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Segment results


In CHF million
  3rd quarter
2017
  3rd quarter
2016
 
Change
  1.1.–
30.9.2017
  1.1.–
30.9.2016
 
Change
                 
Net revenue
Residential Customers   1,499   1,563   –4.1%   4,517   4,677   –3.4%
Enterprise Customers   613   608   0.8%   1,851   1,881   –1.6%
Wholesale   277   267   3.7%   698   731   –4.5%
IT, Netowork & Infrastructure   41   48   –14.6%   125   131   –4.6%
Intersegment elimination   (180)   (193)   –6.7%   (454)   (530)   –14.3%
Swisscom Switzerland   2,250   2,293   –1.9%   6,737   6,890   –2.2%
Fastweb   556   476   16.8%   1,551   1,441   7.6%
Other Operating Segments   215   199   8.0%   612   564   8.5%
Group Headquarters   1         2   1   100.0%
Intersegment elimination   (108)   (94)   14.9%   (298)   (253)   17.8%
Net revenue   2,914   2,874   1.4%   8,604   8,643   –0.5%
                 
Operating income before depreciation and amortisation (EBITDA)
Residential Customers   871   907   –4.0%   2,712   2,784   –2.6%
Enterprise Customers   214   209   2.4%   630   635   –0.8%
Wholesale   123   102   20.6%   330   290   13.8%
IT, Netowork & Infrastructure   (298)   (302)   –1.3%   (910)   (912)   –0.2%
Intersegment elimination   (1)         (1)      
Swisscom Switzerland   909   916   –0.8%   2,761   2,797   –1.3%
Fastweb   194   169   14.8%   628   536   17.2%
Other Operating Segments   49   47   4.3%   129   127   1.6%
Group Headquarters   (24)   (27)   –11.1%   (71)   (84)   –15.5%
Intersegment elimination   (6)   (5)   20.0%   (18)   (14)   28.6%
Reconciliation to pension cost 1   (28)   (20)   40.0%   (75)   (55)   36.4%
Operating income before depreciation and amortisation (EBITDA)   1,094   1,080   1.3%   3,354   3,307   1.4%
1 Operating income of segments includes ordinary employer contributions as pension fund expense. The difference to the pension cost according to IAS 19 is recognised as a reconciliation item.

Segment reporting was adapted to the management structure in 2017. Swisscom’s financial reportingfocuses on the three operating divisions Swisscom Switzerland, Fastweb and Other Operating Segments. Group Headquarters, which includes non-allocated costs, is reported separately. Swisscom Switzerland is the Swiss market leader in the field of telecommunications and comprises the customer segments Residential Customers, Enterprise Customers and Wholesale, as well as the IT, Network & Infrastructure division. Fastweb is one of the largest broadband telecom companies in Italy. Other Operating Segments primarily comprises the Digital Business division, Swisscom Broadcast Ltd (radio transmitters) and cablex Ltd (network construction and maintenance).

The IT, Network & Infrastructure segment does not charge any network costs to other segments, nor does Group Headquarters charge any management fees to other segments. Other services between the segments are recharged between the segments at market prices. Network costs in Switzerland are budgeted, monitored and controlled by the IT, Network & Infrastructure division, which is managed as a cost centre. For this reason, no revenue is credited to the IT, Network & Infrastructure segment within the segment reporting, with the exception of the rental and administration of buildings and vehicles. The results of the Residential Customers, Enterprise Customers and Wholesale segments correspond to a contribution margin before network costs.

Segment expense includes the costs of goods and services purchased, personnel expense and other operating costs less capitalised costs of self-constructed assets and other income. Segment expense contains the ordinary employer contributions as pension costs. Under IAS 19, the difference between the ordinary employer contributions and the pension cost is reported as a reconciliation item between the operating incomes of the segments and Group operating income.

Swisscom Switzerland


In CHF million, except where indicated
  3rd quarter
2017
  3rd quarter
2016
 
Change
  1.1.–
30.9.2017
  1.1.–
30.9.2016
 
Change
                 
Net revenue and results
Telecommunications services   1,615   1,669   –3.2%   4,868   4,998   –2.6%
Solution business   264   252   4.8%   796   789   0.9%
Trade goods   142   145   –2.1%   434   446   –2.7%
Wholesale   157   149   5.4%   430   436   –1.4%
Revenue other   49   57   –14.0%   148   159   –6.9%
Revenue from external customers   2,227   2,272   –2.0%   6,676   6,828   –2.2%
Intersegment revenue   23   21   9.5%   61   62   –1.6%
Net revenue   2,250   2,293   –1.9%   6,737   6,890   –2.2%
Direct costs   (491)   (505)   –2.8%   (1,367)   (1,455)   –6.0%
Indirect costs   (850)   (872)   –2.5%   (2,609)   (2,638)   –1.1%
Segment expenses   (1,341)   (1,377)   –2.6%   (3,976)   (4,093)   –2.9%
Segment result before depreciation and amortisation (EBITDA)   909   916   –0.8%   2,761   2,797   –1.3%
Margin as % of net revenue   40.4   39.9       41.0   40.6    
Depreciation, amortisation and impairment losses   (369)   (364)   1.4%   (1,115)   (1,098)   1.5%
Segment result   540   552   –2.2%   1,646   1,699   –3.1%
                   
Operational data at the balance sheet date in thousand
Fixed telephony access lines               2,128   2,458   –13.4%
Broadband access lines               2,000   1,985   0.8%
Swisscom TV access lines               1,453   1,377   5.5%
Mobile access lines               6,581   6,613   –0.5%
Revenue generating units (RGU)               12,162   12,433   –2.2%
Bundles               1,850   1,588   16.5%
Unbundled fixed access lines               114   128   –10.9%
Broadband access lines wholesale               419   351   19.4%
                 
Capital expenditure and headcount
Capital expenditure in property, plant and equipment and other intangible assets               1,083   1,283   –15.6%
Full-time equivalent employees at end of year               15,307   16,035   –4.5%

Net revenue for Swisscom Switzerland fell by CHF 153 million or 2.2% to CHF 6,737 million (–1.9% in the third quarter) as a result of fierce competition and the downward trend in fixed-line telephony. Of this decline, CHF 121 million (–2.6%) was attributable to the Residential Customers segment and CHF 20 million (–1.1%) to the Enterprise Customers segment. The trends in 2016 are continuing in 2017, as expected. Revenue from telecommunications services decreased by CHF 130 million or 2.6% to CHF 4,868 million (–3.2% in the third quarter), with almost half of the drop due to the declining subscriber base in the fixed-line telephony business, which fell year-on-year by 330,000 connections or 13.4% to 2.1 million (–80,000 in the third quarter). The other half of the reduction is the result of price cuts, including roaming fees, increased promotions and a decline in the Enterprise Customers segment. In contrast, revenue from the solutions business within Enterprise Customers increased by CHF 7 million or 0.9% to CHF 796 million (+4.8% in the third quarter). In Wholesale, lower revenue as a result of the reduction in termination tariffs on mobile networks were largely offset by higher inbound roaming volumes.

In the saturated market, subscriber numbers in mobile telecommunications remained flat. Year-on-year, the number of mobile lines fell by 32,000 or 0.5% to 6.58 million (–8,000 in the third quarter). Swisscom increased the number of subscribers to its postpaid lines by 73,000 or 1.6% (+30,000 in the third quarter) compared with the previous year, while the number of prepaid lines decreased by 105,000 or 5.0% (–38,000 in the third quarter). The number of broadband connections rose year-on-year by 15,000 or 0.8% to 2.0 million (+11,000 in the third quarter). The number of TV connections increased by 76,000 or 5.5% to 1.45 million (+6,000 in the third quarter). In April 2017, Swisscom radically simplified its price plan with inOne. inOne offers Internet, TV, telephone and mobile in a single package that can be tailored to individual customers. By the end of September 2017, i.e. just six months after launch, 938,000 customers (over 1 million by the end of October) had opted for inOne with more than 1.8 million connections, boosting demand for bundled offerings. At the end of September 2017, 1.85 million customers were using a bundled package, which represents a year-on-year increase of 16.5%. Revenue from bundled contracts increased year-on-year by CHF 240 million or 13.0% to CHF 2,086 million.

Segment expense fell by CHF 117 million or 2.9% to CHF 3,976 million (–2.6% in the third quarter), with both direct and indirect costs decreasing versus the prior year. The decrease of CHF 88 million or 6.0% in direct costs to CHF 1,367 million (–2.8% in the third quarter) is due to the lower termination tariffs on mobile networks and lower costs to purchase products. Indirect costs fell by CHF 29 million or 1.1% to CHF 2,609 million (–2.5% in the third quarter). Excluding gains from the sale of real estate in the prior year, the decrease was 1.7% and is chiefly due to the lower headcount. Headcount fell year-on-year as a result of efficiency measures by 728 FTEs or 4.5% to 15,307, including 569 FTEs or 3.6% in the first nine months of 2017. The segment result before depreciation and amortisation was CHF 36 million or 1.3% lower at CHF 2,761 million (–0.8% in the third quarter). A large proportion of the drop in revenue was offset by active cost management. Excluding gains from the sale of real estate in the previous year, the decline was 0.7%. Capital expenditure decreased as a result of delays in network expansion by CHF 200 million or 15.6% to CHF 1,083 million.

Fastweb


In EUR million, except where indicated
  3rd quarter
2017
  3rd quarter
2016
 
Change
  1.1.–
30.9.2017
  1.1.–
30.9.2016
 
Change
Residential Customers   253   225   12.4%   723   675   7.1%
Corporate Business   177   169   4.7%   518   517   0.2%
Wholesale   58   40   45.0%   166   119   39.5%
Revenue from external customers   488   434   12.4%   1,407   1,311   7.3%
Intersegment revenue   3   3     7   7  
Net revenue   491   437   12.4%   1,414   1,318   7.3%
Segment expenses   (321)   (282)   13.8%   (841)   (828)   1.6%
Segment result before depreciation and amortisation (EBITDA)   170   155   9.7%   573   490   16.9%
Margin as % of net revenue   34.6   35.5       40.5   37.2    
   
Capital expenditure in property, plant and equipment and other intangible assets               441   430   2.6%
Full-time equivalent employees at end of period               2,509   2,457   2.1%
Broadband access lines in thousand               2,421   2,295   5.5%
Mobile access lines in thousand               989   630   57.0%

Fastweb’s net revenue rose year-on-year by EUR 96 million or 7.3% to EUR 1,414 million (+12.4% in the third quarter). Despite a difficult market environment, Fastweb’s broadband customer base grew year-on-year by 126,000 or 5.5% to 2.4 million (+10,000 in the third quarter). Fastweb is also growing in mobile telephony. Compared to the previous year, the number of mobile access lines increased by 359,000 or 57.0% to 989,000 (+109,000 in the third quarter) due to the launch of attractive mobile offerings. Fierce competition reduced average revenue per residential broadband customer by around 2% versus the prior-year period. This decline was more than offset by customer growth and the reduction in the billing period to four weeks introduced in the second quarter of 2017. Revenue from residential customers rose accordingly by EUR 48 million or 7.1% to EUR 723 million in comparison with the previous year (+12.4% in the third quarter). Despite the high level of competition, Fastweb held its strong position in the market for business customers. Revenue from business customers was up 0.2%, at EUR 518 million (+4.7% in the third quarter). Revenue from the wholesale business increased by EUR 47 million or 39.5% to EUR 166 million following a cooperation agreement with Telecom Italia in relation to the expansion of the ultra-fast broadband network.

The segment result before depreciation and amortisation totalled EUR 573 million, equivalent to a year-on-year increase of EUR 83 million or 16.9% (+9.7% in the third quarter), and includes one-off income from legal disputes amounting to EUR 95 million (prior year: EUR 55 million). Adjusted for these effects, EBITDA rose by EUR 43 million or 9.9%. This increase was mainly the result of higher revenue and improved regulatory conditions. The adjusted EBITDA margin rose by 0.8 percentage points to 33.8%. The expansion of Italy’s broadband network is continuing as planned. At EUR 441 million, capital expenditure remained at a high level, with the increase of EUR 11 million or 2.6% mainly the result of higher customer-driven investment. The ratio of capital expenditure to net revenue was 31.2% (prior year: 32.6%). Headcount at Fastweb rose by 52 FTEs or 2.1% to 2,509 FTEs, driven chiefly by the appointment of new employees in the corporate business segment.

Other Operating Segments


In CHF million, except where indicated
  3rd quarter
2017
  3rd quarter
2016
 
Change
  1.1.–
30.9.2017
  1.1.–
30.9.2016
 
Change
Revenue from external customers   132   129   2.3%   383   380   0.8%
Intersegment revenue   83   70   18.6%   229   184   24.5%
Net revenue   215   199   8.0%   612   564   8.5%
Segment expenses   (166)   (152)   9.2%   (483)   (437)   10.5%
Segment result before depreciation and amortisation (EBITDA)   49   47   4.3%   129   127   1.6%
Margin as % of net revenue   22.8   23.6       21.1   22.5    
   
Capital expenditure in property, plant and equipment and other intangible assets               39   30   30.0%
Full-time equivalent employees at end of period               2,617   2,503   4.6%

Net revenue of Other Operating Segments rose year-on-year by CHF 48 million or 8.5% to CHF 612 million (+8.0% in the third quarter). The increase was mainly due to higher revenue from construction services rendered by cablex for Swisscom Switzerland. The segment result before depreciation and amortisation improved year-on-year by 1.6% or CHF 2 million to CHF 129 million (+4.3% in the third quarter). This corresponds to a profit margin of 21.1%. Headcount rose by 114 FTEs to 2,617 FTEs, driven primarily by the appointment of new employees at cablex.

Group Headquarters and reconciliation of pension cost

Operating income before depreciation and amortisation improved year-on-year by CHF 13 million or 15.5% to CHF –71 million. Headcount fell year-on-year by 8.8% to 271 FTEs.

An expense of CHF 75 million (prior year: CHF 55 million) is recognised as a pension cost reconciliation item under IAS 19 for the first nine months of 2017.