1 Changes in accounting principles

As of 1 January 2019, Swisscom adopted various amendments to existing International Financial Reporting Standards (IFRS) and Interpretations; with the exception of the changes described below, these have no material impact on the results or financial position of the Group.

IFRS 16 Leases

IFRS 16 (effective from 1 January 2019) replaces IAS 17, IFRIC 4 and SIC 27 and stipulates the principles governing the recognition, measurement and disclosure of leases. For the lessee, IFRS 16 provides for a comprehensive model for dealing with lease arrangements in financial statements. The differentiation between finance and operating leases required until now under IAS 17 is thus dropped in future for the lessee. The lessee shall recognise lease liabilities in its balance sheet for all future lease payments to be made as well as recognising a right to use the underlying asset. In future, depreciation and interest will be recognised in the income statement instead of rental expense. This will lead to a material rise in operating income before depreciation, amortisation and impairment losses. In the statement of cash flows, the share of the lease payments representing amortisation under the lease arrangements to be accounted for under the new rules will reduce cash flows from financing activities and no longer cash flows from operating activities, as previously. Interest payments will continue to be reported as cash flows from operating activities. For financial reporting purposes, the lessor shall continue to differentiate between finance and operating lease arrangements. In this regard, the accounting model foreseen under IFRS 16 does not materially differ from the previous provisions under IAS 17.

Swisscom has chosen the modified retrospective approach for the first-time application of IFRS 16. For reasons of simplicity, a reassessment as to whether a contract as of 1 January 2019 constitutes or includes a lease arrangement was dispensed with. The payment obligations arising under the operating-lease arrangements disclosed in note 2.3 of the 2018 Annual Report for the most part comprise lease payments from the rental of operation and office buildings as well as of antenna sites. The net present value of the payment obligations arising from current operating-lease arrangements will be accounted for as a lease liability. The corresponding right-of-use assets will be recognised in the amount of the lease liabilities. The reconciliation of payment obligations from operating leases as at 31 December 2018 for first-time recognition as at 1 January 2019 is as follows:

In CHF million   1.1.2019
Obligations from operating leases as at 31 December 2018   1,298
Lease contracts and options previously not taken into account   107
Discounting   (86)
Carrying amount of finance lease liabilities as of 31 December 2018   384
Lease liabilities as of 1 January 2019   1,703

The lease liabilities were discounted using the incremental borrowing rate of interest applicable as at 1 January 2019. The weighted average interest was 0.6%. The impact of the first-time adoption of IFRS 16 on the balance sheet as at 1 January 2019 was as follows:

In CHF million
Property, plant and equipment   10,894   (281)   10,613
Intangible assets   1,858   (88)   1,770
Right-of-use assets     1,688   1,688
Other financial assets   421   78   499
Other assets   9,413     9,413
Total assets   22,586   1,397   23,983
Financial liabilities   8,167   (306)   7,861
Lease liabilities     1,703   1,703
Other liabilities   6,211     6,211
Total liabilities   14,378   1,397   15,775
Total equity   8,208     8,208
Total liabilities and equity   22,586   1,397   23,983

From the first-time adoption of IFRS 16 as at 1 January 2019, additional right-of-use assets and lease liabilities amounting to CHF 1,319 million are recognised. The prior year’s figures have not been adjusted. The switch to IFRS 16 has no impact on equity as at 1 January 2019. If IFRS 16 had been applied to the results of the 2018 financial year, this would have led to an increase in operating income before depreciation and amortisation (EBITDA) of around CHF 0.2 bil­lion and higher depreciation and interest expenses of CHF 0.2 bil­lion. In addition, because SIC 27 no longer applies, other financial assets and financial liabilities previously not recognised in the balance sheet amounting to USD 79 million (CHF 78 million) are recognised. The Italian subsidiary Fastweb sources various access services from other fixed-line operators for use of the access lines to the end customer. Under IFRS 16 part of these access services is newly classified as a lease. The value of the individual access line fulfils the criteria of an asset of low value. Swisscom will apply the low value exemption of IFRS 16 for these lease arrangements. Accordingly, no right-of-use assets and lease liabilities are recognised for these access services. The costs of the access services continue to be recognised as operating expenses.