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Value-oriented business management

Key performance indicators for planning and managing the operating cash flows are operating income before depreciation and amortisation (EBITDA) and capital expenditure on property, plant and equipment and intangible assets. The enterprise value/EBITDA ratio is also used to compare Swisscom’s enterprise value derived from the share price with that of comparable telecoms companies. The ratio is primarily driven by revenue and margins as well as the growth expectations of equity investors.

The remuneration system for Group Executive Board members contains a variable performance-related component, of which 25% is paid out in Swisscom shares subject to a three-year blocking period. Group Executive Board members may opt to receive up to 50% of the performance-related component in the form of shares. The variable performance-related component is based on factors including financial targets such as net revenue, EBITDA margin and operating free cash flow. The financial targets that determine the variable performance-related salary component and the Management Incentive Plan ensure that the interests of management are kept aligned with those of the shareholders.

Enterprise value

In CHF million, except where indicated   31.12.2016   31.12.2015
         
Enterprise value
Market capitalisation   23,627   26,056
Net debt   7,846   8,042
Non-controlling interests in subsidiary companies   8   5
Enterprise value (EV)   31,481   34,103
Operating income before depreciation and amortisation (EBITDA)   4,293   4,098
Ratio enterprise value/EBITDA   7.3   8.3

The sum of market capitalisation, net debt and non-controlling interests in subsidiaries is the enterprise value (EV). Non-controlling interests are stated at carrying amount. For the sake of simplicity, other non-operating assets and liabilities are not included. Swisscom’s enterprise value decreased year-on-year by CHF 2.6 bil­lion or 7.7% to CHF 31.5 bil­lion, mainly as a result of lower market capitalisation. The ratio of enterprise value to EBITDA dropped to 7.3 (prior year: 8.3). The decline reflects the fact that EBITDA rose more sharply than the enterprise value compared with the previous year. EBITDA for 2015 was very adversely affected by provisions of CHF 186 million for legal proceedings. Excluding this one-off item in EBITDA, the ratio for the previous year was 8.0.

With a ratio of 7.3, Swisscom’s relative market valuation is well above the average for comparable companies in Europe’s telecoms sector. The higher ratio is supported by the solid market position Swisscom has achieved thanks to a high level of investment and an attractive dividend policy, as well as the general business conditions in Switzerland such as lower interest rates and lower corporate income tax rates as compared to other European countries.