Summary

Swisscoms net revenue fell by CHF 83 million or 0.7% to CHF 11,384 million, while operating income before depreciation and amortisation (EBITDA) was CHF 203 million or 4.4% lower at CHF 4,381 million. On a like-for-like basis and at constant exchange rates, revenue was up 0.3% and EBITDA down 0.6% year-on-year. The CHF 1,068 million increase in net income to CHF 1,762 million is largely attributable to the one-off impairment loss on the carrying amount of Fastweb in the previous year, which reduced net income in 2011 by around CHF 1.2 billion. An unchanged dividend of CHF 22 per share is to be proposed at the forthcoming Annual General Meeting.This equates a total dividend of CHF 1,140 million and a dividend yield of 5.6% based on the year-end share price of 2012.
Net revenue generated by Swiss business increased by CHF 25 million or 0.3% to CHF 9,268 million, while EBITDA was CHF 177 million or 4.5% lower at CHF 3,768 million.Price erosion in Swiss business of around CHF 400 million was offset by customer and volume growth. After adjustment for one-off additional restructuring costs and pension costs not affecting cash flow, EBITDA generated by Swiss business declined by 2.1%.Excluding wholesale revenue from interconnection services (hubbing), Fastwebs net revenue increased in local currency by EUR 8 million or 0.5% to EUR 1,613 million while its low-margin hubbing revenue fell as planned by EUR 54 million to EUR 87 million. Excluding non-recurring income from the previous year of EUR 56 million, Fastweb increased EBITDA by EUR 50 million or 11.1% to EUR 500 million.
Capital expenditure and operating free cash flow for 2012 include expenses of CHF 360 million for the mobile frequencies auctioned in Switzerland in the first quarter of 2012. This led to a corresponding increase in capital expenditure of CHF 434 million or 20.7% to CHF 2,529 million and to a decline in operating free cash flow of CHF 186 million or 9.0% to CHF 1,882 million. Capital expenditure in Switzerland was CHF 457 million or 29.7% higherat CHF 1,994 million due to expansion of the broadband network and the mobile frequencies acquired by auction. Net debt fell by CHF 238 million or 2.9% to CHF 8,071 million compared to the end of 2011. The ratio of net debt to EBITDA remained unchanged at 1.8.
Headcount dropped by 547 FTEs or 2.7% to 19,514 FTEs year-on-year due to efficiency improvements and the outsourcing of network maintenance jobs at Fastweb. In Switzerland headcount fell by 359 FTEs or 2.2% to 16,269, mainly as a result of efficiency improvements at Swisscom Switzerland.
Swisscom expects to close 2013 with net revenue of around CHF 11.3 billion, EBITDA of at least CHF 4.25 billion and capital expenditure of around CHF 2.4 billion. Assuming all 2013 targets are met, Swisscom plans again to propose a dividend of CHF 22 per share at the 2014 Annual General Meeting.

Results of operations

Income statement

Net revenue

Swisscoms net revenue fell by CHF 83 million or 0.7% to CHF 11,384 million. On a like-for-like basis and at constant exchange rates, net revenue increased by 0.3%. At Swisscom Switzerland revenue generated from external customers increased by CHF 11 million or 0.1% to CHF 8,407 million. Price erosion of around CHF 400 million was offset by customer and volume growth. Fastwebs net revenue contracted by 2.6% in local currency to EUR 1,700 million, and by 4.7% in Swiss francs. Excluding wholesale revenue from interconnection services (hubbing), net revenue at Fastweb was up by EUR 8 million or 0.5% to EUR 1,613 million. Lower revenue in the residential customer segment was more than compensated by higher revenue from business customers and wholesale (excluding hubbing). Net revenue generated by other operating segments increased by CHF 7 million or 0.8% to CHF 936 million, mainly due to higher revenue from construction services performed by cablex and acquisition of subsidiaries.

Goods and services purchased

Goods and services purchased remained virtually unchanged, dropping by CHF 3 million or 0.1% to CHF 2,399 million. At constant exchange rates this represents a rise of 0.5%. A decline in purchases at Fastweb, mainly due to the planned reduction in hubbing business and lower termination rates, was more than compensated by an increase in goods and services purchased by Swisscom Switzerland on account of a higher number of mobile handsets sold.

Personnel expense

Personnel expense increased by CHF 68 million or 2.7% to CHF 2,581 million due to higher restructuring costs and pension costs totalling CHF 85 million. Adjusted for these effects and at constant exchange rates, this resulted in a 0.5% decline in personnel expense. Headcount decreased year-on-year by 547 FTEs or 2.7% to 19,514. The reduction was attributable to efficiency improvements and the outsourcing of network maintenance jobs at Fastweb.

Other operating expense

Other operating expense increased by CHF 8 million or 0.3% year-on-year to CHF 2,396 million. At constant exchange rates this represents an increase of 0.9%. Higher expenditure on network maintenance and operation at Swisscom Switzerland was offset by lower bad debt losses at Fastweb.

Capitalised self-constructed assets and other income

At CHF 373 million, capitalised self-constructed assets and other income in 2012 were CHF 47 million or 11.2% lower year-on-year. This includes non-recurring income of EUR 56 million (CHF 69 million) recognised in the previous year under other income in connection with the settlement of a legal dispute between Fastweb and another telecoms provider. Adjusted for this one-off item, capitalised self-constructed assets and other income were up 6.3% year-on-year.

Operating income before depreciation and amortisation (EBITDA)

Operating income before depreciation and amortisation (EBITDA) fell by CHF 203 million or 4.4% to CHF 4,381 million. The 2012 result was impacted by higher restructuring costs and pension costs not affecting cash flow totalling CHF 95 million. In addition, non-recurring income of EUR 56 million (CHF 69 million) at Fastweb was recognised in the previous year in connection with the settlement of a legal dispute with another telecoms provider. Adjusted for non-recurring effects and at constant exchange rates, the decline was 0.6% and was mainly attributable to lower operating income generated by Swisscom Switzerland and Other operating segments. The adjusted EBITDA at Fastweb increased year-on-year by EUR 50 million or 11.1% to EUR 500 million.

Depreciation and amortisation

Depreciation and amortisation rose by CHF 47 million or 2.5% to CHF 1,950 million, mainly reflecting a change in the useful life of Swisscom Switzerlands mobile network and increased investment in the telecoms infrastructure in Switzerland. The mobile network of Swisscom Switzerland is currently undergoing a comprehensive renewal, which involves replacing all existing base stations, constructing new stations or expanding those planned and deploying microcells to increase network density. The useful lives of existing assets will be shortened due to the replacement of all network equipment. The impact on depreciation and amortisation in 2012 is CHF 25 million. Depreciation and amortisation includes scheduled amortisation related to business combinations in the amount of CHF 134 million (prior year: CHF 137 million), which have been capitalised as intangible assets (customer relationships and brands) for purchase price allocation purposes.

Impairment of goodwill

Under IFRS, goodwill must be tested every year for impairment. The test is based on the business plan, long-term growth rates and the interest rate for projected cash flows. In the previous year the carrying amount of the Italian subsidiary Fastweb was adjusted downwards by EUR 1,276 million (CHF 1,555 million). The carrying amount of Fastwebs net assets was confirmed in the impairment test conducted in 2012. At 31 December 2012 the carrying amount of Fastwebs net assets (including goodwill) amounted to EUR 2.9 billion (CHF 3.5 billion).

Net financial result

The net financial result improved by CHF 15 million year-on-year to CHF 296 million. Net interest expense in 2012 amounted to CHF 253 million (prior year: CHF 274 million), and includes interest rate hedging losses of CHF 4 million (prior year: losses of CHF 38 million).

Investments in associates

Associates mainly covers the share of results of investments in Belgacom International Carrier Services, Cinetrade, LTV Yellow Pages and Metroweb. The share of results of associates rose year-on-year by CHF 2 million to CHF 32 million. Dividends received, amounting to CHF 38 million (prior year: CHF 34 million), largely concern dividends paid by LTV Yellow Pages, Cinetrade and Belgacom International Carrier Services

Income tax expense

Income tax expense amounted to CHF 405 million (prior year: CHF 151 million), corresponding to an effective income tax rate of 18.7% (prior year: 17.9%). In the previous year the effective income tax rate was impacted by the one-off impairment loss in the carrying amount of Fastweb. Excluding non-recurring items, an income tax rate of around 21% is expected in future. Income taxes paid were CHF 8 million higher than a year earlier at CHF 190 million.

Net income and earnings per share

Net income increased year-on-year by CHF 1,068 million or 153.9% to CHF 1,762 million. In the previous year net income was reduced by CHF 1,189 million due to the one-off impairment loss in the carrying amount of Fastweb. Adjusted for this impairment loss, net income declined by CHF 121 million or 6.4%, primarily due to additional restructuring costs and pension costs not affecting cash flow, as well as to non-recurring income recognised for Fastweb in the previous year.
Earnings per share is calculated based on net income attributable to equity holders of Swisscom Ltd and the average number of shares outstanding. The share of net income attributable to equity holders of Swisscom Ltd increased year-on-year by 157.0% to CHF 1,755 million. Earnings per share grew accordingly from CHF 13.19 to CHF 33.88.

Impact of exchange rate fluctuations

Swisscom is exposed to the effects of exchange rate fluctuations arising from the translation of financial statements of foreign subsidiaries into Swiss francs. International business operations primarily concern the Italian subsidiary Fastweb. The average exchange rates were as follows:

The following table shows the impact of exchange rate fluctuations on net revenue, operating income before depreciation and amortisation (EBITDA) and operating free cash flow:

At the end of 2012 cumulative currency translation adjustments not affecting income and recognised directly in equity amounted to CHF 1,995 million. This corresponds to a year-on-year increase of CHF 26 million. Cumulative tax effects of CHF 387 million were incurred in connection with foreign currency translation adjustments (prior year: CHF 381 million). Foreign currency translation adjustments are presented in the consolidated balance sheet after deducting tax effects.