Content

Downloads

Language

Close

No search results. Please enter a different search term.

33 Financial risk management and supplementary disclosures regarding financial instruments

­Swisscom is exposed to various financial risks resulting from its operating and financial activities. The most significant financial risks arise from movements in foreign exchange rates, interest rates as well as the creditworthiness and ability of counterparties to meet their payment obligations. A further risk arises from the ability to ensure adequate liquidity. Financial risk management is conducted in accordance with established guidelines with the aim of limiting potentially adverse effects on the financial situation of Swisscom. These guidelines contain, in particular, risk limits for approved financial instruments and specify risk monitoring processes. Financial risk management, with the exception of the management of credit risks arising from business operations, is handled by the central Treasury Department. It identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The implemented risk management process also calls for routine reports on the development of financial risks.

Market price risks

Foreign exchange risks

­Swisscom is exposed to foreign exchange risks which can impact the Group’s financial results and consolidated equity. Foreign exchange risks impacting cash flows (transaction risks) are partially hedged by financial instruments and designated for hedge accounting. In addition, foreign exchange risks with an impact on equity (translation risks) are partially hedged through financial instruments and designated for hedge accounting. The aim of Swisscom’s foreign exchange risk management policy is to limit the volatility of planned cash flows. Forward currency contracts, currency options and currency swaps may be employed to hedge transaction risks. These hedging measures concern principally the USD and EUR. EUR-denominated financing is employed in order to hedge the translation risk of positions in EUR. As of the balance sheet date, Swisscom contracted financial liabilities totalling EUR 1,240 million (CHF 1,332 million) which were designated for hedge accounting for net investments in foreign shareholdings.

The currency risks and hedging contracts for foreign currencies of financial instruments as of 31 December 2016 are to be analysed as follows:

In CHF million   EUR   USD   Other
             
31.12.2016
Cash and cash equivalents   55   3  
Trade and other receivables   8   10   12
Other financial assets   93   244   2
Financial liabilities   (2,161)   (148)  
Trade and other payables   (66)   (68)   (12)
Net exposure at carrying amounts   (2,071)   41   2
Net exposure to forecasted cash flows in the next 12 months   89   (470)  
Net exposure before hedges   (1,982)   (429)   2
Forward currency contracts     (4)  
Foreign currency swaps   97   406  
Currency swaps   752    
Hedges   849   402  
Net exposure   (1,133)   (27)   2

The currency risks and hedging contracts for foreign currencies of financial instruments as of 31 December 2015 are to be analysed as follows:

In CHF million   EUR   USD   Other
             
31.12.2015
Cash and cash equivalents   50   3   1
Trade and other receivables   9   3   4
Other financial assets   17   229   1
Financial liabilities   (2,706)   (143)  
Trade and other payables   (48)   (59)   (26)
Net exposure at carrying amounts   (2,678)   33   (20)
Net exposure to forecasted cash flows in the next 12 months   50   (412)  
Net exposure before hedges   (2,628)   (379)   (20)
Forward currency contracts     (3)  
Foreign currency swaps   567   351  
Currency swaps   759    
Hedges   1,326   348  
Net exposure   (1,302)   (31)   (20)
Foreign currency sensitivity analysis

The following sensitivity analysis shows the impact on the income statement should the EUR/CHF and USD/CHF exchange rates change in line with their implicit volatility over the next twelve months. This analysis assumes that all other variables, in particular the interest rate level, remain constant.

In CHF million   31.12.2016   31.12.2015
         
Income impact on balance sheet items
EUR volatility of 7.47% (previous year: 7.67%)   155   205
USD volatility of 10.35% (previous year: 10.41%)   (4)   (3)
   
         
Hedges for balance sheet items
EUR volatility of 7.47% (previous year: 7.67%)   (63)   (101)
USD volatility of 10.35% (previous year: 10.41%)   7   6
   
         
Planned cash flows
EUR volatility of 7.47% (previous year: 7.67%)   (7)   (4)
USD volatility of 10.35% (previous year: 10.41%)   49   43
   
         
Hedges for planned cash flows
EUR volatility of 7.47% (previous year: 7.67%)    
USD volatility of 10.35% (previous year: 10.41%)   (49)   (43)

The volatility of the balance sheet positions and planned cash flows is partially offset by the volatility of the related hedging contracts.

Interest rate risks

Interest rate risks arise from fluctuations in interest rates which could have a negative impact on the financial position of Swisscom. Fluctuations in interest rates lead to changes in interest income and expense. Furthermore, they may impact the market value of certain financial assets, liabilities and hedging instruments. Swisscom actively manages interest rate risks. The main aim thereof is to limit the volatility of planned cash flows. Swisscom deploys swaps to hedge its interest rate risk.

The structure of interest-bearing financial instruments at nominal values is as follows:

In CHF million   31.12.2016   31.12.2015
Fixed interest-bearing financial liabilities   7,331   6,509
Variable interest-bearing financial liabilities   765   1,705
Total interest-bearing financial liabilities   8,096   8,214
Fixed interest-bearing financial assets   (117)   (138)
Variable interest-bearing financial assets   (489)   (412)
Total interest-bearing financial assets   (606)   (550)
Total interest-bearing financial assets and liabilities, net   7,490   7,664
         
Variable interest-bearing   276   1,293
Fixed through interest rate swaps     (350)
Variable through interest rate swaps   1,177   984
Variable interest-bearing, net   1,453   1,927
Fixed interest-bearing   7,214   6,371
Fixed through interest rate swaps     350
Variable through interest rate swaps   (1,177)   (984)
Fixed interest-bearing, net   6,037   5,737
Total interest-bearing financial assets and liabilities, net   7,490   7,664
Interest rate sensitivity analysis

The following sensitivity analysis shows the effects on the income statement and equity if CHF interest rates move by 100 basis points. In computing sensitivity in equity, negative interest rates are excluded.

  Income statement   Equity

In CHF million
  Increase
100 base points
  Decrease
100 base points
  Increase
100 base points
  Decrease
100 base points
                 
31.12.2016
Variable financing   (3)   3    
Interest rate swaps   (12)   12    
Cash flow sensitivity, net   (15)   15    
                 
31.12.2015
Variable financing   (13)   13    
Interest rate swaps   (6)   6   2   (2)
Cash flow sensitivity, net   (19)   19   2   (2)

Credit risks

Credit risks from operating activities

­Swisscom is exposed to credit risks arising from its operating activities. Swisscom has no significant concentrations of credit risk. The Group has policies in place to ensure that products and ser­vices are only sold to creditworthy customers. Furthermore, outstanding receivables are continually monitored as part of its operating activities. Swisscom recognises credit risks through individual and general lump-sum allowances. In addition, the danger of risk concentrations is minimised by the large number of customers. Given that the financial assets as of the balance sheet date are neither value-impaired nor in default, there are no indications that the debtors will not be capable of meeting their payment obligations. Further information on financial assets is set out in Notes 17, 18 and 19.

Credit risks from financial transactions

­Swisscom is exposed to the risk of counterparty default through the use of derivative financial instruments and financial investments. Requirements to be met by counterparties are defined in guidelines governing derivative financial instruments and financial investments. Furthermore, individual limits by counterparty have been set. These limits and counterparty credit assessments are reviewed regularly. Swisscom signs netting agreements as issued by ISDA (International Swaps and Derivatives Association) with the respective counterparties in order to control the risk inherent in derivative transactions. In order to further limit credit risks in the case of derivative trades, Swisscom has concluded collateral agreements with several counterparties. The carrying amount of financial assets exposed to credit risk is to be analysed as follows:

In CHF million   Note   31.12.2016   31.12.2015
Cash and cash equivalents   17    329   324
Trade and other receivables   18    2,532   2,535
Loans and receivables   19    274   196
Derivative financial instruments   19    41   14
Other assets valued at fair value   19    63   61
Total carrying amount of financial assets       3,239   3,130

The carrying amounts of cash and cash equivalents and other financial assets subject to credit risk (excluding trade and other receivables) and the related Standard & Poor’s ratings of the counterparties are to be summarised as follows:

In CHF million   31.12.2016   31.12.2015
AAA   14   12
AA+   193   163
AA   6   7
AA–   152   149
A+   121   11
A   116   148
A–   6   1
BBB+   42   43
BBB   3   2
BBB–   12   9
Without rating   42   50
Total   707   595

Liquidity risk

Prudent liquidity management includes the holding of adequate reserves of cash and cash equivalents and marketable securities as well as the provision of adequate financing. Swisscom has processes and policies in place that guarantee sufficient liquidity in order to settle current and future obligations. Swisscom has two confirmed lines of credit from banks each of CHF 1,000 million maturing in 2020 and 2022, respectively. As of 31 December 2016, none of these lines of credit had been drawn down, as in the prior year.

The contractual maturities of financial liabilities including estimated interest payments as of 31 December 2016 are as follows:


In CHF million
  Carrying
amount
  Contractual
payments
  Due within
1 year
  Due within
1 to 2 years
  Due within
3 to 5 years
  Due after
5 years
                         
31.12.2016
Non-derivative financial liabilities                        
Bank loans   753   826   207   73   367   179
Debenture bonds   6,140   6,658   731   1,533   1,248   3,146
Private placements   738   765   253   73   281   158
Finance lease liabilities   508   1,178   45   44   105   984
Other interest-bearing financial liabilities   34   34   1   23   1   9
Other non-interest-bearing financial liabilities   260   260   3   238   2   17
Trade and other payables   1,896   1,896   1,875   10   11  
Derivative financial liabilities                        
Derivative financial instruments   63   108   4   4   11   89
Total   10,392   11,725   3,119   1,998   2,026   4,582

The contractual maturities of financial liabilities including estimated interest payments as of 31 December 2015 are as follows:


In CHF million
  Carrying
amount
  Contractual
payments
  Due within
1 year
  Due within
1 to 2 years
  Due within
3 to 5 years
  Due after
5 years
                         
31.12.2015
Non-derivative financial liabilities                        
Bank loans   1,356   1,439   747   74   437   181
Debenture bonds   5,430   6,080   129   729   2,194   3,028
Private placements   931   954   352   252   350  
Finance lease liabilities   526   1,256   46   40   110   1,060
Other interest-bearing financial liabilities   15   15   2   7     6
Other non-interest-bearing financial liabilities   274   319   30   24   248   17
Trade and other payables   1,768   1,768   1,742   10   16  
Derivative financial liabilities                        
Derivative financial instruments   61   240   22   16   47   155
Total   10,361   12,071   3,070   1,152   3,402   4,447

Estimation of fair values

The carrying amounts of trade receivables and payables as well as other receivables and payables are a reasonable estimate of their fair value because of their short-term maturities. The carrying amounts of cash and cash equivalents and current loans receivable correspond to the fair values. The fair value of available-for-sale financial investments is based on quoted stock exchange prices or equates to their purchase cost. The fair values of other non-current financial assets are computed on the basis of the maturing future payments, discounted at market interest rates. The fair value of non-publicly traded interest-bearing financial liabilities is estimated on the basis of the maturing future payments discounted at market interest rates. The fair value of publicly traded interest-bearing financial assets and liabilities is based upon stock exchange quotations as at the balance sheet date. The fair value of finance lease obligations is estimated on the basis of the maturing future payments, discounted at market interest rates. The fair value of publicly-traded investments held for sale is based on quoted stock exchange prices as of the balance sheet date. Interest rate swaps and currency swaps are discounted at market interest rates. Foreign currency forward contracts and foreign currency swaps are valued by reference to foreign exchange forward rates as of the balance sheet date.

Fair value hierarchy

The fair value hierarchy encompasses the following three levels:

  • Level 1: stock exchange quoted prices in active markets for identical assets or liabilities;
  • Level 2: other factors which are observable on markets for assets and liabilities, either directly or indirectly;
  • Level 3: factors that are not based on observable market data.

Asset/liability valuation categories and fair value of financial instruments

The carrying amounts and fair values of financial assets and financial liabilities with their corres­ponding valuation categories are summarised in the following table. Not included therein are cash and cash equivalents, trade receivables and payables as well as miscellaneous receivables and payables whose carrying amount corresponds to a reasonable estimation of their fair value.

  Carrying amount   Fair value

In CHF million
 
Loans and
receivables
 
Available-
for-sale
  At fair value
through
profit or loss
 
Financial
liabilities
 

Level 1
 

Level 2
 

Level 3
                             
31.12.2016
Derivative financial instruments       41       41  
Other assets valued at fair value       63     63    
Available-for-sale financial assets     20       15     5
Financial assets measured at fair value     20   104     78   41   5
                             
Other loans and receivables   274           290  
Financial assets not measured at fair value   274           290  
                             
Derivative financial instruments       63       63  
Financial liabilities measured at fair value       63       63  
                             
Bank loans         753     782  
Debenture bonds         6,140   6,517    
Private placements         738     758  
Finance lease liabilities         508     1,049  
Other interest-bearing financial liabilities         34     34  
Other non-interest-bearing financial liabilities         260     260  
Financial liabilities not measured at fair value         8,433   6,517   2,883  
  Carrying amount   Fair value

In CHF million
 
Loans and
receivables
 
Available-
for-sale
  At fair value
through
profit or loss
 
Financial
liabilities
 

Level 1
 

Level 2
 

Level 3
                             
31.12.2015
Derivative financial instruments       14       14  
Other assets valued at fair value       61     61    
Available-for-sale financial assets     15           15
Financial assets measured at fair value     15   75     61   14   15
                             
Other loans and receivables   196           239  
Financial assets not measured at fair value   196           239  
                             
Derivative financial instruments       61       61  
Financial liabilities measured at fair value       61       61  
                             
Bank loans         1,356     1,391  
Debenture bonds         5,430   5,867    
Private placements         931     957  
Finance lease liabilities         526     1,037  
Other interest-bearing financial liabilities         15     15  
Other non-interest-bearing financial liabilities         274     274  
Financial liabilities not measured at fair value         8,532   5,867   3,674  

In addition, as of 31 December 2016, there were available-for-sale financial assets with a carrying amount of CHF 41 million (prior year: CHF 37 million) which are valued at acquisition cost.

Level 3 financial instruments developed as follows in 2015 and 2016:

In CHF million   Available-for-sale financial assets
     
Balance at 31 December 2014   18
Disposals   (3)
Balance at 31 December 2015   15
Disposals   (10)
Balance at 31 December 2016   5

The level-3 assets consist of investments in various investment funds and individual companies. The fair value was calculated by using a valuation model. In 2015 and 2016, there were no reclassifi­cations between the various levels.

Asset/liability valuation categories and results of financial instruments

The results for each asset/liability valuation category are to be analysed as follows:


In CHF million
 
Loans and
receivables
 
Available-
for-sale
  At fair value
through
profit or loss
 
Financial
liabilities
 
Hedging
transactions
                     
31.12.2016
Interest income (interest expense)   13     (4)   (163)   (1)
Change in fair value       (11)    
Foreign currency translation adjustments       (11)   10  
Gains and losses transferred from equity           (1)
Net result recognised in income statement   13     (26)   (153)   (2)
Change in fair value     7       8
Gains and losses transferred to income statement     (3)       2
Net result recognised in other comprehensive income     4       10
Total net result by asset/liability category   13   4   (26)   (153)   8

In CHF million
 
Loans and
receivables
 
Available-
for-sale
  At fair value
through
profit or loss
 
Financial
liabilities
 
Hedging
transactions
                     
31.12.2015
Interest income (interest expense)   10     (4)   (194)   (1)
Change in fair value       (13)    
Foreign currency translation adjustments   (20)     (39)   19  
Gains and losses transferred from equity           (10)
Net result recognised in income statement   (10)     (56)   (175)   (11)
Change in fair value     4       (12)
Gains and losses transferred to income statement     (6)       11
Net result recognised in other comprehensive income     (2)       (1)
Total net result by asset/liability category   (10)   (2)   (56)   (175)   (12)

In addition, in 2016, valuation allowances for trade and other receivables amounting to CHF 94 million (prior year: CHF 81 million) were recorded under other operating expenses. Furthermore, impairment losses of CHF 29 million on loans to associates were reflected in the attributable share of results of associates. These loans are recognised as net investments in associates.

Derivative financial instruments

At 31 December 2015 and 2016, the following derivative financial instruments were recorded:

  Contract value   Positive fair value   Negative fair value
In CHF million   31.12.2016   31.12.2015   31.12.2016   31.12.2015   31.12.2016   31.12.2015
Fair value hedges   1,177   984   32   12   (2)   (3)
Cash flow hedges   235   617   4   1     (5)
Other derivative financial instruments   636   996   5   1   (61)   (53)
Total derivative financial instruments   2,048   2,597   41   14   (63)   (61)
Thereof current derivative financial instruments           9   2   (1)   (6)
Thereof non-current derivative financial instruments           32   12   (62)   (55)
Fair value hedges
  Contract value   Positive fair value   Negative fair value
In CHF million   31.12.2016   31.12.2015   31.12.2016   31.12.2015   31.12.2016   31.12.2015
Interest rate swaps in CHF   425   225   3   1   (2)  
Currency swaps in EUR   752   759   29   11     (3)
Total fair value hedges   1,177   984   32   12   (2)   (3)

In 2016, Swisscom entered into interest rate swaps to hedge the interest-rate risk of CHF-denominated interest-bearing financing totalling CHF 200 million. In the prior year, Swisscom had entered into interest rate swaps to hedge the interest rate risk of CHF-denominated interest-bearing financing amounting to CHF 225 million. At 31 December 2016, these interest rate swaps had positive fair values of CHF 3 million and negative fair values of CHF 2 million (prior year: positive fair values of CHF 1 million). Furthermore, in 2015, Swisscom had concluded currency swaps totalling EUR 700 million to hedge the foreign currency and interest rate risks of interest-bearing financing in EUR. As at 31 December 2016, these currency swaps had positive fair values of CHF 29 million (prior year: positive fair values of CHF 11 million and negative fair values of CHF 3 million).

Cash flow hedges
  Contract value   Positive fair value   Negative fair value
In CHF million   31.12.2016   31.12.2015   31.12.2016   31.12.2015   31.12.2016   31.12.2015
Currency swaps in USD   235   267   4   1    
Interest rate swaps in CHF     350         (5)
Total cash flow hedges   235   617   4   1     (5)

As of 31 December 2016, derivative financial instruments included currency swaps of USD 230 million (CHF 235 million) which serve to hedge future purchases of goods and services in the respective currencies. In the prior year, currency swaps of USD 268 were recorded for this purpose. These hedging transactions were designated for hedge-accounting purposes. The hedges disclose a positive fair value of CHF 4 million (prior year: positive market value of CHF 1 million). For these designated hedging instruments, an amount of CHF 4 million was recognised in the hedging reserve as part of consolidated equity (prior year: CHF zero).

In the prior year, interest rate swaps totalling CHF 350 million hedging the interest-rate risk of CHF-­denominated variable-interest private placements were designated as cash flow hedges for hedge­-accounting purposes. As of 31 December 2015, these interest rate swaps were recognised with negative fair values of CHF 5 million. An amount of CHF 6 million was recognised for these hedging instruments in the hedging reserve as part of consolidated equity as at 31 December 2015.

Other derivative financial instruments
  Contract value   Positive fair value   Negative fair value
In CHF million   31.12.2016   31.12.2015   31.12.2016   31.12.2015   31.12.2016   31.12.2015
Interest rate swaps in CHF   200   200       (60)   (53)
Currency swaps in USD   335   226   5   1   (1)  
Currency swaps in EUR   97   567          
Currency forward contracts in USD   4   3          
Total other derivative financial instruments   636   996   5   1   (61)   (53)

Furthermore, derivative financial instruments as at 31 December 2016 include interest rate swaps covering CHF 200 million with maturities ending in 2040 and with a negative market value of CHF 60 million (prior year: negative market value of CHF 53 million) which were not designated for hedge accounting. In addition, derivative financial instruments include foreign currency forward contracts and currency swaps for EUR and USD which serve to hedge future transactions in connection with Swisscom’s operating activities and which were not designated for hedge-accounting purposes.

Cross-border lease agreements

Between 1996 until 2002, Swisscom entered into various cross-border lease agreements, under the terms of which parts of its fixed line and mobile phone networks were sold or leased on a long-term basis and leased back. Swisscom defeased a significant part of the lease obligations through the acquisition of investment-grade financial investments. The financial assets were irrevocably deposited with a trust. In accordance with Interpretation SIC 27 “Evaluating the Substance of Transactions involving the Legal Form of a Lease”, these financial assets and liabilities in the same amount are netted and not recorded in the balance sheet. As of 31 December 2016, the financial liabilities and assets, including accrued interest, arising from cross-border lease agreements amounted to USD 72 million or CHF 74 million, respectively, which, in compliance with SIC 27, were not recognised in the balance sheet (prior year: USD 69 million or CHF 69 million).

Netting of financial instruments

­Swisscom enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. Under such agreements, the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party or the other. The ISDA agreements do not meet the criteria for balance-sheet netting as Swisscom has presently no legally enforceable right to offset the recognised amounts and such a right may only be applied to future occurrences such as a credit default or other credit events. In 2016, Swisscom recorded an amount of CHF 7 million for which such netting agreements existed. In the event of netting, derivative assets of CHF 41 million and derivative liabilities of CHF 63 million would be reduced to CHF 34 million and CHF 56 million, respectively. In the prior year, Swisscom recognised an amount of CHF 3 million for which such netting agreements existed. In the event of netting, the derivative assets in the prior year of CHF 14 million would be reduced to CHF 11 million and the derivative liabilities would be reduced from CHF 61 million to CHF 58 million. In addition, Swisscom entered into collateral agreements for interest-rate and foreign-currency swaps with various counterparties under which a netting of market values takes place on a daily basis between the contracting parties. When including these collateral agreements, derivative assets and derivative liabilities would be reduced by a further CHF 25 million and CHF 2 million, respectively.

Charges for international roaming between telecom enterprises are settled over a clearing centre. Receivables and payables arising from roaming charges between the contracting parties are netted and settled on a net basis. Those receivables and payables for which Swisscom has a legal right of offset are netted in Swisscom’s consolidated financial statements.


In CHF million
 
Gross amount
  Netted in the
balance sheet
 
Net amount
31.12.2016
Receivables from international roaming            
Billed revenue   30   (17)   13
Accruals   49   (4)   45
Total receivables from international roaming   79   (21)   58
             
Liabilities from international roaming            
Supplier invoices received   28   (17)   11
Accruals   36   (4)   32
Total liabilities from international roaming   64   (21)   43
             
31.12.2015
Receivables from international roaming            
Billed revenue   22   (16)   6
Accruals   149   (60)   89
Total receivables from international roaming   171   (76)   95
             
Liabilities from international roaming            
Supplier invoices received   42   (16)   26
Accruals   83   (60)   23
Total liabilities from international roaming   125   (76)   49

Management of equity resources

Managed capital is defined as equity including non-controlling interests. Swisscom seeks to maintain a robust equity basis which enables it to assure the continuing existence of the company as a going concern and to offer investors an appropriate return in relation to the risks entered into. Furthermore, Swisscom maintains funds to enable capital investments to be made which will bring future benefits to customers as well as generate further returns for investors. The managed capital is monitored through the equity ratio which is the ratio of consolidated equity to total assets.

The following table illustrates the calculation of the equity ratio:

In CHF million   31.12.2016   31.12.2015
Share of equity attributable to equity holders of Swisscom Ltd   6,514   5,237
Share of equity attributable to non-controlling interests   8   5
Total capital   6,522   5,242
         
Total assets   21,454   21,149
Equity ratio in %   30.4   24.8

In its strategic targets, the Federal Council has ruled that Swisscom’s net indebtedness shall not exceed a multiple of approximately 2.1 of the operating result before taxes, interest and depreciation and amortisation (EBITDA). Exceeding this limit temporarily is permitted. The net-debt-to-EBITDA ratio is as follows:

In CHF million   31.12.2016   31.12.2015
Debenture bonds   6,140   5,430
Bank loans   753   1,356
Private placements   738   931
Finance lease liabilities   508   526
Other financial liabilities   357   350
Total financial liabilities   8,496   8,593
Cash and cash equivalents   (329)   (324)
Current financial assets   (177)   (85)
Non-current fixed interest-bearing deposits   (144)   (142)
Net debt   7,846   8,042
         
Operating income before depreciation and amortisation (EBITDA)   4,293   4,098
Ratio net debt/EBITDA   1.8   2.0

Net debt consists of total financial liabilities less cash and cash equivalents, current financial assets as well as non-current fixed interest-bearing financial investments.