DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases first half 2014 results

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Half Year Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases first half 2014 results 30.07.2014 / 07:29

MUNICH, July 30, 2014 Telefónica Deutschland releases first half 2014 results - Improved revenue performance driven by LTE and data monetization in a competitive environment - Significant increase in trading momentum on the back of commercial initiatives in consumer and business segments - Solid financial profile maintained after dividend payment "Our improved operating and financial performance throughout the first half of 2014 is the tangible result of a very consistent mobile data monetization strategy, leveraging a very focused team", said Rachel Empey (CFO). With respect to the envisaged acquisition of E-Plus Group, Markus Haas (CSO) commented: "After the recent completion of the important European Commission conditional clearance milestone, we are confident on the closure of the transaction during the third quarter of the year. We have already taken the first steps to configure the organization that will transform Telefónica Deutschland into a leading digital telco." Second quarter 2014 operational & financial highlights: - Net additions in the mobile postpaid segment reached 152 thousand, a significant quarter-on-quarter uptake (x2) compared to the average of the last four quarters. - Smartphone penetration further improved and stood at 33.1% at the end of June (72.1% in the O₂ consumer postpaid segment and 21.3% in the O₂ consumer prepaid segment) with a continued demand for LTE-enabled smartphones (86% of total smartphones sold). - Total revenues reached 1,162 million Euro, improving the year-on-year performance to -4.4% (-8.8% year-on-year in the first quarter 2014). - Wireless service revenue decreased by 2.5% year-on-year , an improved performance over previous quarters following the strong traction of the new commercial propositions in both the consumer and the business segment with a favorable mix in acquisition and retention, plus stabilization of the lower SMS service usage trend. - The wireline business continued showing a decline of revenues (-7.6% year-on-year), as a result of a lower retail fixed broadband access base in a tougher competitive environment. - OIBDA margin showed a year-on-year decline of 2.5 percentage points on the back of increased commercial spend to enhance trading performance, while OIBDA sustained its performance over the previous quarters (-14.5% year-on-year). - CapEx was lower year-on-year by 10.9%, totaling 134 million Euro. The deployment of the LTE network remained the key focus, while generally investments showed a different year-on-year phasing ahead of the envisaged transaction with the E-Plus Group. - Free Cash Flow pre dividends (FCF) in the first half of the year reached 397 million Euro (from 345 million Euro in 2013), a strong conversion from operating cash flow which was mainly driven by higher deferred income which impacted positively the change in working capital over the period. - Consolidated net financial debt at the end of June 2014 stood at 634 million Euro (compared to 468 million Euro as of December 31, 2013), reaching a leverage ratio of 0.6x. Telefónica Deutschland's operating performance At the end of June 2014, Telefónica Deutschland customer accesses totaled 25.1 million, broadly stable year-on-year (-0.9%). The mobile access base also remained stable (+0.1% year-on-year) at 19.4 million, while fixed line accesses declined by 4.2% year-on-year to 5.7 million. Main commercial highlights for the second quarter of 2014 include: - Since April 8, 2014 the refreshed "O₂ Blue All-in" portfolio is available in the German market. Access to LTE is included in all tariffs and a new tariff for high usage customers has been introduced ("O₂ Blue All-in Premium"). - Launch of integrated roaming packages from May 20, 2014 for the "O₂ Blue All-in" portfolio with monthly data allowances for carefree surfing while being abroad in the EU. - Enhancement of our digital approach with the further roll out of the "O₂ Guru" initiative, making the digital experience of using a smartphone easier for customers. - On June 4, 2014, Telefónica Deutschland launched the new "O₂ Blue All-in DSL Professional" tariffs with professional all-round service, fast internet access with up to 50 Mbit/s and a voice flat rate for all German landline and mobile networks. - Our core mobile network is now ready to support mobile voice over LTE (mVoLTE) calls on enabled SIMs cards within compatible devices in the cities of Munich, Hamburg, Berlin and Düsseldorf. Postpaid mobile net additions for the first six months of 2014 reached 230 thousand, with second quarter's figure (152 thousand) more than doubling the average registered over the last four quarters. The positive trend of gross additions was maintained on the back of continued commercial investments, with a favorable customer mix for both new acquisitions and renewals, further supported by churn performance. Total postpaid base increased to 10.5 million customers (+2.5% year-on-year) improving its share over the total mobile base by 1.2 percentage points to 54.1% at the end of June. The mobile prepaid segment registered 9 thousand net additions in the quarter (195 thousand net disconnections in the January to June period) driven by a strong performance of secondary brands. Total prepaid customer base stood at 8.9 million at the end of June (-2.5% year-on-year). Blended churn in both the first half of 2014 and the second quarter slightly improved year-on-year, reaching 2.1% and 1.9% respectively. Postpaid churn was stable year-on-year at 1.4% (1.3% for the second quarter, an improvement of 0.3 percentage points quarter-on-quarter), a reflection of the ongoing customer retention activities. Smartphone penetration reached 33.1% at the end of June 2014, further improving by 4.3 percentage points over the previous year. In the specific segment of O₂ consumer postpaid, smartphone penetration improved to 72.1% (+4.8 percentage points year-on-year). Also in the prepaid segment, smartphone penetration continued to show growth, reaching 21.3% in O₂ consumer segment (+6.9 percentage points year-on-year) and a remarkable 32.3% in the secondary brand Fonic (+16.4 percentage points year-on-year). The share of LTE-enabled handsets as a percentage of total smartphones sold further increased to reach 82% in the period from January to June (86% in the second quarter) driven by the increasing demand for LTE from new and existing customers. Mobile ARPU in the first half of 2014 was 12.3 Euro (12.5 Euro in the second quarter), a decline of 2.6% year-on-year (-2.5% ex MTR cuts) showing an improving year-on-year trend in the second quarter vs. the previous one. Postpaid ARPU declined 4.5% year-on-year ex MTR cuts (-4.7% in reported terms) to reach 18.7 Euro in the first half of the year. In the second quarter, postpaid ARPU was 18.8 Euro, -4.2% year-on-year ex MTR cuts and -4.4% in reported terms. The improvement seen vs. prior quarter's performance was mainly driven by a favorable customer mix in both acquisition and renewals plus the stabilization of the declining SMS trend. The adoption of LTE services from new and existing customers continued to be an important driver for ARPU, while not yet completely offsetting headwinds coming from the lower usage of SMS and the repositioning of the customer base to lower pricing when renewing their long-term contracts. Prepaid ARPU reached 5.1 Euro in the first six months of 2014, an improvement of 1.6% year-on-year ex MTR cuts (+1.3% in reported terms), driven by the higher adoption of data tariffs within this segment and the stabilization of SMS usage trends. Retail fixed broadband accesses stood at 2.2 million at the end of June (-4.5% year-on-year) after a net loss of 53 thousand in the first half of the year (-35 thousand in the second quarter) amidst a significantly tougher competitive environment. Wholesale broadband accesses registered 27 thousand net additions in the first six months of 2014 (24 thousand in the second quarter). Telefónica Deutschland's financial performance Revenues for the first half of 2014 period totaled 2,284 million Euro (1,162 million Euro in the second quarter), a year-on-year performance of -6.5% ex MTR cuts (-6.6% in reported terms). In the second quarter, the revenue performance was -4.3% year-on-year ex MTR cuts (-4.4% in reported terms), a significant improvement compared to the previous quarter (-8.7% year-on-year ex MTR cuts; -8.8% in reported terms). Wireless service revenues amounted to 1,435 million Euro in the first half of the year, a decline of 3.0% year-on-year ex MTR cuts (-3.1% in reported terms). In the second quarter, wireless service revenues reached 728 million Euro and showed an improved performance over previous quarters (-2.5% year-on-year ex MTR cuts and -2.7% in reported terms). The O₂ consumer segment continued to be the main driver of revenue performance, with increased trading and favorable mix in acquisition and renewals as a result of a continued commercial investment, besides the stabilization of trends seen for SMS usage. In this specific segment, the share of bundled revenues as a percentage of total wireless service revenues continued to grow by 6.7 percentage points year-on-year to reach 68.2% in the first half of 2014. Mobile data revenues in the first half of 2014 totaled 704 million Euro (-1.4% year-on-year), representing 49% of wireless service revenues (+0.9 percentage points year-on-year). In the second quarter, mobile data revenues registered a 1.5% year-on-year decline to 354 million Euro. Non-SMS data revenues continued being the main driver for revenue growth, reaching 508 million Euro in the first half of 2014 (256 million Euro in the second quarter), with a year-on-year increase of 10.6% and 9.1% respectively. The share of non-SMS data revenues over total data revenues further increased to 72.3% for the first half year, 7.8 percentage points higher than in the same period of 2013, which is the result of the successful execution of the Company's data monetization strategy. SMS revenues continued to show a stabilization in their rate of decline (-21.6% year-on-year in the second quarter vs. -24.6% in the first quarter). Handset revenues in the January to June 2014 period declined by 21.1% year-on-year and reached 264 million Euro, with almost all handset sales made under the "O₂ My Handy" distribution model. The second quarter registered handset revenues of 144 million Euro (-6.9% year-on-year), showing a better performance than in the previous quarter (-33.2% year-on-year) due to the launching of new devices and selective bundle offers with tariffs from the new "O₂ Blue All-in" portfolio, further supported by the "#YouCanDo" brand campaign in the second quarter. Wireline revenues reached 581 million Euro in the first half of 2014 (287 million Euro in the second quarter) which represents a year-on-year decline of 7.3% and 7.6% respectively, mainly driven by a declining DSL retail customer base and a tougher market environment in the second quarter. Operating expenses amounted to 1,841 million Euro in the first half of 2014, a year-on-year decline of 3.7%. For the second quarter, they totaled 932 million Euro, 1.2% lower year-on-year. This performance was mainly driven by: - Decline in supplies of 9.4% year-on-year to 883 million Euro for the six months period and -3.7% year-on-year in the second quarter to 455 million Euro as a result of lower termination costs for outgoing SMS and a reduction in year-on-year handset sales (with a significant change in the second vs. the first quarter). - Personnel expenses increased by 2.7% year-on-year to reach 213 million Euro in the January to June period and 105 million Euro in the second quarter, following the general increases in salaries from July 2013 onwards. - Other expenses increased by 2.2% year-on-year to amount to 745 million Euro for the first half of the year (+0.9% year-on-year to 372 million Euro in the second quarter) mainly driven by the continued commercial investments to enhance trading momentum. Operating Income before Depreciation and Amortization (OIBDA) totaled 486 million Euro in the first half of 2014, a year-on-year decline of 15.1%. For the second quarter, OIBDA amounted to 252 million Euro (-14.5% year-on-year), sustaining the performance seen in previous quarters. The resulting OIBDA margin was down 2.1 percentage points year-on-year to 21.3% for January to June 2014 period and down 2.5 percentage point to 21.7% for the second quarter. OIBDA excluding group fees reached 515 million Euro for the first half of the year (-14.6% year-on-year) and 265 million Euro in the second quarter (-14.5% year-on-year) with an OIBDA margin of 22.6% and 22.8% respectively (a decline of 2.1 percentage points for the first half and 2.7 percentage points for the second quarter). The year-on-year OIBDA performance was mainly driven by the negative flow-through from service revenues performance and the continued commercial investments to gain trading momentum in the market. Depreciation & Amortization in the first half of 2014 totaled 534 million Euro, a decrease of 5.7% year-on-year, primarily attributable to already fully written off assets, especially in the software category. Operating income totaled -48 million Euro for January to June 2014, compared to 6 million Euro in the same period of 2013. Net financial result as of June 30, 2014 was -16 million Euro, broadly stable year-on-year. The Company did not report material income tax expenses in the six months period ending June 30, 2014 nor in the same period of 2013. Profit for the period in the six months period of 2014 was -64 million Euro, compared to -10 million Euro for January to June 2013. CapEx amounted to 266 million Euro for the first half year of 2014, lower 10.1% year-on-year. For the second quarter CapEx totaled 134 million Euro, -10.9% year-on-year. This is reflecting the focused investments into LTE network deployment and a different year-on-year phasing of investments. Operating Cash Flow (OIBDA minus CapEx) decreased by 20.5%, amounting to 219 million Euro for the January to June 2014 period. Free Cash Flow pre dividends (FCF) reached 397 million Euro for the first half of 2014, compared to 345 million Euro in 2013. The strong conversion of operating cash flow into free cash flow was the result of a positive change in working capital from 91 million Euro in 2013 to 191 million Euro in 2014. The majority of this increase is explained by a higher deferred income registered in the period, primarily driven by advanced payments. Consolidated net financial debt at the end of June 2014 reached 634 million Euro, compared to 468 million Euro as of December 31, 2013, with the dividend payment of 525 million Euro in May having a principal role. As a result, the leverage ratio increased to 0.6x. APPENDIX - DATA TABLES Please refer to the following link to access the download of the data tables. Thank you. https://www.telefonica.de/investor-relations-en/financial-reports/q2-2014. 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: 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 Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). The Company offers 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. Past performance cannot be relied upon as a guide to future performance. Except as required by applicable law, Telefónica Deutschland undertakes no obligation to revise these forward-looking statements to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telefónica Deutschland's business or strategy or to reflect the occurrence of unanticipated events. The financial information and opinions contained in this document are unaudited and are subject to change without notice. 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. 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 or any of the information contained herein do not constitute, form part of or shall be construed as an offer or invitation to 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 or a solicitation of an offer to purchase securities 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. 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.

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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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