TELEFÓNICA DEUTSCHLAND HOLDING AG DGAP-News: Telefónica Deutschland Holding AG / Key word(s): Annual Results/Preliminary Results Telefónica Deutschland Holding AG: Confident FY21 outlook on back of strong operational and financial FY20 performance 2021-02-24 / 07:29 The issuer is solely responsible for the content of this announcement. =---------------------------------------------------------------------------------------------------------------------- MUNICH, 24 February 2021 Preliminary results for January to December 2020 Telefónica Deutschland: Confident FY21 outlook on back of strong operational and financial FY20 performance - Achieved FY20 outlook fully absorbing C-19 impacts due to strong operational and financial performance as well as mobile network equalisation - Core business momentum fully intact while international roaming reflects ongoing travel restrictions - Revenues up +1.8% y-o-y in FY20 - growth across all revenue lines - Continued OIBDA^[1] momentum +0.2% y-o-y in FY20 driven by top-line growth and enhanced cost efficiencies despite C-19 drags - C/S ratio of 14.5% in FY20 (Q4: 18.2%) - achieved network equalisation and delivered LTE coverage obligations while accelerating 5G roll-out - Confident FY21 outlook - building on growth momentum and strong network quality while continuously monitoring and analysing C-19 environment Fourth quarter 2020 operational & financial highlights Telefónica Deutschland had a successful start into the company's growth era and the company builds on this growth momentum in FY21 with a clear focus on strategy execution. The business model proves resilient while not immune to the worldwide C-19 environment. Telefónica Deutschland delivered its pre-pandemic set financial outlook for FY20, fully absorbing C-19 related drags mainly on international roaming on the back of strong operational and financial performance. In a continued dynamic yet rational market environment Telefónica Deutschland's business momentum remained fully intact with strong operational performance in Q4 20 despite a further government imposed hard lockdown with O[2] shops closed from mid-December. The continued strong traction of the O[2] Free portfolio resulted in positive trading momentum, leveraging historic low churn levels and increasing NPS on the back of the achieved equalisation of the O[2] network quality and continuously improving services. As a result, revenues posted strong growth momentum across all revenue lines and OIBDA^1 growth momentum continued despite a total of 6 weeks of C-19 related shop closures over the course of FY20 due to the government imposed hard lockdowns in March/April and since mid-December 2020. Telefónica Deutschland accelerated its LTE roll-out and also launched 5G in the first 15 German cities while C-19 restrictions temporarily impacted network deployment. Nevertheless, Telefónica Deutschland successfully achieved the 98% coverage obligation agreed with the Bundesnetzagentur. For the first time, Telefónica Deutschland's O[2] network was awarded a 'very good' rating in the 'connect' magazine test. This recognition is a further confirmation of Telefónica Deutschland's strong network enhancement. In addition, Telefónica Deutschland continues to improve network coverage by engaging in further network sharing opportunities. On 19 January 2021, the company announced a MoU with Deutsche Telekom and a similar agreement with Vodafone for bilateral active network sharing in so-called 'grey spots', targeting a combined minimum of 1,200 sites. Furthermore, Telefónica Deutschland participates in the trilateral passive sharing agreement of the German MNOs for a joint fulfilment of the industry coverage obligations from the 2019 spectrum auction. One year into the execution of Telefónica Deutschland's investment for growth programme, the company hosted a Strategy Update in January 2021 confirming the company's successful start into its growth era. On this occasion Telefónica Deutschland highlighted its recent investment in a 10% minority stake of Unsere Grüne Glasfaser (UGG), the previously mentioned grey spot sharing opportunities and announced an enhanced dividend proposal of EURc 18 per share for FY20. A dividend of EURc 18 per share will also be the increased floor for the years 2021 to 2023 extending the current dividend floor period by one year. Hereby, Telefónica Deutschland confirmed its strong commitment to attractive shareholder remuneration while financial flexibility is the company's foremost priority during unprecedented C-19 times. Operating performance Mobile business Mobile postpaid^[2] registered strong trading momentum, posting +435k net additions in Q4 20 (+1,043k in FY20) compared to +443k in Q4 19 (+1,451k in FY20) on the back of continued historic low churn levels and sustained strong customer demand for the well-performing O[2] Free portfolio as well as a robust performance of partner brands. M2M reported +55k net additions in Q4 20 (+218k in FY20) versus +13k in Q4 19 (+4k in FY19). Mobile prepaid registered -247k net disconnections in Q4 20 (-813k in FY20) compared to -236k in Q4 19 (-447k in FY19) reflecting seasonality and the unchanged prepaid to postpaid migration trend in the market. Postpaid churn improved +0.2 p.p. y-o-y to 1.3% in Q4 20 and +0.1 p.p. y-o-y to 1.4% in FY20. Churn in the O[2] brand continued to be at even lower levels, improving +0.3 p.p. y-o-y to historic lows of 1.0% in Q4 20 and +0.2 p.p. y-o-y to 1.1% in FY20. These positive churn trends are providing a clear proof point for sustained quality improvements and excellent customer experience on the O[2 ]network while also reflecting some C-19 related lower churn entries. As a result, the implied annualised churn rate of the O[2] brand improved to 13.1% in FY20 vs. 15.5% in the prior year. Telefónica Deutschland's mobile customer accesses reached 44.3m (+1.0% y-o-y) as of 31 December 2020 driven by strong +4.6% y-o-y growth of the mobile postpaid base ex M2M which stood at 23.6m accesses. As a result, mobile postpaid accounted for 53.3% of the company's total mobile base, up +1.8 p.p. y-o-y. M2M accesses totalled 1.4m at year end, +18.3% y-o-y while the mobile prepaid base declined -4.0% y-o-y to 19.3m, reflecting the ongoing prepaid to postpaid migration trend in the German market. The LTE customer base grew to 26.5m accesses as of 31 December 2020, up +7.6% y-o-y^[3], reflecting the sustained demand for high-speed mobile data services. As a result, LTE-penetration across the base reached 61.8%, up +4.0 p.p. y-o-y. In postpaid, LTE penetration continues to be even significantly higher (75%). ARPU trends in FY20 reflect C-19 related roaming headwinds as well as negligible regulatory effects while trading and prepaid dynamics quickly recovered with easing of hard lockdown restrictions earlier in the year. ARPU accretive effects from the successful O[2] Free portfolio and value-added services are, therefore, offset by continued C-19 related roaming drags. Blended mobile ARPU was EUR 9.9 in FY20, down -1.2% y-o-y, showing further early signs of recovery at EUR 10.0 in Q4 20 (-0.4% y-o-y vs. -0.6% y-o-y in Q3 20). Prepaid ARPU of EUR 6.1 was up +1.6% y-o-y in FY20 mainly because of fewer inactive SIM-cards. Postpaid ARPU stood at EUR 13.6 in FY20, with the decline of -4.4% y-o-y mainly reflecting the before mentioned factors. Own brand postpaid ARPU was down -1.1% y-o-y in FY20. Excluding the C-19 related loss of roaming revenues, own brand ARPU trends are intact with growth of +0.1% y-o-y in FY20 and +0.4% in Q4 20. Fixed business The fixed broadband customer base stood at 2.3m accesses at year end 2020, up +2.5% y-o-y, driven by a strong increase of the VDSL base to 1.8m, +8.8% y-o-y. VDSL now represents 80% of the fixed broadband base. In a low churn environment fixed broadband registered +10k net additions in Q4 20 (+55k in FY20) on continued strong demand for VDSL (+35k net additions in Q4 20 and +146k in FY20). Fixed churn improved +0.1 p.p. y-o-y to a low of 0.9% in Q4 20 (0.9% in FY20). Fixed broadband ARPU continued its upward trend by posting +3.4% y-o-y growth to EUR 23.9 in Q4 20 (+2.3% y-o-y to EUR 23.8 in FY20) as a result of customer base growth, in particular the steady increase of share of VDSL customers. Financial performance Revenues maintained their growth momentum, totalling EUR 2,023m in Q4 20, up +2.7% y-o-y (+1.8% y-o-y to EUR 7,532m in FY20) across all revenue lines. C-19 impacts amounted to EUR -3m in Q4 20 (EUR -72m in FY20) mitigated by a retrospective positive impact from revised wholesale roaming prices of EUR +14m. Ex C-19 revenue growth would have been +0.2 p.p. higher in Q4 20 and +1.0 p.p. in FY20. Mobile service revenues^[4] (MSR) grew +1.3% y-o-y to EUR 1,359m in Q4 20 (EUR 5,307m in FY20, +0.1% y-o-y), leveraging strong own brand and solid partner performance. C-19 impacts amounted to EUR -1m in Q4 20 (EUR -63m in FY20) also mitigated by the above mentioned positive impact from revised wholesale roaming prices. Ex C-19 impacts MSR^4 growth would have been +0.1 p.p. higher in Q4 20 and +1.2 p.p. higher in FY20. Handset revenues benefitted from seasonality including the iPhone 12 launch in Q4 20 and registered a +4.4% y-o-y increase to EUR 451m in Q4 20 (+5.7% y-o-y to EUR 1,423m in FY20). Overall, demand for high value handsets remained strong with good traction of online channels supporting sales during the lockdown-related shop closures. Fixed revenues continued their growth path, climbing +7.0% y-o-y to EUR 202m in Q4 20 (+6.0% y-o-y to EUR 785m in FY20) on the back of the VDSL driven sustained retail customer base growth. Thus, fixed retail revenue posted strong y-o-y growth of +7.7% and +7.3% in Q4 20 and FY20, respectively. Other income totalled EUR 47m in Q4 20. Other income of EUR 542m in FY20 mainly coming from EUR 407m in capital gains related to the completed transfer of mobile sites to Telxius in Q3 20.
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