2021 Interim Report

KPIs

Summary

Swisscom’s net revenue was up by 2.6% or CHF 140 million at CHF 5,583 million, while operating income before depreciation and amortisation (EBITDA) increased by 4.9% or CHF 109 million to CHF 2,317 million. Adjustments to pension liabilities and provisions as well as currency fluctuations affected revenue and EBITDA. On a like-for-like basis and at constant exchange rates, revenue increased by 2.0% and EBITDA by 2.7%. The consolidated net income of CHF 1,046 million is significantly higher than the previous year (+42.1% or CHF 310 million) primarily due to non-recurring items in EBITDA and in the financial result. This is mainly attributable to a shareholding that Fastweb transferred as a capital contribution to the newly-founded fibre optic network company FiberCop as part of the strategic partnership with TIM. In the first quarter of 2021, this resulted in an upward revaluation recognised in the income statement of CHF 169 million. In addition, the sale of the stake in Belgacom Inter­national Carrier Services resulted in a gain of CHF 38 million. EBITDA for the second quarter of 2021 also includes one-off income of CHF 60 million from the adjustment of pension liabilities and the additions to provisions for legal proceedings of CHF 22 million.

In the Swiss core business activity, net revenue increased by 0.5% or CHF 19 million to CHF 4,103 million. The increase was due to growth in sales of smartphones and an increase in solutions business with business customers. However, ongoing competitive and price pressure continued to cause a decline in revenue of 3.1% or CHF 89 million in telecom services. EBITDA in the Swiss core business activity increased by 0.9% or CHF 16 million to CHF 1,797 million. On a like-for-like basis, the increase is 2.1%. The decline in revenue from telecom services and the higher costs of subscriber acquisition and retention were offset thanks to ongoing efficiency improvements. Revenue at Italian subsidiary Fastweb increased by 6.9% or EUR 76 million to EUR 1,181 million, with all customer segments reporting revenue growth. In the broadband business, Fastweb’s customer base grew by 3.0% to 2.8 million over the course of the year, and in mobile communications by 19.6% to 2.2 million. EBITDA at Fastweb rose in local currency by 5.2% or EUR 19 million to EUR 384 million, as a result of the growth in revenue.

Swisscom’s capital expenditure increased by 0.7% or CHF 8 million to CHF 1,083 million. Capital expenditure in the Swiss core business activity declined by 3.0% or CHF 23 million to CHF 753 million. Capital expenditure in broadband and mobile communications networks increased, while capital expenditure in other infrastructure declined. Fastweb posted an increase in capital expenditure, up 9.1% or EUR 25 million to EUR 301 million, as a result of higher customer-driven investments and higher capital expenditure in network infrastructure.

The operating free cash flow proxy increased by 10.2% or CHF 100 million to CHF 1,083 million, which was attributable to a better operating income before depreciation and amortisation (EBITDA). Net debt fell by 7.6% or CHF 545 million compared to the end of June 2020 and stood at CHF 6,626 million. The number of employees at Swisscom increased by 0.7% or 126 FTEs to 19,110 FTEs. In Switzerland, headcount decreased by 1.0% or 155 FTEs to 15,964 FTEs.

The financial outlook for fiscal 2021 remains unchanged in terms of net revenue and capital expenditure. Swisscom expects net revenue of around CHF 11.3 bil­lion and capital expenditure of CHF 2.2 bil­lion to CHF 2.3 bil­lion. For EBITDA, the forecast is increased from between CHF 4.3 bil­lion and 4.4 bil­lion to CHF 4.4 bil­lion and CHF 4.5 bil­lion and takes into account the ongoing business performance as well as the non-recurring items on pension liabilities and on provisions recognised in the second quarter of 2021. If business develops as planned, Swisscom will propose to the 2022 Annual General Meeting that the dividend for the 2021 financial year remain unchanged at CHF 22 per share.

Segment results

As of 1 January 2021, Swisscom amended its organisational structure in Switzerland and the segment formerly known as IT, Network & Infrastructure was renamed Infrastructure & Support Functions. The departments with overlapping functions were merged organisationally at Swisscom Switzerland. As a result, Group Headquarters is no longer reported separately in the segment reporting. In addition, Swisscom has transferred various areas among the segments of Swisscom Switzerland and the Other Operating Segments as of 1 January 2021. The prior year’s figures were restated accordingly. Further information can be found in Note 2 in the notes to the consolidated interim financial statements.

Reporting is divided into the segments Residential Customers, Business Customers, Wholesale, and Infrastructure & Support Functions, which are grouped under Swisscom Switzerland, as well as Fastweb and Other Operating Segments. The Infrastructure & Support Functions segment does not charge network costs or management fees to other segments. Any other services between the segments are charged at market prices. The results of the Residential Customers, Business Customers and Wholesale segments thus correspond to a contribution margin before network costs.

Swisscom Switzerland

Swisscom Switzerland’s net revenue increased by 0.5% or CHF 19 million to CHF 4,103 million. The increase resulted primarily from higher sales of smartphones and growth in the solutions business with business customers. However, ongoing competitive and price pressure continued to cause a decline in revenue from telecom services. This decreased by 3.1% or CHF 89 million to CHF 2,759 million. Of this decline, CHF 51 million (–2.6%) was attributable to the Residential Customers segment and CHF 38 million (–4.4%) to the Business Customers segment. On the other hand, sales from the solutions business rose by 3.8% or CHF 20 million to CHF 547 million. The increase in sales of merchandise by 10.3% or CHF 36 million to CHF 386 million is attributable to the rise in sales of smartphones. The market is showing signs of saturation and competitive pressure in the area of mobile communications and fixed-network services. The subscriber base in mobile communications declined by 1.5% or 95,000 year-on-year to 6.17 million. The number of postpaid lines increased by 89,000 year-on-year, while the number of prepaid lines decreased by 184,000. The number of broadband connections fell by 1.0% or 21,000 to 2.03 million within the space of a year. However, the number of inOne customers continues to increase. At the end of June 2021, the Residential Customers segment recorded 2.48 million inOne customers. In this segment, inOne accounts for 68% of postpaid mobile lines and 80% of broadband connections. The number of TV connections remained stable at 1.58 million (–0.1%). The number of fixed telephony access lines fell year-on-year by 5.9% or 93,000 to 1.47 million.

Segment expense remained more or less unchanged at CHF 2,306 million (+0.1%). Direct costs increased by 5.9% or CHF 48 million to CHF 867 million. In addition to higher costs for merchandise, costs for acquiring and retaining customers also rose. Indirect costs decreased by 3.0% or CHF 45 million to CHF 1,439 million. In the first half of 2021, indirect costs are impacted by a CHF 22 million increase in provisions for litigation. On a like-for-like basis, indirect costs fell by 4.5% or CHF 67 million. This was chiefly due to ongoing efficiency improvements. In addition, capitalised costs increased due to a higher share of self-constructed assets in capital expenditure. Headcount remained more or less stable at 12,867 full-time equivalents (+0.1%). The increase due to the acquisitions of Webtiser and JLS Digital was offset by the reduction resulting from efficiency measures. The segment result before depreciation and amortisation increased by 0.9% or CHF 16 million to CHF 1,797 million, or by 2.1% on an a like-for-like basis. The decline in revenue from telecom services and the higher costs of subscriber acquisition and retention were offset thanks to ongoing efficiency improvements. Capital expenditure fell slightly by 3.0% or CHF 23 million to CHF 753 million. Capital expenditure in the expansion of broadband networks and mobile communications networks increased, while capital expenditure in other infrastructure declined. As at the end of June 2021, 86% of all Swiss homes and offices were connected with ultra-fast broadband exceeding 80 Mbps. 68% of all homes and offices benefited from fast connections at over 200 Mbps. Swisscom intends to make ultra-fast broadband available in every Swiss municipality by the end of 2021, even in remote locations. Swisscom also plans to increase fibre-optic coverage with FTTH to up to 60% by the end of 2025.

Fastweb

Fastweb’s net revenue rose year-on-year by 6.9% or EUR 76 million to EUR 1,181 million. Despite persistently challenging market conditions, Fastweb’s broadband customer base grew by 3.0% or 82,000 year-on-year to 2.77 million. Fastweb is also growing in the fiercely competitive mobile telephony market. The number of mobile access lines increased by 19.6% or 358,000 year-on-year to 2.19 million. Bundled offers continue to play an important role. 36% of subscribers use a bundled offering combining fixed network and mobile. Residential customer revenue rose by 2.1% or EUR 12 million to EUR 574 million as a result of customer growth. Fastweb is also growing in the business customer market. Revenue from business customers was up by 10.6% or EUR 46 million to EUR 481 million driven by higher revenue from public administrations. Revenue from wholesale business increased by 16.2% or EUR 17 million to EUR 122 million.

The segment result before depreciation and amortisation was 5.2% or EUR 19 million higher at EUR 384 million on the back of the growth in revenue. Capital expenditure increased by 9.1% or EUR 25 million year-on-year to EUR 301 million due to higher customer-driven investments and increased investments in network infra­structure. Fastweb’s headcount increased by 5.6% or 145 FTEs year-on-year to 2,750 FTEs, mainly as a result of acquisitions and the hiring of external staff.

Other Operating Segments

The net revenue of the Other Operating Segments rose year-on-year by 3.7% or CHF 18 million to CHF 505 million. This was due to higher sales from construction services provided by cablex. The segment result before depreciation and amortisation remained almost stable at CHF 83 million (+1.2%). The profit margin declined slightly to 16.4% (prior year: 16.8%). Headcount declined by 0.8% or 29 FTEs to 3,493 FTEs.

Depreciation and amortisation, non-operating results

Net income increased by 42.1% or CHF 310 million to CHF 1,046 million, mainly as a result of non-recurring items in EBITDA and the financial result. EBITDA for the second quarter of 2021 includes one-off income from the adjustment of pension liabilities in the amount of CHF 60 million as well as the additions to provisions for litigation in the amount of CHF 22 million. The non-recurring items in the financial result originate from the first quarter of 2021. As part of its strategic partnership with TIM, Fastweb transferred its stake in FlashFiber as a capital contribution to the newly established fibre-optic company FiberCop. This resulted in an upward revaluation of the participation recognised in the income statement of CHF 169 million. In addition, Swisscom realised a gain of CHF 38 million on the sale of its investment in Belgacom International Carrier Services. Income tax expense stood at CHF 201 million (previous year CHF 146 million), which corresponds to an effective income tax rate of 16.1% (previous year 16.6%). Swisscom anticipates a future effective consolidated tax rate of about 19%.