity, with their associated discounts, and the stronger commercial focus on bundles of selected handsets with tariffs from the "O₂ Blue All-in" portfolio is also having an impact in postpaid ARPU. Prepaid ARPU, excluding the impact from mobile termination rate cuts, was down 1.8% year-on-year in 2013 and -3.1% in the fourth quarter (-0.6% in the third quarter), as the higher adoption of data tariffs from prepaid customers is also reducing the usage of traditional voice and messaging services. Prepaid ARPU declined 6.8% year-on-year in 2013 and -7.1% in the fourth quarter to 5.1 Euro for both periods, in reported terms. Retail fixed broadband accesses declined by 132 thousand in 2013 and by 22 thousand in the fourth quarter, a continued improvement over the previous quarters (-29 and -40 thousand in the third and second quarter, respectively), showing the increased traction of demand for speed amongst customers and the good acceptance of the new "O₂ DSL All-in" portfolio. On the other hand, wholesale broadband accesses registered net disconnections of 5 thousand in the fourth quarter. Telefónica Deutschland's financial performance: Telefónica Deutschland's revenues reached 4,914 million Euro in 2013, a 5.7% year-on-year decline (-3.5% excluding the impact from mobile termination rate cuts). Revenues in the fourth quarter were 1,243 million Euro, a decline of 7.4% over the same period of last year (-5.7% excluding the impact from mobile termination rate cuts). Wireless service revenues amounted to 2,989 million Euro in 2013 (-5.2% year-on-year; -1.5% excluding the impact from mobile termination rate cuts), while in the fourth quarter they amounted to 743 million Euro (-6.3% year-on-year; -3.4% excluding the impact from mobile termination rate cuts). The year-on-year performance in the fourth quarter relative to the previous quarter continued to be dominated by the O₂ consumer postpaid segment. This was mainly the result from a lower ARPU performance and a combination of a stable quarter-on-quarter number of net additions with an increasing number of tariff renewals in the base. The share of bundled revenues over total wireless service revenues in the fourth quarter continued to grow by 9 percentage points over the previous year to reach 66% in the O₂ consumer postpaid segment. Mobile data continued to be the main driver for revenue performance, reaching 1,443 million Euro in 2013 and 364 million Euro in the fourth quarter (+3.7% and +2.1% year-on-year, respectively). Non-SMS data revenues registered growth of 21.7% year-on-year in the full year 2013 (+18.6% in the fourth quarter), resulting in a ratio of non-SMS data over total data revenues of 69.6% in the fourth quarter, 9.7 percentage points above the same period of last year. Handset revenues, mainly through "O₂ My Handy" distribution model, reached 684 million Euro in 2013, a decline of 1.4% year-on-year. In the fourth quarter, handset revenues were 8.9% lower than in the same period of last year, due to lower number of devices sold over the previous year, and the increase of more affordable handsets in the mix. Wireline revenues stood at 1,235 million Euro in 2013 (-9.4% year-on-year; -9.2% in the fourth quarter), mainly as a result of a lower retail DSL base (mitigated by an increasing uptake of VDSL) and a stable evolution of the retail DSL ARPU. This revenue line was also impacted by a further reduction of revenues from the low margin voice transit business. Operating expenses in 2013 amounted to 3,846 million Euro, a year-on-year decrease of 3.7% (-3.9% in the fourth quarter to 976 million Euro, a stable year-on-year performance over the previous quarter). Main drivers for expenses evolution were: - Decline in supplies of 8.1% year-on-year to 1,958 million Euro (-9.5% in the fourth quarter), driven by a reduction in mobile voice and SMS interconnection expenses (voice rates were cut in December, 2012 by 45% and in 2013 by 3%), and lower costs associated with the fixed business offsetting higher costs from handsets sold in the period. - Personnel expenses decreased by 0.7% year-on-year to 419 million Euro (-7.5% in the fourth quarter) as a result of a different phasing of activities compared to the fourth quarter of 2012 (overtime payments and increase of activities in the business towards the end of the year). - Other expenses increased by 1.9% year-on-year to 1,469 million Euro (+6.6% in the fourth quarter), with efficiencies in overheads, advertising spend and lower bad debts not compensating a significant increase in commercial expenses, mainly related to customer retention and promotions made in the second half of the year. Operating Income before Depreciation and Amortisation (OIBDA) reached 1,237 million Euro in 2013 and 373 million Euro in the fourth quarter (-3.3% and +8.8% year-on-year, respectively). OIBDA in the fourth quarter registered capital gains from the sale of assets amounting to 76.2 million Euro . Underlying performance of 2013 OIBDA (excluding capital gains) was -9.2% year-on-year (-13.4% in the fourth quarter). OIBDA margin was up 0.6 percentage points year-on-year in 2013 to 25.2% (-0.9 percentage points to 23.6% excluding capital gains). OIBDA margin in the fourth quarter, excluding capital gains, amounted to 23.9% (-1.7 percentage points, year-on-year), a similar performance over the previous quarter. OIBDA excluding group fees totalled 1,308 million Euro in 2013 (-3.2% year-on-year; +6.8% in the fourth quarter). If in addition, capital gains in the fourth quarter were also excluded, full year performance would have been -8.8% year-on-year (-14.1% in the fourth quarter) and OIBDA margin would have gone down 0.9 percentage points year-on-year in 2013 to reach 25.1% (-2.0 percentage points to 25.2% in the fourth quarter). The year-on-year OIBDA performance was mainly due to an increase in commercial investments focused on mobile customer base retention activities and specific promotions on devices attached to high value tariffs. This added to the negative flow-through effect from revenues to results. Depreciation & Amortisation was stable year-on-year (-0.1%), and amounted to 1.132 million Euro for the full-year 2013. In 2013, the Company increased its investments in the rollout of 4G network and in the capacity of the 3G network throughout the year. Operating income amounted to 105 million Euro in 2013 (146 million Euro in the previous year), while in the fourth quarter it was 84 million Euro (42 million Euro in the previous year). Net financial result in 2013 was -27 million Euro (-6 million Euro in the previous year). This was the result of the new capital structure of the Company from September 2012 onwards. In the fourth quarter the net financial result amounted to -4 million Euro (-9 million Euro in the fourth quarter of 2012), mainly due to the partial redemption of a loan. In 2013, a minimal deferred tax expense was registered (1 million Euro), while in the same period of 2012 the Company registered a positive income of 168 million Euro from deferred taxes. Profit after taxes from continuing operations in 2013 was 78 million Euro (79 million Euro in the fourth quarter), which compares with a positive figure of 308 million Euro in the same period of the previous year (199 million Euro in the fourth quarter of 2012). CapEx in 2013 amounted to 666 million Euro, an increase of 9.4% year-on-year, supporting future growth with accelerated investments in the development of the LTE network, which more than doubled compared to the same period of 2012 and allowed LTE network coverage over the total German population to exceed 40% (ca. 15% at the end of December 2012). CapEx in the fourth quarter increased by 26.6% year-on-year due to a different year-on-year phasing of investments while maintaining the quality of mobile data services through the densification of the 3G network. Operating Cash Flow (OIBDA-CapEx) reached 571 million Euro in the full-year 2013, a year-on-year decline of 14.8% (-6.2% year-on-year in the fourth quarter). Underlying performance of 2013 Operating Cash flow (excluding capital gains) was -26.2% year-on-year (-47.4% in the fourth quarter). Free Cash Flow pre dividends from continuing operations (FCF) reached 699 million Euro (from 676 million Euro in 2012). The strong conversion from Operating Cash Flow to FCF was the result of a positive working capital development of 132 million Euro, with different silent factoring transactions executed in both years having a major role, as well as a net effect of 31 million Euro from the sale of assets made in the fourth quarter 2013. In 2013 the Company registered a net interest payment of 21 million Euro (1 million Euro receipt in the same period of 2012) and a contribution to a term deposit in the amount of 14 million Euro which will be released over time. In the fourth quarter of 2013, FCF amounted to 155 million Euro (vs. 123 million Euro registered in the same period of 2012). The Company did not pay income taxes neither in 2013 nor in the same period of 2012. With a debut issuance of a 600 million Euro 5-Year Eurobond in November, 2013 and a subsequent 500 million Euro 7-Year Eurobond in February, 2014, Telefónica Deutschland established itself successfully in the debt capital market and achieved very attractive funding and spread levels, leading to a 1.875% coupon in the 5-Year issuance and a 2.375% coupon in the 7-Year issuance. These transactions strengthened the Company's liquidity position, extending its maturity profile while diversifying its investor base. Consolidated net financial debt decreased year-on-year by 375 million Euro to 468 million Euro at the end of December 2013, reaching a leverage ratio of 0.4x. APPENDIX - DATA TABLES Please refer to the following link to access the download of the data tables. Thank you. http://www.telefonica.de/page/18253/q4-2013.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 Pia Hildebrand, Office Coordinator 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 - December 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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