Telefónica Deutschland increases profitability and grows thanks to increasing contract customer base

After growth in the first half of the year, Telefónica Deutschland is on track to meet its targets for 2018. From January to June, the company increased its operating income before depreciation and amortisation (OIBDA) adjusted for exceptional and regulatory effects by 6.1% to EUR 927 million. This was driven mainly by further synergies from the merger with E-Plus as well as the cost-efficient acquisition of new customers. Adjusted for regulatory effects, revenues increased by 0.3% to EUR 3.55 billion in the first half of the year. Revenues from devices and mobile services had a positive effect here. The number of mobile contract customers rose by 333,000 in the second quarter thanks to attractive new tariffs. Mobile data use grew particularly sharply in this period with an increase of 54%, with the new O₂ Free tariffs with extra-large data packages playing a crucial role. “We are on track for growth thanks to our successful data monetisation and are constantly increasing our profitability,” commented Markus Haas, CEO of Telefónica Deutschland. “In the second half of the year, we want to keep up the pace and continue with our transformation into Germany’s Mobile Customer and Digital Champion.” Markus Rolle, the company’s CFO, added: “We are investing continuously in the modernisation of our network and in innovative tariffs that really help our customers. We have already laid a strong foundation for the rest of the year.”

Telefónica Deutschland’s mobile business continues to develop positively. The launch of attractive new O₂ tariffs made a particular contribution here. In the second quarter, the company more than doubled the number of new contract customers acquired: From April to June, there were 333,000 new mobile subscriptions (Q1 2018: +157,000). There were 45.2 million mobile subscriptions in total at the end of June. No mobile provider in Germany supplies more people than Telefónica Deutschland. In the fixed line business, the company continued to grow in the area of VDSL connections. In total, the company served 49.4 million connections at the mid-point of the year. At the same time, demand for data increased significantly: 151,620 terabytes of data flowed through the company’s mobile network from April to June, up 54% on the same period of the previous year. The growth was particular strong among O₂ customers with LTE, whose monthly consumption increased by 69% in the second quarter to an average of 3.4 gigabytes (GB) per month. Users of the O₂ Free M tariff were already averaging 6 GB a month.

Adjusted for regulatory effects, mobile service revenues continued to develop positively, increasing by 0.5% to EUR 2.62 billion in the first half of the year. The increase in the second quarter amounted to 0.6%. This was driven chiefly by the revenue-boosting effect of the new O₂ Free tariffs with extra-large data packages. Including regulatory effects, chief among them the removal of roaming charges in Europe, mobile service revenues declined by 0.5% in the first half of the year. Revenues with smartphones and tablets grew by 9.7% to EUR 529 million in the first six months. In contrast, revenues from the fixed line business fell as expected by 11% to EUR 391 million in this period. Overall, adjusted revenues increased to EUR 3.55 billion in the first half of the year, which equated to growth of 0.3%.

Telefónica Deutschland’s operating income grew thanks to synergies from the merger with E-Plus and efficient marketing spending. In the first half of the year, OIBDA adjusted for exceptional and regulatory effects increased by 6.1% to EUR 927 million. In the second quarter, the increase amounted to 6.8%, with the operating margin rising by 1.8 percentage points to 28.4%. In the first half of the year, Telefónica Deutschland invested EUR 424 million in CapEx (same period of the previous year: EUR 434 million) and thus 12% of its revenues. After the first half of the year, the company is therefore on track to achieve the CapEx to revenue ratio of 12% to 13% targeted for 2018. The total loss for the period from January to June amounted to EUR 93 million – a considerable improvement compared to the EUR 139 million from the first half of 2017. Free cash flow (FCF) amounted to EUR 84 million in the first half of the year (H1 2017: EUR 68 million). Consolidated net financial debt⁴⁾ amounted to EUR 1.80 billion at the mid-point of the year. At 1.0, the leverage ratio is within the defined upper limit.

Very good progress was made on the modernisation of the network infrastructure in the first half of the year; the integration of the Telefónica Deutschland and E-Plus networks is moving towards the finish line. In ever more cities like Munich, Stuttgart, Halle, Braunschweig and Potsdam, it is becoming clear that the consolidated network is equal to the competition. At the same time, the company is laying the foundation for the network of the future: Mobile tower sites are being connected with fibre optic cables as part of a cooperation agreed this month with NGN Fiber Network KG, in order to improve the performance of LTE masts and prepare sites for use in a future 5G infrastructure. The company has opted for partnerships here in order to accelerate the network expansion as much as possible. There was a positive signal for network expansion in Germany from the world of politics a few weeks ago: Federal and state governments, leading municipal associations and industry joined together to make an ambitious declaration of intent to eradicate areas without broadband coverage in Germany. In return, the government has agreed to offer better payment conditions for frequency allocations and offered the prospect of a funding programme for mobile communications as well as rules for the upcoming allocation of 5G frequencies that are more supportive of investments.

The company delivered important tariff innovations in the second quarter: O₂ launched a brand new tariff portfolio with especially large high-speed data packages. The Connect function allows up to ten mobile devices to be used via one central tariff at no extra cost – an absolute novelty on the market. In mid-June, Blau also revamped its entire postpaid tariff portfolio in order to offer even more attractive value for money. The digital transformation of Telefónica Deutschland as part of the Digital4Growth strategy announced in February is also making further progress. The company plans to become Mobile Customer and Digital Champion by 2022 and to continue growing profitably. As part of this plan, Telefónica Deutschland is currently pushing ahead with the preparation of the necessary IT architecture and the interlinking of sales channels. This will be reflected in increased use of the O₂ app and more self-service when purchasing products and services and solving problems. This progress contributes to making the company even simpler, faster and better.