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WSGE_DP_GR_Bild_Editorial

20 years of Swisscom – 20 years of pioneering work and investment in reliable infrastructure to support the Swiss business community. In 2018, we celebrated our 20-year anniversary as a public limited and listed company. During this anniversary year, Swisscom continued to hold its ground in an extremely challenging environment and achieved its financial targets. An impressive market performance permitted Swisscom to generate revenue that was practically on a par with the previous year. Fastweb posted another pleasing performance, growing its revenue and expanding its customer base.

Targets achieved thanks to innovation and capital expenditure

An increasingly saturated market, pressure on prices and costs and fierce competition in its core business are all having an impact on Swisscom’s operations and activities. Despite this, Swisscom generated revenue and earnings in 2018 that were in line with the previous year. Net revenue was stable at CHF 11,714 million, while consolidated operating income before depreciation and amortisation (EBITDA) declined by 1.9% to CHF 4,213 million. Net income also virtually remained on par with the previous year at CHF 1,521 million.

Revenue in the Swiss core business fell by 2.7% to CHF 8,817 million, mainly due to discounts on bundled offerings and price pressure in the corporate business segment. In addition, more and more customers are opting out of a separate fixed line for telephony, with the number of connections falling by 259,000 year-on-year to 1.79 million. There are also signs of market saturation in mobile telephony, as the number of mobile lines fell year-on-year by 1.3% to 6.55 million. Despite the fiercely contested market, Swisscom managed to keep its market share in mobile telephony stable at 60% and even increased its market share in television to 35% (prior year: 33%). The number of TV connections rose by 3.5% to 1.52 million, helping Swisscom TV remain by far Switzerland’s most popular digital TV offering.

In 2018, we again updated the range of channels and apps available on Swisscom TV while simplifying the user interface. In the summer of 2018, Swisscom TV customers were the only viewers in the country able to watch the FIFA World Cup in UHD (ultra-high definition). For the 2018/2019 football season onwards, Swisscom subsidiary Teleclub acquired the transmission rights to the UEFA Champions League and the UEFA Europa League, becoming the only Swiss broadcaster to broadcast all matches live. Thanks in part to Swisscom TV, broadband connections were up by 19,000 (+0.9%) to 2.03 million year-on-year.

In the business customers segment, we have a strong position as a full-service provider, our offerings fill customers’ needs and customer satisfaction is high. This is reflected in the successful business transactions concluded with corporate customers. The demand for cloud services, IT outsourcing and security solutions also continued to develop positively.

inOne: over 2.3 million customers

We are also extremely successful in the market with our new combined package inOne, which was launched in 2017: More than half of our residential customers rely on this offering. inOne enables a flexible combination of mobile, broadband, TV and fixed-line telephony products. In the year under review it was expanded further. Our customers benefit from faster surfing and can add devices such as tablets, laptops, smart watches and GPS trackers to their existing contract cheaply, quickly and easily. Over 2.3 million customers with around 4.6 million connections have already opted for inOne.

Fastweb: strong growth in mobile telephony

Fastweb is performing well. Net revenue increased by 8.2% year-on-year to EUR 2,104 million. In spite of difficult market conditions, Fastweb’s broadband customer base grew by 3.9% to 2.55 million in 2018. It also made strides in mobile telephony, with connections up by 34.5% to 1.43 million customers in a stagnating market. In the fiercely competitive market for corporate customers, Fastweb consolidated its market share at 31%.

Capital expenditure: Switzerland is world class

According to the OECD, no other country in the world invests as much per capita in its telecommunications infrastructure than Switzerland, – and within Switzerland, no other company in the sector invests in infrastructure as much as Swisscom does. In 2018, Group-wide capital expenditure rose slightly (+1.1%) to CHF 2,404 million. Swisscom invested 20.5% of net revenue (previous year: 20.4%) in infrastructure, with Switzerland accounting for 68.4% of capital expenditure (CHF 1,645 million). These investments are paying off: the trade magazines CHIP and connect have both named Swisscom as having the best network in Switzerland. We won the connect mobile network test for the ninth time and can continue to use the “outstanding” rating in 2019.

Half-way point reached in expansion of ultra-fast broadband

By the end of 2018, Swisscom had connected about 4.2 million homes and businesses to its ultra-fast broadband service (speeds in excess of 50 Mbps). Some 2.9 million homes and offices benefit from connections with bandwidths of more than 100 Mbps. The 1,111th municipality was added to the ultra-fast broadband network, meaning the half-way point has been reached in the expansion effort. Swisscom intends to make fibre-optic technology available in every Swiss municipality by the end of 2021 and thus give even remote locations access to ultra-fast broadband.

“More than half of our residential subscribers put their trust in inOne.”

Regulatory environment remains challenging

The rollout of 5G will be more difficult following the close decision by the Council of States against relaxing ONIR limits (Ordinance on Non-Ionising Radiation). Swiss businesses and the entire sector are thus pushing for a moderate liberalisation of the ONIR. A working group will now analyse the requirements and risks relating to the expansion of the 5G network and present a report with its recommendations by mid-2019. The communication on the revision of the Telecommunications Act by the Federal Council included a request for technology-neutral regulation of access. The Swiss parliament rejected this increased regulation of access. Swisscom welcomes this outcome: any such regulation would jeopardise capital expenditure, especially in rural areas.

A simple way to make use of opportunities

We are undergoing a rapid transformation. For a long time now, we’ve connected people, machines, industries and entire ecosystems. We no longer just surf through data, but use it to better design our towns and cities, to identify new needs, and to use energy and resources more efficiently. Rather than simply protecting our customers and ourselves from adverse interruptions, we guarantee smooth operations, day in day out. At the same time, we are continuing to focus on our three strategic ambitions on which we also worked hard in the past year:

Best customer experience

Swisscom has broken new ground in retail business. The latest and biggest Swisscom Shop is more than just a store, it’s the “House of Swisscom” in Basel. It combines shopping, advice, training and a repair centre. Visitors are welcomed at the coffee bar, where (potential) residential and business customers can also discuss topics face to face with Swisscom staff.

Operational excellence

We are continuing to build on the plan we announced in 2016 to ensure profitability and develop new business areas. In 2018, we exceeded our goal of reducing our cost base by CHF 100 million annually. At the same time, we are focusing on agile and more streamlined working models and organisational structures and on tapping into new areas of business.

New growth

In selected areas, Swisscom has launched new digital services, which in part are based on novel web-based business models. For example, Swisscom supports SwissSign Group AG, the company behind SwissID – Switzerland’s digital identity card. Swisscom co-founded autoSense AG, which also connects older car models to the Internet.

Shareholder return

Swisscom pursues a return policy with a stable dividend and paid out an ordinary dividend of CHF 22 per share in 2018. The Swiss Market Index (SMI) fell by 10.2% compared with the previous year. The Swisscom share price declined by 9.4%. Swisscom shares have been traded on the stock exchange for 20 years, offering average annual returns of 5%. Since Swisscom’s initial public offering, a total of CHF 32 bil­lion has been paid out to shareholders via dividends, capital reductions and share buyback programmes.

Outlook

For 2019, Swisscom expects net revenue of around CHF 11.4 bil­lion, EBITDA of over CHF 4.3 bil­lion and capital expenditure of around CHF 2.3 bil­lion. Subject to achieving its targets, Swisscom will propose payment of an unchanged attractive dividend of CHF 22 per share for the 2019 financial year at the 2020 Annual General Meeting.

Sincerest thanks

On 1 January 2018, Swisscom celebrated its 20th anniversary. Swisscom has constantly reinvented itself and continues to do so. Cyclical transformation has become a permanent condition. And as a large corporation, we understand the need to constantly break new ground. We are extremely proud that our employees are inspired to help us in this endeavour. What’s more, every day they impress us as they continuously come up with new ideas, concepts and proposals, which we can now implement more quickly and easily thanks to our agile structure. For this, we would like to thank our employees. Swisscom has around 20,000 people working for it, and each and every one of them deserves a great big “thank you!”. Their curiosity and commitment ensure that you – as investors and customers – can continue to rely on Swisscom as a partner, no matter what the future brings. We would also like to thank you, our valued shareholders, for the trust and confidence you have in our company.

Yours sincerely

WSGE_DP_Unterschrift_Loosli

Hansueli Loosli

Chairman of the Board of Directors

Swisscom Ltd

WSGE_DP_Unterschrift_Schaeppi

Urs Schaeppi

CEO Swisscom Ltd