Telefónica Deutschland sees strong OIBDA development for 2018 and proposes higher dividend

Telefónica Deutschland continued the positive development of the first half of the year during the third quarter. Adjusted for special and regulatory effects, operating income before depreciation and amortisation (OIBDA) rose by 6 percent in the first nine months to EUR 1.42 billion. This was primarily due to synergies from the E-Plus merger and the continued positive development of the company’s mobile service revenue. Before regulatory effects, it increased by 0.5 percent year-on-year to EUR 3.97 billion. Overall, revenue remained stable. Mobile data consumption increased by half in the first nine months, mainly due to strong demand for O₂ Free tariffs with large data volumes and the acquisition of 233,000 additional contract customers in the third quarter. Because of the positive business development and due to the faster-than-expected realization of synergies from network consolidation, the company is narrowing its outlook for 2018 and now expects a slightly positive development of adjusted OIBDA. In line with its dividend promise, Telefónica Deutschland is also proposing to increase shareholder remuneration for the current fiscal year by one cent to EUR 0.27 per share.

In the mobile communications segment, Telefónica Deutschland continued the strong trends of the first half of the year. The company was again able to win numerous customers in the contract customer segment while stabilizing its prepaid business. From July to September, Telefónica Deutschland added 233,000 postpaid accesses on balance, bringing net adds this year to 723,000 in this segment (9M 2017: 551,000). This strong development was driven not least by the large-volume O₂ Free tariffs, which enjoyed strong demand. The churn rate in contract customer business remained stable at a low level of 1.6 percent in both the quarter and the first nine months, and it was even lower among O₂ contract customers at 1.4 percent. The company continues to be the German provider that unites the most people on its mobile communications network. The number of customer lines at the end of September was 45.4 million on the basis of a market-comparable calculation. Including the fixed-network segment, Telefónica Deutschland served 49.6 million lines at the end of the quarter. The volume of data used by customers also grew rapidly once again: At 443,100 terabytes, 50 percent more data flowed through Telefónica Deutschland's network between January and September than in the same period of the previous year.

The strong development in customer accesses and data volumes was reflected in further growth in mobile service revenue before regulatory effects. Adjusted mobile service revenue increased by 0.5 percent year-on-year to EUR 3.97 billion in the first nine months of the year. In the third quarter alone, the increase amounted to 0.6 percent year on year. Including regulatory effects, there was a respective decrease of 0.4 percent. As expected, large data tariffs contributed to a positive revenue trend. In the first nine months, average revenue per user (ARPU) was EUR 10, an increase of 3.1 percent. In the third quarter, the increase was 4.2 percent compared to the same period last year. From January to September, Telefónica Deutschland generated revenues of EUR 827 million with handsets, 7.1 percent more than in the first nine months of 2017. This was due to the continued strong demand for smartphones. In the fixed-network business, revenue fell by 11 percent to EUR 582 million, due to the completion of the wholesale DSL business. Overall, revenues adjusted for regulatory effects were stable in the first nine months compared with the same period of the previous year and totalled EUR 5.93 billion. Including these effects, revenues declined by 0.7 percent.

Telefónica Deutschland was again able to increase its operating result in the third quarter. Synergies from the merger with E-Plus were the main reason for the further improvement in earnings. Adjusted for exceptional and regulatory effects, OIBDA amounted to EUR 1.42 billion by the end of September, an increase of 6 percent. The corresponding margin improved by 1.5 percentage points to 26.3 percent for the first nine months. In the third quarter alone, the adjusted OIBDA growth rate was 5.6 percent. This was primarily due to the fact that EUR 20 million of the synergies from network integration originally planned for 2019 will already be generated this year. Including regulatory effects, the increase in the third quarter was 2 percent. The dynamism in network expansion and network integration is reflected in rising investments. In the first nine months, CapEx amounted to EUR 740 million, 7.6 percent more than in the same period of the previous year. This year's investments were concentrated in the third quarter, with spending rising by 25 percent. In terms of investments, the company is on course to achieve its forecast for the year. The net result for the period improved to minus EUR 123 million from minus EUR 178 million in the first three quarters of 2017. Free cash flow (FCF) increased in the first nine months by 12 percent year-on-year to EUR 301 million. Consolidated net financial debt amounted to EUR 1.59 billion at the end of September. The leverage ratio of 0.9 was within the defined upper limit.

In the third quarter, Telefónica Deutschland made further progress in network integration, so that a modern, consolidated high-speed network is now available in numerous cities and regions. Network integration will be largely completed by the end of the year. At the same time, the company invested heavily in the nationwide expansion of LTE. Not only in cities, but also in sparsely populated areas, more and more people can now surf with high bit-rate connections. Particular focus was also placed on expansion along important transport infrastructures such as motorways and railway lines. In the past three months, Telefónica Deutschland also laid the foundations for the rapid further expansion of its network infrastructure. The mobile phone pacts signed in September in Bavaria and Hesse are intended to improve coverage in areas in which operators have not yet expanded nationwide due to a lack of profitability, in cooperation with politicians and local umbrella organizations. At the beginning of October, Telefónica Deutschland also agreed to connect at least 5,000 mobile communications locations to Deutsche Telekom's fibre infrastructure. This expansion of the existing cooperation not only promises higher connection speeds for millions of customers, but also represents an important step towards the future 5G communications standard.

The company also delivered numerous improvements in its product portfolio. Since the introduction of the O₂ Unlimited tariffs in August, Telefónica Deutschland is offering contracts without speed and volume limits for the very first time. And the O₂ my All in One also offers a fixed network connection with telephony and Internet flat rate, as well as the multi-card option O₂ Connect included. Telefónica Deutschland also made progress regarding offers for business customers. In October, the company introduced unlimited rates for companies that are also available in combination with fixed-line telephony and Internet flat rates. Since September, all O₂ and Vodafone customers have been benefiting from improved sound quality when calling each other. In addition, the improved Enhanced Voice Services (EVS) voice standard is now also available for cross-network calls via Voice over LTE.