Share­holders’ letter

A year of innovations in a challenging market en­vi­ron­ment

Dear Share­holders

In 2019, Swisscom made impressive use of the op­por­tu­ni­ties that are opening up for all of us thanks to digitisation. Our response to the ongoing challenging en­vi­ron­ment was, and will remain, new offerings and the expansion of our networks. Swisscom impressed the market with innovations in the TV and mobile com­mu­ni­ca­tions segments and in sub­scrip­tions. Swisscom achieved a solid financial result. Group sales declined in line with ex­pec­ta­tions, while con­sol­i­dated operating income before de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA) remained at the previous year’s level. Our Italian subsidiary, Fastweb, con­tin­ued to grow, making gains among both residential and business cus­tomers.

Financial targets met

Swisscom generated net revenue of CHF 11,453 million in 2019. Con­sol­i­dated operating income before de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA) was CHF 4,358 million and thus above the previous year; on an adjusted basis, EBITDA remained stable. Net income was CHF 1,669 million.

Swisscom is investing today in the networks of tomorrow

The Swiss market is saturated in the mobile com­mu­ni­ca­tions and TV segments, while the number of broad­band con­nec­tions is remaining constant due to high market penetration. At the same time, data growth continues unabated. In mobile com­mu­ni­ca­tions alone, the use of mobile data services has increased 40-fold in the last seven years. What is more, security re­quire­ments are constantly growing. We are meeting these challenges by consistently expanding and con­tin­u­ously developing our networks.

Swisscom makes over two thirds of the in­vest­ments in the Swiss telecom­mu­ni­ca­tions in­fra­struc­ture. In 2019, it invested around CHF 2.4 bil­lion in network expansion, of which around CHF 1.8 bil­lion in Switzer­land.

As at the end of 2019, Swisscom had es­tab­lished 3.9 million ultra-fast broad­band service con­nec­tions with speeds in excess of 80 Mbps. Swisscom will continue to invest mas­sively in its in­fra­struc­ture in the coming years, to ensure the best experiences for its cus­tomers.

Investing in Swiss in­fra­struc­ture is paying off. This is demonstrated by Swisscom’s top ranking in all relevant network tests. For example, in 2019, Swisscom won connect magazine’s mobile network test for the tenth time, achieving the rating of “out­stand­ing”. Swisscom prevailed in the CHIP test for the fourth time in a row. Swisscom also took first place in Ookla’s speed test for the fastest mobile network and the best coverage.

The future of mobile com­mu­ni­ca­tions

In February 2019, Swisscom successfully took part in the 5G fre­quen­cies auction. In April, Swisscom was the first provider in Europe to commercially launch the new mobile com­mu­ni­ca­tion standard. At the end of 2019, Swisscom reached the next milestone: basic 5G coverage has since been extended to 90% of the Swiss population. However, in order for data to be trans­mit­ted up to 1,000 times more efficiently, and thus in a more energy-saving manner, the full version of 5G is needed. To draw an analogy: expansion of the 5G network is like adding more lanes on the data highway. To ensure that data traffic flows unhindered and to avoid data tailbacks and jams happening in future, it is essential to have new antenna locations or to convert the existing installations. However, some segments of the population have concerns about 5G. Swisscom is all the more aware of its responsibility in this regard and is actively engaging in the social debate on mobile com­mu­ni­ca­tions and the en­vi­ron­ment. Naturally, all mobile com­mu­ni­ca­tions installations operated by Swisscom comply at all times with Switzer­land’s rigorous limits, which are exemplary in their strictness.

Swisscom TV – more than just tele­vi­sion

The new Swisscom Box not only offers the best TV experience, but also networks smart home objects such as lamps. Just like the tele­vi­sion, these items can be controlled with the integrated voice assistant. A total of 1.56 million cus­tomers use Swisscom TV, which cor­re­sponds to a market share of 36%. This means that Swisscom TV is still Switzer­land’s most popular TV offering. Swisscom subsidiary Teleclub has reached an im­por­tant milestone by securing the rights to the UEFA Champions League from the 2021/2022 season. Teleclub will continue to show all the football matches on an exclusive basis.

New addition to the inOne family

The inOne combined package, introduced in 2017, continues to be extremely successful. inOne flexibly combines mobile, broad­band, TV and fixed-line tele­phony products. Launched in April 2019, the new inOne mobile package allows unlimited phone calls, surfing and texting in 39 countries within Europe. By the end of 2019, around 1.15 million cus­tomers had opted for this new sub­scrip­tion. In total, Swisscom has 2.75 million inOne cus­tomers.

Tough competition in corporate business

The corporate customer market is fiercely contested, and the pressure on pricing remains high. Compared to the previous year, revenue from telecom­mu­ni­ca­tions services fell by 10.9% or CHF 112 million, to CHF 919 million. Swisscom holds a strong position as full service provider. It’s offerings meet cus­tomers’ needs, and customer satisfaction is consistently high. Demand for cloud, security and IoT solutions has con­tin­ued to grow. In addition, Swisscom again succeeded in renewing contracts with many existing cus­tomers in 2019. Revenue in the solutions business remained virtually stable at EUR 1,021 million (–0.6%).

For SMEs, Swisscom has had Managed Security and Managed Backup in its portfolio since spring. These two new product modules are designed to protect com­pa­nies from attacks in the network and data loss and to relieve them of their workload for security tasks. In order to provide all business cus­tomers a customer experience tailored to their needs, Swisscom merged the SME segment and the corporate customer segment.

Fastweb continues successful path in Italy

Fastweb grew again in 2019 and made gains among both residential and business cus­tomers. In the fixed-network business, the number of cus­tomers rose to 2.64 million broad­band cus­tomers. In mobile com­mu­ni­ca­tions, Fastweb posted an increase in cus­tomers of 26.1% to 1.81 million in total. Fastweb also entered into a strategic partnership with WindTre for the con­struc­tion of a nationwide 5G network. The two operators are keen to work together to accelerate the de­vel­op­ment of a nationwide ultramodern 5G network. For this reason, Fastweb is placing a stronger focus on convergence: 34% of subscribers already use a bundled offering combining fixed network and mobile services. The business customer segment also con­tin­ued to develop positively, with revenue growth of EUR 82 million (+10.5%). Overall, Fastweb increased its revenues to EUR 2,218 million (+5.4%). Operating income before interest, taxes, de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA) rose to EUR 750 million (+5.2% on an adjusted basis).

A simple way to make use of op­por­tu­ni­ties

Our en­vi­ron­ment is changing rapidly. So, standing still is not an option for Swisscom. Instead, we are sticking to our promise of enabling our cus­tomers to make simple use of the op­por­tu­ni­ties of a networked future. What’s more, our employees and the company itself continue to develop steadily in line with our values of being committed, trustworthy and inquisitive. That is why we have pooled our efforts in Customer Field Service. Around 1,000 employees began working at the subsidiary cablex in January 2020. Thanks to this merger, cus­tomers are now served on site for installations, main­te­nance and troubleshooting, for example, by just one party. Also, as of 2020, we amalgamated Sales & Services with Products & Marketing to form the new Residential Cus­tomers unit. Together, we will focus on our three strategic ambitions on which we are working hard with our colleagues.

Offering the best experiences

We want to inspire our cus­tomers by providing them with the best service at all times, wherever they are, for example in our shops. For this reason, we have been testing a new shop concept since the end of 2019. In Uster and Thun, we advise residential and business cus­tomers in a cosy living room atmosphere, inspire them with tech­no­log­i­cal innovations and address their issues at the service bar.

Operational excellence

Our industry is being transformed dramatically by digitisation. At the same time, Swisscom faces tough competition from global, Internet-based com­pa­nies that benefit from low costs. We are responding to this de­vel­op­ment with rigorous cost management. In 2019, we exceeded the goal we announced in 2016 of reducing our cost base by CHF 100 million annually. For the years 2020 to 2022, we are planning further cost reductions of CHF 100 million annually.

New growth

Swisscom is keen to grow in its core business and related areas, such as entertainment, cloud services, the Internet of Things, wholesale and digital security. In selected areas, Swisscom is launching new digital services, which in part are based on novel web-based business models. Here the focus is on digital services for SMEs, digital marketing services as well as Swisscom Blockchain Ltd and the fintech segment.

Fastweb plays a key role. Therefore, Swisscom wants to maintain its growth course in Italy and further develop the company profitably.

Share­holder return

Swisscom pursues a payout policy with a stable dividend. In 2019, Swisscom paid an ordinary dividend of CHF 22 per share. The Swiss Market Index (SMI) rose by 26% compared with the previous year; the Swisscom share price increased by 9.1% to CHF 512.60.

Outlook

For 2020, Swisscom expects net revenue of around CHF 11.1 bil­lion, EBITDA of around 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 2020 financial year at the 2021 Annual General Meeting.

Sincerest thanks

Shaping the future as the market leader means constantly developing and taking ad­van­tage of the op­por­tu­ni­ties that present themselves. Together with our colleagues, we have had a successful year and have achieved a lot. For this, we would like to thank our employees. It is thanks to their commitment, knowl­edge and motivation that Swisscom has become what it is today: a reliable partner for our cus­tomers, a sound investment for our shareholders and a pioneer in the networking of a modern Switzer­land. We would also like to thank you, our valued shareholders, for the trust and confidence you have in our company.

Yours sincerely

Hansueli Loosli

Chairman of the Board of Directors

Swisscom Ltd

Urs Schaeppi

CEO Swisscom Ltd