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Segment revenue and results

Reporting is divided into three operating divisions: Swisscom Switzerland, Fastweb and Other Operating Segments, and Group Headquarters. Swisscom Switzerland is the Swiss market leader in the field of telecommunications. Fastweb is one of the largest broadband telecoms companies in Italy. Other Operating Segments mainly comprises Participations, Health and Connected Living. Group Headquarters largely comprises the Group divisions. Swisscom Switzerland consists of the customer segments Residential Customers, Small & Medium-Sized Enterprises, Enterprise Customers and Wholesale as well as IT, Network & Innovation.

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Swisscom Switzerland

In CHF million, except where indicated   2015   2014   Change
             
Net revenue and results            
Residential Customers   5,224   5,162   1.2%
Small and Medium-Sized Enterprises   1,370   1,331   2.9%
Enterprise Customers   2,654   2,569   3.3%
Wholesale   956   929   2.9%
IT, Network & Innovation   130   126   3.2%
Elimination   (789)   (788)   0.1%
Net revenue   9,545   9,329   2.3%
             
Residential Customers   2,933   2,845   3.1%
Small and Medium-Sized Enterprises   907   915   –0.9%
Enterprise Customers   910   942   –3.4%
Wholesale   198   381   –48.0%
IT, Network & Innovation   (1,347)   (1,247)   8.0%
Elimination     (1)   100.0%
Segment result before depreciation and amortisation (EBITDA)   3,601   3,835   –6.1%
Margin as % of net revenue   37.7   41.1    
Depreciation, amortisation and impairment losses   (1,383)   (1,286)   7.5%
Segment result   2,218   2,549   –13.0%
             
Capital expenditure and headcount            
Capital expenditure in property, plant and equipment and other intangible assets   1,799   1,744   3.2%
Full-time equivalent employees at end of year   17,199   16,445   4.6%

Net revenue for Swisscom Switzerland rose by CHF 216 million or 2.3% year-on-year to CHF 9,545 million. Adjusted for company acquisitions, net revenue rose by 0.6% or CHF 57 million, mainly due to customer growth. Operating income before depreciation and amortisation (EBITDA) fell by CHF 234 million or 6.1% to CHF 3,601 million. Adjusted for non-recurring items, EBITDA increased by CHF 54 million or 1.4%. At CHF 1,799 million, capital expenditure was CHF 55 million or 3.2% higher, due to the expansion and upgrading of the broadband network with the latest technologies. As at the end of 2015, Swisscom had connected around 2.9 million households and businesses to its ultra-fast broadband service (speeds in excess of 50 Mbps). Of this number, around 2.0 million lines were equipped with the latest fibre-optic technology. Headcount rose year-on-year by 754 FTEs or 4.6% to 17,199 FTEs. Adjusted for company acquisitions, headcount increased by 241 FTEs or 1.5%, mainly as a result of new offerings such as cloud services and healthcare solutions. In addition, Swisscom insourced external staff in order to secure key knowledge in-house.

Swisscom Switzerland/net revenue
In CHF million, except where indicated   2015   2014   Change
             
Revenue by services            
Revenue mobile single subscriptions   2,729   2,776   –1.7%
Revenue fixed-line single subscriptions   1,731   1,967   –12.0%
Revenue bundles   2,234   1,921   16.3%
Other net revenue   2,781   2,589   7.4%
Revenue from external customers   9,475   9,253   2.4%
Intersegment revenue   70   76   –7.9%
Net revenue   9,545   9,329   2.3%
             
Operational data at end of period in thousand            
Fixed access lines   2,629   2,778   –5.4%
Broadband access lines retail   1,958   1,890   3.6%
Swisscom TV access lines   1,331   1,165   14.2%
Mobile access lines   6,625   6,540   1.3%
Revenue generating units (RGU)   12,543   12,373   1.4%
Bundles   1,416   1,209   17.1%
Unbundled fixed access lines   128   180   –28.9%
Broadband access lines wholesale   315   262   20.2%

At CHF 9,475 million, revenue from external customers of Swisscom Switzerland was CHF 222 million or 2.4% higher year-on-year, largely due to customer growth and company acquisitions. The number of revenue generating units (RGU) grew by 170,000 or 1.4% to 12.5 million. On a like-for-like basis, revenue from external customers increased by CHF 63 million, or 0.7%. In the Enterprise Customers area, revenue from external customers was CHF 105 million or 4.5% higher at CHF 2,449 million. Adjusted for company acquisitions, revenue dropped by 0.7% due to lower revenue from project business coupled with intense pressure on prices. Swisscom gained well-known business customers for the implementation of cloud and digitisation strategies. Incoming orders in the Enterprise Customers unit rose by 11.5% on a like-for-like basis.

The number of mobile lines grew year-on-year by 85,000 or 1.3% to 6.6 million. Customers with the Natel infinity plus package can also enjoy carefree use of their phones within the EU, with unlimited calls and SMS as well as 1 GB of mobile data for 30 days per year included in all infinity plus offerings. By the end of 2015, Natel infinity plus had already attracted 909,000 customers. At the end of 2015, the number of Natel infinity customers totalled 2.3 million, which represents 69% of the customer base (excluding corporate customers). The number of postpaid lines, including bundled offerings, rose by 124,000, while the number of prepaid access lines declined by 39,000. The number of smartphone users increased further, with the proportion of postpaid subscribers holding smartphones rising from 73% to 76% during 2015.

Despite the tough competition with cable network operators, the number of Swisscom TV connections increased by 166,000 or 14.2% to 1.33 million, with fixed-fee subscriptions accounting for 1.13 million. Over 60% of Swisscom TV customers use the cloud-based Swisscom TV 2.0 service. Broadband lines with end customers grew by 68,000 or 3.6% to 1.96 million in 2015. The growth of TV and broadband connections more than offset the lower number of fixed network phone connections, which declined by 149,000 or 5.4% to 2.6 million, due primarily to customers migrating to cable network providers or switching from fixed to other forms of connectivity such as mobile. The number of unbundled subscriber lines fell year-on-year by 52,000 or 28.9% to 128,000, while the number of wholesale broadband access lines rose by 53,000 or 20.2% year-on-year to 315,000.

Demand for bundled offerings with flat-rate tariffs remains strong. By the end of 2015, the number of customers using a bundled package had increased year-on-year by 207,000 or 17.1% to 1.42 million. Revenue from bundled contracts increased year-on-year by CHF 313 million or 16.3% to CHF 2,234 million.

Swisscom Switzerland/operating expenses and segment result
In CHF million, except where indicated   2015   2014   Change
             
Segment expenses by nature of cost            
Traffic fees   (440)   (424)   3.8%
Subscriber acquisition and retention costs   (459)   (520)   –11.7%
Other direct costs   (1,114)   (1,069)   4.2%
Direct costs   (2,013)   (2,013)   0.0%
Personnel expense   (2,502)   (2,267)   10.4%
Other indirect costs   (1,744)   (1,497)   16.5%
Capitalised costs of self-constructed assets and other income   315   283   11.3%
Indirect costs   (3,931)   (3,481)   12.9%
Segment expenses   (5,944)   (5,494)   8.2%
             
Segment result            
Segment result before depreciation and amortisation (EBITDA)   3,601   3,835   –6.1%
Margin as % of net revenue   37.7   41.1    
Depreciation, amortisation and impairment losses   (1,383)   (1,286)   7.5%
Segment result   2,218   2,549   –13.0%
             
Capital expenditure and headcount            
Capital expenditure in property, plant and equipment and other intangible assets   1,799   1,744   3.2%
Full-time equivalent employees at end of year   17,199   16,445   4.6%

Segment expense rose by CHF 450 million or 8.2% to CHF 5,944 million, while direct costs remained steady compared with the previous year at CHF 2,013 million. The higher costs for outbound roaming as well as additional costs relating to company acquisitions were offset by lower expenses for subscriber acquisition and retention. Indirect costs ended the year CHF 450 million or 12.9% higher at CHF 3,931 million. Adjusted for company acquisitions, gains from the sale of real estate and the provisions recognised for the Competition Commission proceedings on broadband services and for headcount reduction, indirect costs increased by 0.8%. The higher personnel expense as a result of the increase in headcount was partly offset by savings on other operating costs. Personnel expense rose by CHF 235 million or 10.4% to CHF 2,502 million. In the year under review, headcount grew by 754 FTEs or 4.6% to 17,199 as a result of company acquisitions, measures to build up resources for new services such as cloud services and All-IP projects, and the insourcing of external staff. Adjusted headcount was 1.5% higher year-on-year. The segment result before depreciation and amortisation (EBITDA) was CHF 234 million or 6.1% lower at CHF 3,601 million; on a like-for-like basis EBITDA was 1.4% higher. The profit margin was down 3.4 percentage points to 37.7%. Depreciation and amortisation increased by CHF 97 million or 7.5% from the previous year to CHF 1,383 million, primarily due to high investment activity. The segment result declined by CHF 331 million or 13.0% to CHF 2,218 million. Capital expenditure was CHF 55 million or 3.2% higher year-on-year at CHF 1,799 million, due to increased investment in the expansion and upgrading of the broadband network with the latest technologies.

Fastweb

In EUR million, except where indicated   2015   2014   Change
Residential Customers   789   753   4.8%
Corporate Business   800   789   1.4%
Wholesale   143   143   0.0%
Revenue from external customers   1,732   1,685   2.8%
Intersegment revenue   4   3   33.3%
Net revenue   1,736   1,688   2.8%
Segment expenses   (1,160)   (1,173)   –1.1%
Segment result before depreciation and amortisation (EBITDA)   576   515   11.8%
Margin as % of net revenue   33.2   30.5    
             
Capital expenditure in property, plant and equipment and other intangible assets   541   562   –3.7%
Full-time equivalent employees at end of year   2,401   2,391   0.4%
Broadband access lines at end of year in thousand   2,201   2,072   6.2%
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Compared to the previous year, Fastweb’s net revenue rose by EUR 48 million or 2.8% to EUR 1,736 million. Despite difficult market conditions, Fastweb’s broadband customer base grew by 129,000 or 6.2% to 2.2 million in 2015. Fierce competition reduced average revenue per residential broadband customer by around 3% versus the prior year. This decline was offset by customer growth, with revenue from residential customers rising by EUR 36 million or 4.8% to EUR 789 million. Revenue from corporate business was up by EUR 11 million or 1.4% at EUR 800 million in 2015, while wholesale business revenue remained on a par with the prior year at EUR 143 million.

The segment result before depreciation and amortisation (EBITDA) totalled EUR 576 million, corresponding to a year-on-year rise of EUR 61 million or 11.8%. In the fourth quarter of 2015, Fastweb received compensation of EUR 15 million from legal proceedings. Adjusted for this exceptional item, EBITDA increased by EUR 46 million or 8.9%, mainly as a result of higher revenue. The profit margin rose by 2.7 percentage points to 33.2%, adjusted by 1.8 percentage points to 32.3%. Fastweb achieved a positive free cash flow of EUR 77 million in 2015.

Fastweb’s headcount was practically unchanged from 2014 at 2,401 FTEs. Capital expenditure dropped by EUR 21 million or 3.7% to EUR 541 million due to lower spending on the network infrastructure. The ratio of capital expenditure to net revenue was 31.2% (prior year: 33.3%).

Other Operating Segments

In CHF million, except where indicated   2015   2014   Change
Revenue from external customers   340   406   –16.3%
Intersegment revenue   263   259   1.5%
Net revenue   603   665   –9.3%
Segment expenses   (534)   (562)   –5.0%
Segment result before depreciation and amortisation (EBITDA)   69   103   –33.0%
Margin as % of net revenue   11.4   15.5    
             
Capital expenditure in property, plant and equipment and other intangible assets   48   38   26.3%
Full-time equivalent employees at end of year   1,723   1,962   –12.2%
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The net revenue generated by Other Operating Segments fell by CHF 62 million or 9.3% compared with the prior year to CHF 603 million, primarily as a result of company disposals and lower revenue from construction services performed by cablex. Additional revenue from company acquisitions was unable to offset this decline.

Due to company disposals, segment expense declined by CHF 28 million or 5.0% in 2015 to CHF 534 million. The segment result before depreciation and amortisation (EBITDA) fell by CHF 34 million or 33.0% to CHF 69 million, due principally to lower revenue. The profit margin fell accordingly from 15.5% to 11.4%. At 1,723 FTEs, headcount at the end of 2015 was 239 FTEs or 12.2% lower than the previous year, due primarily to company disposals.

Group Headquarters and reconciliation of pension cost

Operating income before depreciation and amortisation improved by CHF 6 million or 4.9% compared with the previous year to CHF –117 million. Headcount declined by 4.0% to 314 FTEs.

In 2015 an expense of CHF 60 million was recognised as a pension cost reconciliation item under IAS 19. No such expense was recognised in the prior year.