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Telefónica Deutschland Holding AG: Telefónica Deutschland already benefits from integration synergies in the second quarter of 2015

DGAP-News: Telefónica Deutschland Holding AG / Key word(s):
Preliminary Results/Half Year Results
Telefónica Deutschland Holding AG: Telefónica Deutschland already
benefits from integration synergies in the second quarter of 2015

29.07.2015 / 07:30

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MUNICH, 29 July 2015

Preliminary results for January to June 2015:

Telefónica Deutschland already benefits from integration synergies in the
second quarter of 2015

- Strong 9.8% y-o-y OIBDA growth in the first half and +13.5% y-o-y in
the second quarter from a focused commercial approach and the first
benefits from integration synergies

- Revenue growth of 2.1% y-o-y1 until June 2015 leveraging momentum in
the market and focus on mobile data monetisation

- Tangible results from 3G national roaming and LTE expansion, paving the
way for an enhanced network perception amongst customers

- Strong spectrum portfolio post June 2015 auction fully enables our long
term aspiration to become the Leading Digital Telco in Germany

- Financial outlook for the year 2015 confirmed, including operating cash
flow savings of approx. 30% of expected run-rate of synergies in year
five of integration

Second quarter 2015 operational & financial highlights1

- Net additions in mobile postpaid reached 201 thousand, reflecting an
increased contribution from business and partner brands to gross
additions, while the rate of churn in the O2 consumer brand further
improved to 1.3%. Prepaid performance was strong with 237 thousand net
additions.

- LTE customer base showed a strong progression until June 2015 to 6.093
million.

- Mobile service revenues were broadly stable year-on-year, which is a
reflection of our strategy to drive value through the development of
the customer base, particularly in premium brands.

- Revenues reached EUR 1,949 million (+1.3% year-on-year), with mobile
service revenues (+0.2% year-on-year) and handset sales (+18.7%
year-on-year) outweighing a 9.5% year-on-year decline in fixed
revenues.

- OIBDA excluding exceptional effects totalled EUR 453 million (+13.5%
year-on-year), an acceleration over previous quarter performance, with
more than 40% of the year-on-year evolution in the quarter already
explained by savings from the integration.

- CapEx (excluding investments in spectrum) amounted to EUR 242 million
(+8.2% year-on-year). Investments continued to be focused on the
development of one LTE network, with a good progression towards the
coverage target of approximately 75% by the end of 2015.

- Free Cash Flow (FCF) for the first half of 2015 amounted to EUR 94
million, mainly reflecting a good progression of the Operating Cash
Flow (OIBDA-CapEx) and a contribution of EUR -306 million from changes
in working capital, driven by prepayments, payments for CapEx from the
fourth quarter of 2014 and other effects.

- Consolidated net financial debt was EUR 1,778 million at the end of
June 2015, reaching a leverage ratio of 1.2x. This increase in leverage
mainly reflects the annual dividend payment of EUR 714 million after
AGM approval in May 2015 and the one-off payment of EUR 976 million in
June 2015 (out of a total consideration of EUR 1,198 million) for
spectrum licenses with a 17 year term.



Progress of integration and transformation activities

During the second quarter of 2015, Telefónica Deutschland continued with
the execution of the integration and transformation projects that are
expected to release EUR 250 million run-rate savings (OIBDA-CapEx) for the
full year 2015, with a visible impact in OIBDA from the second quarter of
the year:

- At the end of June, around 750 full time equivalents (FTEs) had
accepted the terms of the redundancy program for a total of 1,600 FTEs
by 2018.

- As of 29 June 2015 the Company started the transfer of the 301 shops
acquired by Drillisch, of which 102 were own shops and 199 partner
shops. Drillisch is also taking over approximately 300 shop employees
plus additional office and field staff. This transfer of shops will
contribute significantly to the planned consolidation of the shop
footprint of Telefónica Deutschland. The Company intends to further
reduce overlaps with the divestiture of an additional number of more
than 100 shops until year-end.

- In July 2015, Telefónica Deutschland agreed to transfer approx. 7,700
mobile sites to Deutsche Telekom as part of the planned network
consolidation, helping the Company to drive a more efficient site
dismantling process over time.

- As a result of the ongoing corporate structural simplification effort,
at the end of June 2015, a number of operating companies were merged
into Telefónica Germany GmbH & Co. OHG, with the respective transfer of
contracts with employees and customers.

- Telefónica Deutschland is further progressing with the inner-city
consolidation of its facilities and offices, setting Munich, Düsseldorf
and Hamburg as the main activity centres of the Company.



Recent developments in Telefónica Deutschland's commercial offer and
network

Telefónica Deutschland has taken some important steps to enhance its
network quality and stimulate mobile data consumption within the customer
base, leveraging new commercial propositions to further monetise mobile
data:

- As a result of the completion of the 3G national roaming project, our
joint network infrastructure now reaches about 90% of the population in
Germany. It also gives the densest 3G coverage in urban regions while
further expanding coverage in rural areas with download speeds of up to
42 Mbps. This is a major step in our goal to provide our whole customer
base with the best network experience.

- Telefónica Deutschland's new sales and service organisation has started
to focus its distribution network under the O2 brand, including the
harmonisation of the consolidated shop footprint.

- Since mid-April 2015, the "blau" brand is offered as well throughout
the full O2 shop footprint, strengthening our product portfolio in the
discount price range.

- Telefónica Deutschland secured a strong spectrum portfolio after June
2015 auction, particularly in the bands over 1 GHz, which are normally
used to deploy high capacity mobile data network overlays. The Company
acquired a 60 MHz package in the 700, 900 and 1,800 MHz bands for a
total consideration of EUR 1,198 million.

Reiteration of 2015 financial outlook< /b>

          Base line for 2014  H1 2015              Outlook for 2015
          (EUR million)       (y-o-y pct. growth)  (y-o-y pct. growth)


Mobile    5,528               +0.8%                Broadly stable
Service
Revenues


OIBDA     1,461               +9.8%                >10%


CapEx     1,161               +5.6%                High single digit pct.
                                                   decline

Telefónica Deutschland's operating performance in the second quarter of
2015

At the end of June 2015, Telefónica Deutschland's access base reached 48.0
million, an increase of 1.6% year-on-year on the back of continued growth
of the mobile base, which stood at 42.6 million (+2.4% year-on-year), while
fixed accesses declined by 4.5% year-on-year to 5.4 million.

Postpaid mobile net additions in the second quarter of 2015 amounted to 201
thousand, higher than in the previous quarter (141 thousand). This resulted
from the higher contribution to gross additions from partners and Business
connections, and the ongoing focus on customer base development, especially
in consumer premium brands. Total postpaid mobile base reached 19.1 million
accesses at the end of June 2015, with their share over total mobile
customer base ending at 44.9%.

Mobile prepaid net additions were strong with 237 thousand in the second
quarter of 2015 (-87 thousand in the first quarter), with a strong
contribution from partner brands. At the end of June 2015, the mobile
prepaid base was 23.5 million.

Postpaid churn was 1.7% at the end of June 2015, a stable performance over
the previous quarter. This was mainly driven by Telefónica Deutschland's
focus on retention of its customer base, where the specific O2 consumer
brand reached a churn level of 1.3% at the end of June 2015.

Smartphone penetration at the end of June 2015 reached 76% in the O2
premium consumer postpaid base (4 percentage points year-on-year increase)
as a result of the continued commercial focus on data monetisation and a
value-based approach to handset sales from the beginning of the year.
Smartphone penetration, including prepaid brands, reached 51.3% (an
increase of 1.5 percentage points over the previous quarter). This
improvement was mainly driven by the stimulation of the adoption of
smartphones and usage of mobile data within the prepaid customer base,
particularly in partner brands.



LTE customer base stood at 6.093 million at the end of June 2015, with a
strong sequential improvement over previous quarters as a result of a
conscious approach from the Company to maximise the usage of the LTE
network through a very focused commercial approach and the opening of the
LTE network to the whole O2 postpaid customer base.

Mobile ARPU in the second quarter of 2015 was EUR 10.8 (-2.2%
year-on-year). Postpaid ARPU9 was EUR 17.2 in the same period, stable over
the previous quarter and lower by 4.7% year-on-year, with a higher weight
of wholesale customers from partner brands added to the network. Prepaid
ARPU for the second quarter of 2015 was EUR 5.9, showing 5.0% year-on-year
growth and +4.7% over the previous quarter.

The retail fixed broadband access base declined by -3.5% year-on-year to
2.1 million at the end of June 2015, showing a lower number of net
disconnections (-13 thousand) than in previous quarters. VDSL net additions
continued to be strong at 58 thousand in the second quarter, similar to the
66 thousands added in the previous quarter.

Wholesale broadband fixed accesses registered 26 thousand net
disconnections in the quarter in a context of progressive decommission of
our unbundled local loop (ULL) broadband access infrastructure.



Telefónica Deutschland's financial performance in the first half of 2015

Revenues for the first half of 2015 totalled EUR 3,849 million, an increase
of 2.1% over the previous year, while in the second quarter they increased
1.3% year-on-year to EUR 1,949 million.

Mobile service revenues in the first half of 2015 showed a 0.8%
year-on-year growth to EUR 2,735 million, while in the second quarter they
maintained a positive momentum (+0.2% year-on-year) to EUR 1,382 million.

The evolution of mobile service revenues since the beginning of the year is
the reflection of our conscious strategy to drive value through the
development of our customer base, particularly in premium consumer brands.
Almost two thirds of the growth rate deceleration seen from the first
quarter (+1.5% year-on-year) is driven by a lower year-on-year postpaid
trading in the retail business.

Mobile data revenues totalled EUR 1,400 million in the first half of 2015
(EUR 707 million in the second quarter). The share of mobile data revenues
over total mobile service revenues in the first half of 2015 and in the
second quarter was 51.2%, while the share of non-SMS data revenues over
total data revenues was 71.0% in the same period and 71.5% in the second
quarter.

Mobile data usage for LTE customers continued to show strong growth (+22%
quarter-on-quarter to 959 Mb/month ), driven by the steady adoption of
LTE-enabled handsets by customers and the growing usage of audio and video
streaming applications.

The Company continued to see a sequential improvement in the adoption mix
of tariffs under the new O2 Blue portfolio, with approx. 35% of gross
additions in the second quarter of 2015 taking a tariff with more than 1 Gb
monthly allowance (approx. 32% in the previous quarter). The new data
automatic feature, which provides an unrestrained mobile data experience
for the customer, already consolidated as the market-leading tool for
mobile data monetisation. Since February 2015, the rate of automatic
extensions of monthly data allowance increased to 34% of the opted-in
customer base.

Handset revenues amounted to EUR 586 million in the first half of 2015
(+23.4% year-on-year), while in the second quarter they reached EUR 303
million (+18.7% year-on-year), reflecting a good acceptance of the
Company's value-based approach from the beginning of the year and the
growing amount of handset sales to partners.



Fixed business revenues amounted to EUR 521 million in the first half of
2015, a decline of 10.2% year-on-year, while in the second quarter they
reached EUR 260 million (-9.5% year-on-year). The better revenue
performance over the previous quarter reflects the ongoing balance between
retail DSL dynamics and a declining fixed business for wholesale ADSL and
voice carrier business, where the contribution from retail DSL revenues to
year-on-year decline of fixed business revenues improved from -6.9 in the
first quarter to -4.8 percentage points in the second quarter of 2015.

Operating expenses in the first half of 2015 totalled EUR 3,087 million
(flat year-on-year) while in the second quarter they amounted to EUR 1,535
million (an improvement of 2.1% year-on-year); including restructuring
costs of EUR -3 million:

- Supplies amounted to EUR 1,306 million. In the second quarter, they
were EUR 646 million, of which 45% were hardware costs of sales and 46%
connectivity cost of sales.

- Personnel expenses amounted to EUR 345 million. In the second quarter,
personnel expenses were EUR 166 million, with base salaries making up
77% of total.

- Other operating expenses amounted to EUR 1,436 million. In the second
quarter they were EUR 723 million, of which commercial and
non-commercial costs represented 58% and 38%, respectively.

Operating Income before Depreciation and Amortisation (OIBDA) improved
significantly throughout the first half of 2015 to EUR 845 million,
registering EUR 450 million in the second quarter. Excluding EUR -3 million
restructuring costs, OIBDA before exceptional effects and after group fees
would have grown 9.8% year-on-year in the first half of 2015 and by 13.5%
in the second quarter. The better performance seen over the previous
quarter (+5.7% year-on-year) is the result from our focused commercial
approach and the first benefits from integration synergies, the latter
driving more than 40% of the OIBDA year-on-year development in the second
quarter.

OIBDA margin was 22.0% for the first half of 2015, and 21.6% before
exceptional effects , with an improvement of 1.5 percentage points over the
previous year. In the second quarter of 2015, OIBDA margin before
restructuring costs and after group fees was 23.3%, a sequential
improvement over the previous quarters mainly related to the increased
sales of handset with a significant turnaround in hardware margin.

OIBDA excluding group fees amounted to EUR 869 million in the first half of
2015 (22.6% margin) and EUR 461 million in the second quarter (23.6%
margin). Before exceptional effects, it was EUR 854 million (22.2% margin),
and EUR 464 million in the second quarter, reaching a margin of 23.8%.

Depreciation & Amortisation totalled EUR 1,087 million in the first half of
2015, compared to EUR 534 million reported in the same period of 2014.
Depreciation & amortisation in the second quarter 2015 was EUR 532 million,
similar to previous quarter's figure (EUR 555 million). The strong increase
over last year's reported numbers is mainly driven by the incorporation of
E-Plus Group in 2014 and the first impacts from the consolidation of both
networks.

With respect to the spectrum assets acquired in the auction (with a book
value of EUR 1,194 million at the end of June 2015), the renewed licenses
in the 900 and 1800 MHz bands will begin to be amortised from January 2017,
while the newly acquired spectrum in the 700 MHz band will contribute to
amortisation expenses after its final release by the Authorities.

Operating income was EUR -242 million for January to June 2015 (EUR -82
million in the second quarter), as depreciation & amortisation charges
still exceeded OIBDA.

Net financial result for the first half of 2015 was negative in the amount
of EUR 34 million (EUR -18 million in the second quarter). This was mainly
the effect from the different financing activities executed in the past
(the bonds issued in November 2013 and February 2014), the promissory note
executed in March 2015 as well as interest expenses from finance lease
obligations.

The Company did not pay significant current income taxes for January to
June 2015.

The result for the first half of 2015 was EUR -276 million (EUR -100
million in the second quarter), mainly due to the above-mentioned
performance of the operating income.

CapEx (excluding investments in spectrum) in the first half of 2015
amounted to EUR 463 million (+5.6% year-on-year) while in the second
quarter, it reached EUR 242 million (+8.2% year-on-year). Investments
continued to be focused on the development of one LTE network, with a good
progression into our coverage target of approximately 75% by the end of
2015.

Operating cash flow (OIBDA minus CapEx excluding investments in spectrum)15
for the first half of 2015 was EUR 383 million (EUR 208 million in the
second quarter). Before exceptional effects, operating cash flow showed
strong year-on-year growth rates of 15.7% and 20.4%15, respectively for the
first half and second quarter of 2015.

Free Cash Flow (FCF) for the first half of 2015 reached EUR 94 million, of
which EUR 61 million were proceeds from the sale of yourfone GmbH in the
first quarter.

Working capital movements of EUR -306 million were mainly driven by the
prepayments (mainly rents) of EUR -158 million until June, a CapEx reversal
of EUR -136 million from the fourth quarter of 2014, as well as the usual
working capital movements which included silent factoring transactions for
O2 myHandy receivables.

Consolidated net financial debt was EUR 1,778 million at the end of June
2015, reaching a leverage ratio of 1.2x. This was mainly due to the effect
from the EUR 714 million dividend for the financial year 2014 paid in May
2015, and the payment in June for long-term investments in spectrum
licenses (EUR 976 million out of a total consideration of EUR 1,198
million) with a 17 year term.



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/q2-
2015.html

Further information

Telefónica Deutschland Holding AG

Investor Relations

Georg-Brauchle-Ring 23-25

80992 München

Victor J. García-Aranda, Director Investor Relations

Marion Polzer, Senior Manager Investor Relations

Pia Hildebrand, Office Coordinator Investor Relations

(t) [phone]

[e-mail]

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: [phone]
Internet: www.telefonica.de
ISIN: DE000A1J5RX9
WKN: A1J5RX
Listed: Regulated Market in Frankfurt (Prime Standard); Regulated
Unofficial Market in Berlin, Dusseldorf, Hamburg, Munich,
Stuttgart
TecDAX

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381707 29.07.2015