DGAP-News:Telefónica Deutschland Holding AG: Telefónica Deutschland releases preliminary results for January to September 2014

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): 9-month figures/Preliminary Results Telefónica Deutschland Holding AG: Telefónica Deutschland releases preliminary results for January to September 2014 10.11.2014 / 07:30

MUNICH, November 10, 2014 Telefónica Deutschland releases preliminary results for January to September 2014 - Trading kept positive momentum, with O₂ brand further enhancing relevance in the market thanks to demand for LTE and availability of new devices - Continued improvement in revenue performance with sustained underlying OIBDA trends - Financial profile remained solid with strong conversion from operating to free cash flow - Acquisition of E-Plus Group now in execution phase: synergies of more than 5bn Euro confirmed while maintaining strong shareholder remuneration "The integration of the two companies provides us with the unique opportunity to drive the digital transformation of our business and create real added value for our customers and shareholders. Our clear goal is to build the leading digital telecommunications company in Germany" said Thorsten Dirks, CEO of Telefónica Deutschland. Rachel Empey, CFO,added "Our financial and operational performance in the third quarter demonstrates an improved momentum based on the consistent execution of our mobile data monetization strategy, leveraging the uptake of LTE." Third quarter 2014 operational & financial highlights: - Net additions in the mobile postpaid segment totaled 143 thousand, almost tripling the number of the same period in 2013 as a result of the continued investments in the market and the strong performance in both the consumer and the business segments, following the commercial propositions launched in recent quarters, and also leveraging the steady increase in demand from customers for LTE and new devices. - Smartphone penetration in the O₂ consumer postpaid segment further improved by 4.2 percentage points year-on-year to reach 74.1% at the end of September. 88.0% of new smartphones sold to customers in the third quarter were LTE-enabled. - Total revenues reached 1,219 million Euro, almost stable year-on-year at -0.5%, and a further improvement of the year-on-year performance vs. prior quarters (-4.4% in the second quarter and -8.8% in the first quarter, respectively) with a remarkable 22.1% year-on-year increase of handset sales in the quarter. - Mobile service revenue totaled 754 million Euro and confirmed the improving year-on-year trend from previous quarters (-1.3% compared to -2.5% in the second quarter and -3.4% in the first quarter). This is the result of the strong traction of the new commercial propositions launched in recent quarters, a favorable mix both in customer acquisition and retention, plus a further stabilization of the lower SMS usage trend. - Fixed revenues reached 283 million Euro, a decline of 9.0% year-on-year as a result of a lower retail fixed broadband access base in a competitive environment. - Underlying year-on-year OIBDA sustained the trend seen in previous quarters (-15.1%), as the better performance of the mobile data business did not compensate the increased commercial spend to enhance trading momentum and additional expenses related to the E-Plus Group acquisition. - CapEx was lower year-on-year by 15.6%, totaling 145 million Euro with a clear focus on the deployment of the LTE network while generally investments showed a different year-on-year phasing ahead of the integration with the E-Plus Group. - Free Cash Flow pre dividends (FCF) in the January to September period reached 529 million Euro, a moderate decline from the 543 million Euro registered in 2013 due to lower OIBDA, partially offset by a positive working capital development from higher non-current deferred income from other advanced payments. - Adjusted consolidated net financial debt at the end of September 2014 stood at 539 million Euro (compared to 468 million Euro as of December 31, 2013), reaching an adjusted leverage ratio of 0.5x. Telefónica Deutschland's operating performance At the end of September 2014, Telefónica Deutschland customer accesses reached 25.3 million, almost stable year-on-year at -0.7% with the mobile access base standing at 19.6 million accesses (+0.4% year-on-year), whereas fixed accesses declined by 4.4% year-on-year to 5.6 million. Main commercial highlights for the third quarter of 2014 include: - Computer Bild award: O₂ with the best value-for-money for high-speed tariffs - as voted for by the readers of specialist magazine Computer Bild. This confirms our strategy of expanding our high-speed mobile network in a tailored to demand. And the LTE rollout is rapidly progressing: At the end of September O₂ LTE already reached an outdoor pop coverage of almost 60%. - Teltarif.de for the fifth time in a row confirmed O₂ Blue all-in L as the best tariff for professionals. - O₂ now offers even greater flexibility to prepaid customers: new smartphone tariffs meeting the needs of all customers, from beginners to frequent users, have been in place since August 7. One special feature offered by O₂ only is that unused data volume can be simply rolled over to the next month, allowing customers to surf easily without a contract while staying in full control of their costs. - Since August, the new DSL package enables customers to benefit from the fastest download speeds of up to 100Mbit/s and state-of-the-art high-speed wireline connections. The new O₂ DSL All-in XL provides not only rapid surfing speeds of up to 100Mbit/s, but also offers upload speeds of up to 40Mbit/s - four times faster than conventional VDSL. - Telefónica Deutschland introduced an entirely new service for drivers: With O₂ Car Connection drivers can connect their car with their smartphone to receive important diagnostic information directly to their phone. Error codes, problem reports or reminders to visit the service station are conveyed in no time and in an uncomplicated manner, helping to improve safety on the road. By drawing on information about the condition of the engine or the voltage of the battery, the driver can evaluate possible damage - and thus prevent unpleasant surprises when the car is taken for its service. Postpaid mobile net additions in the first nine months of 2014 reached 374 thousand (compared to 207 thousand in the same period of 2013) with the third quarter (143 thousand net additions) almost tripling prior year's number. This is explained by a further positive trend of gross additions in the consumer and business (SME) segments on the back of continued commercial investments, with a favorable mix for both customer acquisitions and renewals plus a broadly stable churn performance. Total postpaid base increased by 3.3% year-on-year to stand at 10.7 million accesses and, further improving its share over the total mobile base to 54.3% (+1.6 percentage year-on-year) at the end of September. Mobile prepaid contributed 70 thousand net additions in the third quarter (126 thousand net disconnections from January to September) driven by a strong performance of secondary brands and the usual increase of prepaid activity in summer. At the end of September, the total prepaid customer base stood at 9.0 million (-2.9% year-on-year). Blended churn both in the third quarter and for the nine months period was broadly stable year-on-year, reaching 1.9% and 2.1% respectively. Postpaid churn in the third quarter and the reported period was 1.5% (0.1 percentage points higher year-on-year), owing to a more dynamic competitive environment. Smartphone penetration in the O₂ consumer postpaid segment improved by 4.2 percentage points year-on-year to reach 74.1% at the end of September. Also the prepaid segment registered a further growth of smartphone penetration, reaching 22.2% in O₂ consumer segment (+4.9 percentage points year-on-year) and 32.5% in the secondary brand Fonic (+14.2 percentage points year-on-year). As a result of the increasing demand for LTE from new and existing customers, the share of LTE-enabled handsets continued to grow, making up for 85.4% of total smartphones sold in the nine months period and 88.0% in the third quarter. Mobile ARPU continued its improving year-on-year trend, reaching 12.7 Euro in the third quarter, a year-on-year decline of 1.4% and 1,2% excluding mobile termination rate cuts (-1.9% and -3.1% in the second and first quarter, respectively). In the first nine months of 2014, mobile ARPU was 12.4 Euro; a decline of 2.2% year-on-year (-2.0% excluding mobile termination rate cuts). Postpaid ARPU declined 4.1% year-on-year excluding the impact from mobile termination rate cuts (-4.2% in reported terms) to reach 18.8 Euro in the first nine months of 2014. In the third quarter, postpaid ARPU showed an improvement over previous periods and reached 19.1 Euro; -3.3% year-on-year and -3.1% excluding the impact from mobile termination rate cuts (-4.3% in the second quarter). This better performance was mainly driven by a favorable mix in both customer 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 the continuous headwinds from the lower usage of SMS and customers renewing their long-term contracts to current lower price points. Prepaid ARPU in the nine months period reached 5.2 Euro, a 0.8% year-on-year increase excluding the impact from mobile termination rate cuts (+0.5% in reported terms), following the higher smartphone penetration and related adoption of data tariffs within this segment together with the stabilization of SMS usage trends. In the third quarter, prepaid ARPU declined 0.9% year-on-year (0.7% excluding the impact from mobile termination rate cuts) to 5.3 Euro. Retail fixed broadband accesses at the end of September stood at 2.2 million (-4.7% year-on-year). In the January to September 2014 period, 83 thousand net disconnections were registered, with a better trend in the third quarter (-31 thousand) compared to the previous one (35 thousand net disconnections in the second quarter). In the fixed wholesale broadband access segment, 13 thousand net additions were registered in the first nine months of 2014, with a net loss of 14 thousand in the third quarter. Telefónica Deutschland's financial performance Revenues totaled 3,503 million Euro (-4.6% year-on-year) in the January to September 2014 period, further consolidating its improving year-on-year performance in the third quarter (1,219 million Euro) to -0.5% vs. -4.4% and -8.8% reported in the two preceding quarters. Mobile service revenues for the nine months period reached to 2,189 million Euro, declining 2.4% year-on-year excluding the impacts from mobile termination rate cuts (-2.6% in reported terms). In the third quarter, mobile service revenues reached 754 million Euro; 1.5% lower year-on-year, or -1.3% excluding the impacts from mobile termination rate cuts (-2.5% and -3.4% in the second and the first quarter, respectively). Non-SMS mobile data revenue remains the main driver for mobile service revenue, while trends in ARPU erosion per tariff renewal and SMS volume decline continued in the third quarter. Mobile data revenues totaled 1,070 million Euro in the first nine months of 2014, 0.9% lower year-on-year, with a positive development in the third quarter (366 million Euro; +0.2% year-on-year) after a decline of 1.5% and 1.3% in the second and first quarter, respectively. Mobile data share of total mobile service revenues in the January to September 2014 period reached 48.9% (+0.8 percentage points year-on-year). Non-SMS data revenues amounted to 778 million Euro in the first nine months of 2014 (270 million in the third quarter); a year-on-year growth of 10.1% (+9.3% in the third quarter). As a result of the successful execution of its data monetization strategy, the Company further grew the share of non-SMS data revenues over total data revenues to 73.8% (+6.1 percentage points year-on-year) in the third quarter and 72.8% (+7.3 percentage points) for the nine months period on the back of improving trading performance and a favorable mix in acquisition and renewals both in the consumer and business (SME) segments. The declining trend for SMS revenues further stabilized in the third quarter to -18.8% year-on-year -(21.6% in the second and -24.6% in the first quarter, respectively). Handset revenues in the first nine months of 2014 declined by 7.9% year-on-year to reach 444 million Euro, with almost all handset sales made under the "O₂ My Handy" distribution model. The third quarter saw a significant increase of handset revenues (+22.1% year-on-year to 180 million Euro) following the launch of new devices and the Company's strategy to offer attractive bundles with smartphone tariffs. Fixed revenues for the first nine months of 2014 reached 864 million Euro (283 million Euro in the third quarter), a year-on-year decline of 7.9% (-9.0% in the third quarter), mainly as a result of the declining DSL retail customer base. Operating expenses declined by 0.9% year-on-year in the first nine months of 2014 to amount 2,844 million Euro, while in the third quarter it increased 4.7% year-on-year to reach 1,004 million Euro driven by higher personnel expenses and supplies. - Supplies reached 1,382 million Euro in the nine month period (-4.8% year-on-year) and 499 million Euro in the third quarter (+4.7% year-on-year). The overall evolution is mainly driven by lower termination costs for outgoing SMS whereas the increased costs in the third quarter are particularly related with the positive evolution of handset sales. - Personnel expenses increased by 5.5% year-on-year, totaling 329 million Euro in the nine month period and by 11.0% in the third quarter to reach 116 million Euro. The evolution in the third quarter is impacted by the general increases in salaries from July 2014 onwards plus initial restructuring costs (8 million Euro) related with the acquisition of the E-Plus Group. Excluding this impact, personnel expenses grew 3.5% in the third quarter (and +3.0% in the nine-month period). - Other expenses amounted to 1,134 million Euro for the nine months period (+2.4% year-on-year) and 389 million Euro in the third quarter (+2.9% year-on-year) mainly driven by the continued commercial investments to enhance trading momentum and additional costs related with the acquisition of the E-Plus Group (13 million Euro including advisory fees, of which 6 million Euro were expensed in the third quarter). Operating Income before Depreciation and Amortization (OIBDA) reached 726 million Euro in the first nine months of the year (a decline of 16.0% year-on-year) and 240 million Euro in the third quarter (-17.8% year-on-year). OIBDA margin in reported terms was down 2.8 percentage points year-on-year to stand at 20.7% for the nine months period and down 4.1 percentage points to 19.7% in the third quarter. Excluding the impact from the initial restructuring costs related with the acquisition of the E-Plus Group, the underlying OIBDA performance in the third quarter (-15.1%) sustained the trends seen in prior quarters, with the OIBDA margin at 20.3% down 3.5 percentage points year-on-year. This is mainly influenced by the flow-through from revenues together with the increasing commercial investment to gain trading momentum in the market. OIBDA excluding group fees reached 770 million Euro in the nine months period (-16.1% year-on-year) and 255 million Euro in the third quarter (-19.0% year-on-year) with an OIBDA margin of 22.0% and 20.9% respectively (a decline of 3.0 percentage points until September and 4.8 percentage points for the third quarter). Depreciation & Amortization in the first nine months totaled 779 million Euro, a decrease of 7.5% year-on-year, primarily due to fully written-off assets not being in use anymore, especially in the software category. Operating income totaled -53 million Euro for the nine months period, compared to 22 million Euro in the same period of prior year. Net financial result as of September 30, 2014 was -26 million Euro, compared to -23 million Euro in 2013. The Company did not report material income tax expenses for January to September 2014 nor in the same period of 2013. Profit for the period in the first nine months of 2014 was -79 million Euro, compared to -1 million Euro for January to September 2013. CapEx totaled 411 million Euro for the first nine months of 2014, lower 12.1% year-on-year. In the third quarter, CapEx amounted to 145 million Euro a decline of 15.6% year-on-year. This is reflecting the focused investments into LTE network deployment and a different year-on-year phasing of investments ahead of the E-Plus Group acquisition. Operating cash flow (OIBDA minus CapEx) reached 315 million Euro for the January to September 2014 period, a decline of 20.6% year-on year. Free cash flow pre dividends (FCF) in the January to September period reached 529 million Euro, a moderate decline from the 543 million Euro registered in 2013 due to lower OIBDA, partially offset by a positive working capital development from higher non-current deferred income from other advanced payments for future service to be received. Adjusted consolidated net financial debt at the end of September 2014 stood at 539 million Euro (compared to 468 million Euro as of December 31, 2013), reaching an adjusted leverage ratio of 0.5x (compared to 0.4x as of December 31, 2013), mainly impacted by the dividend payment in May 2014 that was compensated by positive FCF evolution. 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-publications/q3- 2014.html Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 23-25 80992 München Victor J. García-Aranda, Director 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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