DGAP-News:Telefónica Deutschland Holding AG: Preliminary results for January to June 2019

DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Half Year Results/Preliminary Results Telefónica Deutschland Holding AG: Preliminary results for January to June 2019 24.07.2019 / 07:30 The issuer is solely responsible for the content of this announcement.

+25.2% y-o-y effects[1][13] regulatory effects of as per IFRS 16 1. EUR 40-50 million) reporting #footnote_13 Capex[1][14] 13.2% Approx. 13-14% 13.9% to Sales Ratio 1. #footnote_14 Dividend EUR High pay-out ratio over N/A 0.27/share FCF Proposal for FY 2018 to next AGM Telefónica Deutschland remains committed to an attractive shareholder remuneration; we maintain high confidence in our FCF generation ability and our dividend policy is unchanged since the IPO. Telefónica Deutschland operating performance in the first half of 2019 As of 30 June 2019 Telefónica Deutschland's customer accesses reached 47.6 million (+0.8% year-on-year), thereof 43.2 million [15] mobile accesses (+0.6% year-on-year). Mobile postpaid grew by +5.1% year-on-year and reached 22.9 million customers. As per the end of June, mobile postpaid represented 52.9% of our total mobile base, up +2.3 percentage points year-on-year. The mobile prepaid base totalled 20.3 million customers, a decrease of -4.1% year-on-year, reflecting the lower demand as a result of changes in the regulatory environment. In fixed, the DSL retail customer base reached 2.2 million accesses, a year-on-year increase of +5.5% driven by strong demand for VDSL. The VDSL base grew +17.7% year-on-year to 1.6 million accesses and now represents 72% of our fixed retail base. Mobile postpaid registered strong growth of +607 thousand net additions in the first half of the year compared to +490 thousand net additions in the same period of the previous year, thereof +301 [16] thousand in Q2 (+333 thousand in Q2 2018). Customer demand for the O₂ Free portfolio remained high and was supported by focused market invest to position the O₂ brand after the completion of our network integration. In addition, the contribution from the partner brands remained strong and delivered 62% of gross additions in the first six months of the year driven by 4G-related migration effects and an expansion of partnerships with non-MBA partners. Mobile prepaid saw -208 thousand net disconnections in the six month 2019, compared to -683 thousand in the same period of the previous year, still driven by reduced demand for prepaid offers, resulting from regulatory changes and a general market trend towards postpaid. In Q2 however, we saw early signs of improving churn and for the first time since the introduction of the regulatory changes in 2017 posted positive net adds of +3 thousand (-148 thousand in Q2 2018). Postpaid churn reached -1.5% in the first six month and Q2 respectively, a slight improvement of -0.1 percentage points in the half year and stable year-on-year in the second quarter, resulting from a sustained retention focus. O₂ consumer postpaid churn saw a further year-on-year improvement to -1.3% in the January to June period and to -1.2% in the second quarter. The implied annualised churn rates of -15.1% for H1 and -14.3% in Q2 already go beyond our 2 p.p. target for 2022 (vs. 18.0% at FY 2017). Smartphone penetration [17] was 67.9% at the end of June across brands and segments, +4.5 percentage points year-on-year. The LTE customer base grew by +21.6% year-on-year to 20.2 million accesses as of 30 June 2019, driven by the sustained demand for high-speed mobile data services. LTE-penetration across the base reached 48.0%, up +8.3 percentage points year-on-year, while in postpaid LTE penetration is significantly higher already at ~65%. ARPU trends continue to show the impact of the expected regulatory drag (see outlook 2019). Furthermore, visible ARPU accretive effects from the O₂ Free portfolio and new value added services are also still partially offset by legacy base effects. Nevertheless, the blended mobile ARPU reached EUR 9.9 in the first half of 2019 and EUR 10.0 in the April to June period, up +0.1% and +0.2% year-on-year respectively. Postpaid ARPU fell -3.5% year-on-year to EUR 14.3 in the first six month and -3.3% year-on-year (from -3.8% year-on-year in the previous quarter) to EUR 14.4 in the second quarter of 2019. Prepaid ARPU came to EUR 5.8 in the January to June period and to EUR 5.9 in the second quarter, a plus of +3.2% and +3.0% year-on-year respectively. The fixed retail ARPU reached EUR 23.4 in the first half of the year and Q2 respectively (-5.3% year-on-year in H1 and -4.9% in the second quarter) and reflects promotional activities as well as a higher share of bundles in the customer base. The fixed retail broadband customer base totalled approx. 2.2 million accesses, an increase of +5.5% year-on-year. In the first half year of 2019 we saw +82 thousand net additions, thereof +38 thousand in the second quarter driven by the strong traction of the VDSL portfolio. VDSL posted +124 thousand net additions from January to June and +59 thousand in Q2. Telefónica Deutschland financial performance in the first half of 2019 Revenue came in at EUR 3,564 million in the first half of 2019, an increase of +1.1% year-on-year (EUR 1,785 million in the second quarter, +1.6% year-on-year) helped by continued strong demand for handsets and the turnaround in mobile service revenue in the second quarter of 2019. Excluding negative regulatory effects of EUR -25 million (mainly MTR) [18], revenue was up +1.8% year-on-year in the first six month to 3,589 million and +2.4% higher year-on-year in Q2 reaching EUR 1,799million. Mobile service revenue [19] reversed prior quarters' trends and broke the zero line in Q2 2019, totalling EUR 2,599 million (+0.1% year-on-year) in January to June period and EUR 1,319 million (+0.6% year-on-year) in Q2. We are seeing positive effects from O₂ Free new connector ARPU, while headwinds from legacy base rotation and retention activities are gradually easing. Excluding negative regulatory effects of EUR -22 million in the half year (EUR -13 million in Q2), underlying mobile service revenue accelerated to +0.9% year-on-year in the first half of the year and +1.5% year-on-year in the second quarter. Underlying mobile service revenue totalled EUR 2,622 million in the January to June period and EUR 1,331 million in the second quarter. Mobile data revenue grew +3.8% year-on-year to EUR 1,480 million in the first six months of 2019 and +3.6% year-on-year to EUR 751 million in the April to June period, a reflection of the unabated customer demand for larger data bundles. As a percentage of data revenues, non-SMS data revenues increased +5.9 percentage points year-on-year to 90.4% in the first half year. Handset revenue was up +12.8% higher year-on-year to EUR 596 million in the first half of the year, and +12.9% higher year-on-year at EUR 281 million in the second quarter of the year with a steady demand for high value smartphones, that was further helped by promotional activities. Fixed revenue reached EUR 367 million (-6.1% year-on-year) in the January to June period and showed a slowing decline in the second quarter of 2019, reaching EUR 185 million (-3.5% year-on-year). Fixed retail revenue fell only -0.9% in Q2 (compared to -3.9% in Q1) on sustained demand for VDSL services and despite a higher bundle share in the customer base. Other income came to EUR 78 million in the first six months of 2019 (+14.1% year-on-year) and EUR 47 million (+41% year-on-year) in Q2 and is mainly generated by the capitalisation of network related rollout costs. Operating expenses fell -6.3% year-on-year in the half year and -4.5% year-on-year in the second quarter under IFRS 16 accounting standards, reaching EUR 2,559 million and EUR 1,263 million respectively. The implementation of IFRS 16 accounting standards and the resulting impact on operating lease expenses is the major driver of this development and adds to lower supplies and integration related savings. Operating expenses include exceptional [20] costs of EUR 22 million in the half year (EUR 12 million in Q2), mainly related to remaining rental obligations in the mobile and the legacy fixed network. According to IAS 17, restructuring charges [21] were EUR 40 million in the half year and EUR 17 million in Q2. - Supplies were -2.7% lower year-on-year in H1 and totalled EUR 1,094 million vs -2.2% year-on-year and EUR 527 million in Q2. Hardware cost of sales (54% of supplies in the January to June period) were higher year-on-year in line with the strong demand for handsets, while connectivity-related cost of sales (43% of supplies in first half of 2019) came in lower year-on-year, as higher wholesale costs for outbound roaming and international calls within the EU were more than compensated by lower costs for voice termination - Personnel expenses adjusted for restructuring costs of EUR 6 million declined -1.8% year-on-year in the first half of 2019 to EUR 296 million (-2.6% year-on-year to EUR 146 million in Q2) as inflation-related salary adjustments in 2018 were more than offset by integration-related savings - Other operating expenses [22] included exceptional [23] effects of EUR -16 million and reached EUR 1,162 million in the six months period (EUR -6 million and EUR 584 million respectively in Q2). The significant decrease of -10.8% year-on-year in the half-year (-7.7% in the second quarter) is due to the implementation of IFRS16 accounting standards and the resulting impacts on operating lease expenses. Commercial costs and non-commercial costs made up 66% and 32% respectively in the January to June period Operating Income before Depreciation and Amortisation (OIBDA) adjusted for exceptional [24] and regulatory effects [25] reached EUR 902 million based on IAS 17, +0.7% year-on year in the first half of 2019 (EUR 489 million, +0.5% year-on-year in Q2). As per IFRS 16 accounting standards underlying OIBDA increased +25.2% year-on-year to EUR 1,121 million in the January to June period (+21.7% year-on-year to EUR 593 million in Q2). Please be aware that public consensus figures tend to mix IAS 17 and IFRS 16 estimates for our company this year; you will find regular updates of the full-year, company-gathered consensus under both accounting standards on our website: https://www.telefonica.de/investor-relations-en/share/analyst-recommendation.html. Exceptional effects24 consists of restructuring costs mainly related to remaining network rental agreements and provisions for severance payments. Regulatory effects came to EUR -15 million in the first six months (EUR -10 million in Q2), consisting mainly of usage elasticity effects from the European roaming and international calls regulation, with the latter coming into effect as of 15 May 2019. Including those exceptional and regulatory effects, OIBDA based on IFRS 16 came in at EUR 1,084 million, +25.6% year-on-year in the first six months of 2019 (EUR 570 million; +21.5% year-on-year in Q2). Telefónica Deutschland continued to invest in transformation and into the market to generate future revenue growth. We saw early transformation savings of ~EUR 15 million in the first half of 2019 (~EUR 10 million in Q2), as well as remaining roll-over effects from integration synergies of ~EUR 30 million (~EUR 10 million in Q2). The underlying OIBDA margin24, 25 expanded by +5.8 percentage points year-on-year to 31.2% in H1 2019 under IFRS 16. Group fees amounted to EUR 17 million in the first half year and to EUR 8 million in the second quarter of 2019. Depreciation & Amortisation totalled EUR 1,215 million in the January to June period, an increase of +29.6% year-on-year, driven by the implementation of IFRS 16 as a bulk of the operating lease expenses become Right-of-Use assets on the balance sheet. As per IAS 17, Depreciation & Amortisation amounted to EUR 976 million, -4.1% y-o-y, mainly due to the shortened useful life of network equipment as a result of the network integration. The operating loss for the first six month of 2019 was EUR -131 million versus an operating loss of EUR -74 million in the same period of 2018. The net financial expenses for the half year amounted to EUR -26 million compared to EUR -19 million in the prior year. The Company reported no material income tax expenses in the first half year of 2019. The net loss in the first six month of 2019 came in at EUR -156 million, compared to a net loss of EUR -93 million in the same period of the prior year. CapEx [26] reached EUR 496 million reflecting the continued LTE roll-out effort, including synergies of EUR ~25 million in the first six month with a C/S ratio of 13.9%, there of EUR 243 million in Q2 with a C/S ratio of 13.6%. Operating cash flow (OIBDA minus CapEx26) for the January to June period was EUR 588 million (+34.0% year-on-year), as a result of the in-year phasing of Capex26 and the positive IFRS 16 impacts on OIBDA. Free cash flow (FCF) [27] including the dividend payment of EUR 803 million for the financial year 2018 came to EUR -481 million for the first six month 2019 under IFRS 16 compared to EUR -689 million in the prior year under IAS 17, showing the typical seasonal phasing. Lease payments, primarily for leased lines and antenna sites, which are capitalised under IFRS 16, amounted to EUR 323 [28] million. As a result normalised FCF under IAS 17 stood at EUR -1 million in the first half year of 2019. We maintain strong confidence in our ability to generate future FCF growth. Working capital movements and adjustments were negative in the amount of EUR -228 million. This developments was mainly driven by prepayments for incidental lease costs and short-term leases in connection with leased line and mobile site rental and other prepayments (EUR -20 million), a decrease in Capex payables (EUR -9 million), a reduction in restructuring provisions (EUR -6 million) as well as other working capital movements in the amount of EUR -192 million. The latter include silent factoring transactions for handset receivables in the gross amount of EUR 315 million, which were outweighed by other working capital movements, including a reduction in trade and other payables and inventories. Following the dividend payment for the financial year 2018 of EUR 803 million in May, consolidated net financial debt [29] under IFRS 16 stood at EUR 4,464 million as of 30 June 2019 with a leverage ratio of 1.9x [30]. Under IAS 17, leverage ratio was 1.0x and thus in line with the self-defined target. The implied leverage ratio including both the annualised IFRS 16 effects and the effects of the upcoming payment29 for 5G spectrum would be 2.5x30 as of 30 June 2019. As reflected in the outlook 2019, over the course of the financial year 2019 we will review our self-defined leverage target for two reasons: Firstly, we will reflect the technical changes triggered by the introduction of the IFRS 16 accounting standard. Secondly, we envisage a move to an increased target leverage, allowing us to utilise our full financial flexibility with regards to the upcoming 5G investments, whilst maintaining our BBB investment grade rating from Fitch. Fitch has confirmed our BBB Rating on 26 June 2019, envisaging that Telefónica Deutschland's FFO adjusted net leverage increases to 2.7x in 2019 (from 2.2x in 2018) driven by spectrum payments. 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/publications/financial-publications.html Further information Telefónica Deutschland Holding AG Investor Relations Georg-Brauchle-Ring 50 80992 München Dr. Veronika Bunk-Sanderson, Director Communications & Investor Relations Marion Polzer, Head of Investor Relations Eugen Albrecht, Senior Investor Relations Officer Pia Hildebrand, Investor Relations Officer Sophia Patzak, Investor Relations Officer Saskia Puth, Office Manager 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 summarised 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. [1] Unless indicated otherwise, all financial KPIs and year-on-year comparisons published in this document are prepared in accordance with IFRS accounting standards as adopted by the European Union. Financial KPIs for 2019 therefore include the effects of the implementation of IFRS 16 as of 1 January 2019 [2] Excluding the negative impact from regulatory changes; mainly driven by the MTR regulation (mobile termination rate cut to EURc 0.95 per minute as of 1 Dec 2018) and the international call regulation within the EU that kicked-in as of 15 May 2019 [3] Adjusted for exceptional effects and excluding the negative impact from regulatory changes; mainly usage elasticity effects from the European roaming regulation and the international call regulation within the EU [4] Excluding a revenue-neutral technical base correction in M2M, mobile postpaid saw +369 thousand net additions [5] Excluding the negative impact from regulatory changes; mainly driven by the MTR regulation (mobile termination rate cut to EURc 0.95 per minute as of 1 Dec 2018) and the international call regulation within the EU that kicked-in as of 15 May 2019 [6] Mobile service revenues include base fees and fees paid by our customers for the usage of voice, sms and mobile data services. Also, access and interconnection fees as well as other charges levied on our partners for the use of our network are included [7] Exceptional effects were EUR 22 million of restructuring expenses in the period January to June 2019 (EUR 40 million based on IAS 17). The difference between restructuring charges under IAS 17 and IFRS 16 is due to the fact that certain IAS 17 operating lease commitments require the recognition of provisions, whereas those are recognised as lease liabilities under IFRS 16. Regulatory effects amounted to EUR -15 million in the period January to June 2019 [8] Excluding additions from capitalised right-of-use assets (as of 1 January 2019) and excluding additions from capitalised finance leases (till 31 December 2018) [9] Net financial debt includes current and non-current interest-bearing financial assets and interest-bearing liabilities as well as cash and cash equivalents and excludes the payables for the spectrum auction [10] Non-audited. Leverage ratio is defined as net financial debt divided by the OIBDA for the last twelve months adjusted for exceptional effects. Thus, leverage under IFRS 16 is calculated based on an extrapolated rolling 12-month OIBDA. It will only be possible to report a leverage ratio based on actuals under IFRS 16 with the publication of the financial statements for 2019 [11] Telefónica Deutschland acquired a total of 90 MHz in spectrum at a total cost of EUR 1.425 billion, thereof EUR 1.25 billion are due in September 2019 and EUR 170 million in 2024 [12] For more information, please refer to the materials of the quarterly reporting during the period [13] Exceptional effects such as restructuring costs or the sale of assets are excluded [14] Excluding additions from capitalised right-of-use assets (as of 1 January 2019) and excluding additions from capitalised finance leases (till 31 December 2018) [15] Based on 6 months inactivity accounting, mobile customer base stood at 45.3 million accesses and our total access base reached 49.6 million [16] Excluding a revenue-neutral technical base correction in M2M, mobile postpaid saw +369 thousand net additions [17] Defined as the number of active mobile data tariffs over total mobile customer base, excluding M2M and data-only accesses [18] Mobile termination rates were lowered to EURc 0.95 per minute from EURc 1.07 per minute as of 1 Dec 2018 [19] Mobile service revenues include base fees and fees paid by our customers for the usage of voice, sms and mobile data services. Also, access and interconnection fees as well as other charges levied on our partners for the use of our network are included [20] Exceptional effects were EUR 22 million of restructuring expenses in the period January to June 2019 (EUR 40 million based on IAS 17) [21] The difference between restructuring charges under IAS 17 and IFRS 16 is due to the fact that certain IAS 17 operating lease commitments require the recognition of provisions, whereas those are recognised as lease liabilities under IFRS 16 [22] Includes other expenses and impairment losses in accordance with IFRS 9 [23] Exceptional effects were EUR 22million of restructuring expenses in the period January to June 2019 (EUR 40 million based on IAS 17). The difference between restructuring charges under IAS 17 and IFRS 16 is due to the fact that certain IAS 17 operating lease commitments require the recognition of provisions, whereas those are recognised as lease liabilities under IFRS 16 [24] Exceptional effects were EUR 22 million of restructuring expenses in the period January to June 2019 (EUR 40 million based on IAS 17). The difference between restructuring charges under IAS 17 and IFRS 16 is due to the fact that certain IAS 17 operating lease commitments require the recognition of provisions, whereas those are recognised as lease liabilities under IFRS 16 [25] Regulatory effects amounted to EUR -15 million in the period January to June 2019 [26] Excluding additions from capitalised right-of-use assets (as of 1 January 2019) and excluding additions from capitalised finance leases (till 31 December 2018) [27] Free cash flow pre dividends and payments for spectrum (FCF) is defined as the sum of cash flow from operating activities and cash flow from investing activities and does not contain payments for investments in spectrum as well as related interest payments [28] Includes EUR 327 million of lease payments under IFRS 16 and -EUR 4 million of former IAS 17 finance lease payments [29] Net financial debt includes current and non-current interest-bearing financial assets and interest-bearing liabilities as well as cash and cash equivalents and excludes the payables for the spectrum auction [30] Non-audited. Leverage ratio is defined as net financial debt divided by the OIBDA for the last twelve months adjusted for exceptional effects. Thus, leverage under IFRS 16 is calculated based on an extrapolated rolling 12-month OIBDA. It will only be possible to report a leverage ratio based on actuals under IFRS 16 with the publication of the financial statements for 2019

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Language: English Company: Telefónica Deutschland Holding AG Georg-Brauchle-Ring 50 80992 München Germany Phone: +49 (0)89 24 42 0 Internet: www.telefonica.de ISIN: DE000A1J5RX9 WKN: A1J5RX Listed: Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich, Stuttgart, Tradegate Exchange EQS News ID: 845585 MDAX TecDAX End of News DGAP News Service

845585 24.07.2019