Swisscom Ag Ittigen R/Shs

Good morning, ladies and gentlemen. Welcome to the 2023 Q2 results conference call hosted by Christoph Aschliemann, Eugen Sternmetz, and Louis Schmid. Louis, the floor is yours.

Good morning, ladies and gentlemen, and welcome to Swisscom's Q2 results presentation. My name is Louis Schmid, head of investor relations, and with me are our CEO, Christoph Aschliemann, and Eugen Sternmetz, our chief financial officer. Today's presentation consists of three chapters. Our CEO starts with Chapter 1 and a quick overview on the highlights, the operational and financial performances of the second quarter. Then in Chapter 2, Christoph presents the B2C and B2B operational results, an update on our network activities, and the financial results in Switzerland before discussing FAFSA's Q2 results operationally and financially. In the second part of today's results presentation, Eugen runs you through Chapter 3 with the second quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his part.

Christoph? Thank you, Louis, and welcome also to this call from my side. Very happy, very pleased to present to you another successful quarter. and a successful first half year 2023 with a positive EBITDA development and our full year guidance reiterated. On the telecommunication side in Switzerland, we continue to focus on value. Sorry, I am moved directly to page four on the analyst presentation, just for your information. So we continue to focus on value on the telecommunication revenue side, and the evolution is as anticipated. And we're also very pleased with the development of our IT business in Switzerland with a positive organic growth and the successful transaction of the purchase of the ACCEPT company group. We're also very pleased to have received for the third time in a row the Most Sustainable Telco Award, which highlights our large efforts we do in sustainability side, and we were also very pleased with the development of FastWeb in Italy with 40 quarters or 10 years of consecutive growth in number of customers, revenue, and EBITDA. And a very pleasing second quarter. More about this later on in the presentation. And last but not least, we were also able to get an improved credit rating with our strong ratings confirmed. Now moving on to page number five of the highlights of Q2 market performance. First, a word about Swisscom Switzerland. I'm particularly happy about our performance on the postpaid side with 40,000 net ads, which is a strong quarter and improved over Q1, bringing us to 5.2 million subs on the postpaid market segment. In broadband, TV, and fixed voice, we can see similar but improving trends versus the previous quarter. So we still have net losses in broadband, TV, and fixed voice, but on a slightly lower base than last quarter. But you can see that especially the TV and fixed market are kind of peaked, and the market overall is in a declining mode. On the wholesale side, we had a slight loss in second quarter after a growth in Q1. which has sort of two effects behind the slight decrease on the wholesale side. On the one side, we have many customers. We have a growing business on our wholesale segment. But you have one notable exception, which is Sunrise, which has started to optimize its infrastructure and moving selectively customers from our network to their own cable network, which then creates a downward trend. with a slight loss of 6,000 RGUs in Q2. On the fast website, we see the same trends as the previous quarter, with a strong growth on the mobile side, 112,000 net ads, which is the second best performance in the market in Q2 behind Iliad, and with slight losses on broadband due to our value strategy we pursue in Italy on the broadband consumer side, compensated by a growth of plus 34,000 on the wholesale side, bringing us to over half a million wholesale lines in Italy. I'm pleased with this result, and it confirms that the strategy we are pursuing is on the right track. Now, on page six, you can see the Q2 financial performance. We landed with a revenue of 2.7 billion in second quarter, bringing us to 5.45 billion Swiss francs for the first half of 2023, which is a slight decline, but roughly overall stable revenue development, mainly due to currency development, say Euro-Swiss franc. Whereas on the EBITDA side, we have a nice growth of 1.1 billion EBITDA in Q2, bringing us to 2.3 billion EBITDA for the first half year, which is plus 5.1% year-on-year. And what is especially pleasing is that both countries, Switzerland and Italy, have contributed to the EBTR growth, as you can see on the right-hand side of the EBTR bridge, where Swisscom Switzerland added or improved EBTR by 3 million and FASW by 5 million, a slight decrease in the other segments of a softer contribution from other subsidiaries we have in Switzerland, and then the pension effect we already talked about in the previous quarter, which is due to a change in interest rate. bringing us overall to the 1.135 billion Swiss franc EBITDA in Q2 2023. Now, moving on to the business review, I will go to slide number eight in the analyst presentation. We have a successful development of the Swisscom Group, thanks to consequent execution along our strategic objectives. As you will see in the further slides, we pursue four main strategic goals. The first one is investing heavily in NPS leadership in Switzerland, having happy customers and making sure they want to stay with Swisscom. We are very focused also on delivering further cost savings and increasing the efficiency of the group to maintain our EBITDA margin, especially in Switzerland, but also in Italy. We want to further grow our IT service revenue, both in Switzerland and in Italy, and overall achieve profitable further growth in Italy, which is a very tough, let's say, ambition in the Italian market. But we focus on growth on the 5G mobile side, IT and wholesale, which then leads to the results you have seen in this presentation. Now let's have a detailed look at Switzerland on page number nine. As I mentioned before, we are focused very heavily on our NPS market leadership. In our latest surveys, we have landed at the NPS of 22, which is an all-time high and with a substantial lead on all our competitors in Switzerland, actually an increasing lead on our competitors in Switzerland. I think this reconforts me that our B2C strategic execution is right. We are focusing on the products, on service, on shops, and making sure that our customers are well served and pleased with what they get from Swisscom. Our main challenge is our price value perception. This is also one of the main reasons why we decided to not increase prices overall despite the inflation. Next to excellent customer service at the hotline and the shops, we continually invest in our products. So we improved our blue product portfolio offering. We launched new product options like the TV XL. We introduced a low-end mobile offering. We completely revamped the kids' mobile product side and also some of the TV options like the Multiroom Max option, which we introduced newly into the market. And I think this is key for our price-value perception to keep a high level of investment on our product side. Then you can see on the right-hand side, churn is sort of at a good low level in line with historic development, slightly higher than the previous quarter, but still I would say at the excellent low levels with 7 and 8.2%. On page 10, some highlights regarding our subs distribution. You can see that we were able to increase the blue penetration both in mobile and in broadband. with broadband at 80%, and on the post-paid value side, with close to 50% of our customers on the blue product portfolio. The FMC penetration is sort of reaching a plateau. We still have a slight increase on the broadband side, but on the post-paid value base, there is a slight decrease, mainly due to the shift to second and third brands, which we don't count in the FMC penetration. On the second, third brand, you can see that both in mobile and in broadband, the second brands are progressing with a 30% market share of our second brand on the mobile side and 8% on the broadband side. Overall, this led to a satisfying RGU development with plus 144,000 RGUs on the mobile side, bringing us to 3.3 million mobile RGUs and with the slight decreases on broadband and TV with respectively 1.7 million and 1.48 million RGU's on the TV side. On page number 11, you can see our actions we are undertaking to continuously optimize our ARPU levels with a very strong and clear focus on the value strategy. You can see on the left side that the ARPU levels remained nearly stable, both on mobile and on wireline. On mobile, we had a slight decrease of minus one Swiss franc on post-paid value due to the ongoing shift to the second brand from the main brand. But overall, our pools, especially on the wireline, have been stable or slightly increasing even on the blended side, which is a very pleasing result. This was possible due to two or three main actions. The first one is we selectively tuned our offerings, introduced some higher fees on payment of invoices, for example, or setup fees. We have introduced a payment fee if you pay the bill in the shop. We deactivated our simply digital option or introduced new products at higher price rates. We also changed our promotional behavior. we are running less brand or less discounts on the main brand, less aggressive for less duration. We reduce the gifting and also continue to counter the promotional activities, especially or mainly on the Wingo brand, but also there on a higher price level in recent times. Maybe one thought about the price of promotions on the second Brand level, we don't consider the level of aggressiveness on secondary brands sustainable, especially not what we've seen last Black Friday, neither in terms of pricing or duration. So also on the secondary brands, we are thinking about the promotion at the higher price points and maybe also by the duration. Looking at the Black or coming Black November month in the past, we've seen sort of promotions going the whole month, and we don't think this is really sustainable and probably are thinking about reducing those durations to a week or even a black day. What we're also focused on, obviously, is to continue to drive cross and upselling across our customer base, focusing heavily on the blue benefit, the convergence benefits, not only for families but households. We added the KidsMobile in convergence to really drive more and more upselling and cross-selling across our customer base. That was it for B2C. Now moving on to B2B on page number 12. In the B2B space, we have two different businesses. On the left-hand side, you can see the telco service business is developing as anticipated. We had a decline of minus 13 million on both wireline and wireless. This is in line with our guidance of minus 50 for B2B telco service revenue for the full year. Mainly, the decrease in revenue was driven by pricing impacts, more promotions, and lower ARPU. What is positive to note on the telco side is that we are completely revamping our product portfolio. Last year, we introduced the new wireline portfolios. This quarter, we launched a new enterprise mobile portfolio, which is a completely new product portfolio for B2B, which is completely digitally enabled, also allowing us to drive further efficiency and cost gains in the future. On the IT business side, we have an organic growth of plus 7 million, bringing us to 292 million revenues in the second quarter of 2023. Some of the projects are delayed with customer orders delayed and also difficulties in hiring enough talent in the market. But on the upside, what is very pleasing is the purchase of Accept, which is a company which is focused on the ERP side, especially in the SME space. So this allows us to expand our footprint and strength in the SME IT space and will enable us to do some more cost and upselling with Swisscom products in the future and strengthen our IT business overall. Now on page 13, you can see some of the highlights regarding our network rollout. On the wireless side, we were able to increase our 5G Plus coverage to 77%, which is plus 12% compared to one year ago, which is very pleasing. And we, I think, made good progress in rolling out 5G Plus, which is the 3.5 gigahertz frequency across the country. And we're also making trials with power-saving features to reduce our electricity footprint. On the wireline side, FTTS rollout is completely done, and we are exclusively building out FTTH footprint at the moment, and we were able to increase the FTTH footprint from 39 to 44% end of June this year, and confirming our 2025 target at 55%, and there is also actually an opportunity to maybe land above slightly the 55%, which is very pleasing, meaning that with the non-Swisscom footprint in Switzerland in 2025, Switzerland would be about two-thirds covered by FDTH, which is an excellent news for the country. On page number 14, you can see the Swisscom financials in Q2. We exactly, it is no joke, it's exactly 2 billion revenue bringing us to 4.044 billion revenue with 913 million EBITDA. And I would say more details to the financial numbers will be provided by Eugen. So I will move directly to page 15 with the highlights of FastWeb in Italy. So FastWeb also had a successful second quarter. We have now 10 years of consecutive growth. where we were able to grow every quarter. Also, second quarter, we were able to win 115,000 RQs overall for 4% more revenue and 2% underlying EBITDA, excluding the one of the regulatory fine due to the four weeks billing decision, which was announced last week in Italy. What is pleasing is that our consumer ultra broadband and mobile consumer-based broadband is growing. especially mobile with a 20% year-on-year growth and second best performer in the market. Also notable is our enterprise performance in Italy with a strong plus 6% growth, thanks to both mobile connectivity, but especially also IT and security services. And as mentioned previously, What is also pleasing in Italy is our wholesale strategy. We're able to compensate the losses we have due to our value strategy on the B2C side. With new lines, we are booking on the wholesale side, coming from Iliad, Enel, Sky, Virgin, Fibra, moving our wholesale business to 432,000 lines at the end of the second quarter. Now, looking a bit more into the details on page number 16, FastWeb consumer business. So as mentioned before, broadband slightly decreasing to 2.6 billion sub. We are really, I would say, one of the highest priced provider in the market, really focused on defending our current price to defend our margin. We've increased also AI-driven customer processes and many more investments we are doing on the product and service customer side. The UBB penetration is going up as in the previous quarters, and at the mobile side, as mentioned previously, we have a very nice growth or outstanding growth of plus 538,000 subs over the year-on-year. What is also a really good win was the UCLA, or for the second time, we were awarded the fastest mobile Italian network by UCLA in Q2. You can see that FMC is continuing to progress in Italy. We were able to increase FMC penetration by 2.4% to 42% with very strong benefits both in ARPU and bringing TURN down. Now, looking at the enterprise business on page 17. As mentioned previously, we had a 6% growth on the enterprise business, bringing it to $266 million in Q2 2023. And we were able to add many new customers, maybe most notably IKEA, Eni, and Boehringer. So we have a good panel of growth in all segments, both in connectivity, security, and mobile. And as Outlined before, the wholesale business is also growing strongly with 6% from 67 to 51 million revenues. We have a very strong growth online, and we had some other business on the wholesale side which was not renewed, but it had very low marginality, so the impact overall is actually quite negligible. Now, last slide, page number 18, sorry, FastWeb Financials. Overall, 628 million revenues in Q2 2023, bringing us to a half-year revenue of 1.25 million, with all segments wholesale, enterprise, and consumer, which are contributing to the growth, which is a very pleasing situation. And you have also a growing EBITDA. You have a reported EBITDA which was slightly declined by way to 210 million due to the four weeks billing regulatory provision. But the underlying operative EBITDA has growing also by 2% to 223 million or 411 million for the first half year. That was it from my side. I would now hand over to Eugen for the financial details.