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 (applicable from 1 January 2019) replaces IAS 17, IFRIC 4 and SIC 27 and lays down the principles governing the recognition, measurement and disclosure of leases. IFRS 16 provides a single lessee accounting model. The differentiation between finance and operating leases required until now under IAS 17 is thus dropped in future for the lessee. The lessee recognises leasing liabilities in its balance sheet for all future lease payments to be made as well as a right to use the underlying asset. In future, depreciation and amortisation and interest will be recognised in the income statement instead of rental expense. This will lead to a material increase 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 leases 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. As regards lessors, they will continue to differentiate between finance and operating leases for financial reporting purposes. In this regard, the accounting model foreseen under IFRS 16 does not materially differ from the previous provisions under IAS 17.

Swisscom has elected to apply the modified retrospective approach for the initial adoption of IFRS 16. For reasons of simplicity, a reassessment as to whether a contract as of 1 January 2019 constitutes or includes a lease was dispensed with. The payment obligations arising under the operating leases disclosed in note 2.3 of the 2018 Annual Report for the most part comprise leasing 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 leases will be accounted for as a lease liability. The corresponding right-of-use assets are recognised in the amount of the lease liabilities. The reconciliation of payment obligations from operating leases as at 31 December 2018 for initial 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   102
Discounting   (86)
Carrying amount of finance lease liabilities as of 31 December 2018   384
Lease liabilities as of 1 January 2019   1,698

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     1,683   1,683
Other financial assets   421   78   499
Other assets   9,413     9,413
Total assets   22,586   1,392   23,978
Financial liabilities   8,167   (306)   7,861
Lease liabilities     1,698   1,698
Miscellaneous liabilities   6,211     6,211
Total liabilities   14,378   1,392   15,770
Total equity   8,208     8,208
Total liabilities and equity   22,586   1,392   23,978

From the first-time adoption of IFRS 16 as at 1 January 2019, additional right-of-use assets and lease liabilities amounting to CHF 1,314 million are recognised. The prior year’s comparative figures were not restated. The adoption of IFRS 16 has no impact on equity as of 1 January 2019. With regard to the 2018 financial year, the application of IFRS 16 would have led to an increase in operating income before depreciation, amortisation and impairment losses (EBITDA) of some CHF 0.2 bil­lion and to higher depreciation and amortisation as well as interest expense of a combined aggregate amount of some 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, procures various access services from other fixed-network operators for the use of access lines to the end customer. A part of these access services is now classified as leases in accordance with IFRS 16. The value of the individual access lines fulfils the criterion as an asset of low value. Swisscom will apply the low value exemption of IFRS 16 for these leases. Accordingly, no right-of-use assets and lease liabilities will be recognised for these access services, the costs of which will continue to be reported as operating expense.