Swisscom Ag Ittigen R/Shs

Good morning, and welcome to the Swisscom Q3 Results 2023, hosted by Christoph Eschleman, Eugen Sternmetz, and Louis Schmid. Louis, the floor is yours.

Good morning, ladies and gentlemen, and welcome to Swisscom's Q3 Results presentation. My name is Louis Schmid, Head of Investor Relations, and with me are our CEO, Christoph Eschleman, and Eugen Sternmetz, our Chief Financial Officer. Today's presentation consists of three chapters. Our CEO starts with chapter one and a quick overview on the highlights, the operational and financial performances of the Q3 results. In chapter two, Christoph presents the B2C and B2B operational results, an update on our network activities and financial results in Switzerland, before discussing FASF's Q3 results operationally and financially. In the second part of today's results presentation, Eugen runs you through Chapter 3, with the Q3 financials, including the full year guidance. With that, I would like to hand over to Christoph to start his part. Christoph?

Thank you, Louis, and welcome from my side to this investor presentation. It is our 100th quarterly results presentation of Swisscom since the IPO 25 years ago, and I'm very Delighted to have you all on the call and present pleasing results on the way to the full year. I will directly move to page four of chapter one, page four, with the Q3 achievements. So you've seen in the results that we have very pleasing financials with an increased top line of 1.5% and EBITDA growing by 2.1%, presenting the best margin over the past two years. We were also able to win the best or strongest brand award in Switzerland by the Swiss Brand Finance Report, which is a very pleasing result and demonstrates our efforts we're doing in branding and positioning Swisscom as a strong brand in Switzerland. Last week, we also launched the new TV box, TV box number five, and some more details later on how this will help our B2C entertainment business. I'm also happy to report that we achieved a net telco savings of plus 50 million year to date, offsetting roughly our service revenue decline, which is from my point of view, an excellent result that the company has achieved. Then moving to Italy, we have seen continued growth in FastWeb. More details later on in the FastWeb section. leading us overall to an unchanged EBITDA and CAPEX guidance, whereas revenue we slightly adjusted due to lower hardware sales and especially the lower Euro to Swiss franc exchange rate impacting the fast web revenues conversion to Swiss francs. Now moving to slide number five, you can see the Q3 market performance. We have roughly the same operational trends in Q3 as the ones we had in Q1 and Q2. Looking at Swisscom Switzerland, you can see continued post-pay growth with 32,000 new RGUs and a stable market share, which is a very pleasing result, whereas broadband is roughly stable, slightly declining with minus 3,000, a bit improved over Q1 and Q2. And if you look at the wholesale figures, we can say that wholesale and broadband year over year roughly cancel each other out with overall a minus 2000 effect year to date. Whereas TV is slightly declining. So we see that the move from TV, the regular TV box to streaming is continuing in the market, leading to a slight loss in RGUs on the TV side and also the structural decline on fixed voices. is continuing with the same trend as in the previous years with minus 22,000 this quarter. On the Italian side, we have a similar picture with strong growth on mobile, slightly decrease in Q3, but still a strong increase of 85,000 RGUs and bringing up to 5% market share. Whereas on the broadband side, we continue our value strategy and accept a loss on the broadband side. which we overcompensate by the biggest ever increase in wholesale lines of plus 47,000 this year. More information on that later on in the past web section. On slide six, you can see the overall financial performance in Q3. So, revenues stood at 2.7 billion, which is up by 1.5 percent. EBITDA on 1.174 billion, which is up 2.1 percent. and net income going up by 7.7% to 462 million. On the EBITDA bridge on the right-hand side, you can see that from Q3 22 to Q3 23, it's roughly stable. Switzerland is slightly declining by minus 6 million, compensated by FASB increasing by 4 million. Then some effects in the other segments and the big pension reconciliation impact due to interest rate changes More details on this maybe later on by Eugen. But overall, a stable development bringing us to the 1.174 billion in EBITDA. Now I'll move to the business review chapter two. I'll go directly to page eight. We can say that Swisscom overall is continuing to executing along our strategic objectives. So number one is stabilizing the telco business in Switzerland and maximizing the value generation based on our customer base. I think on the B2C side, we can say that we are roughly stable evolution, slightly declining. On the B2B side, things are a bit more difficult. We still have an ongoing service revenue erosion, but we are working hard on this topic to decelerate the erosion in the years to come. This is also why the operational or driving operational excellence remains a key topic within Swisscom, mainly in simplification, pushing digital or automation to continue to deliver cost savings over this year and in the following years. We're also focused on growing our IT business, both in Switzerland and in Italy, And then last but not least, we want to achieve profitable growth in Italy on the telco side by growing our wholesale business and scaling up our mobile business in Italy. So looking in more details now at B2C on page number nine, we can, as I mentioned previously, we have again won the strongest brand in Switzerland, which is a very pleasing result and I'm very happy about the efforts of our teams in this area. And we also managed to win the best Connect shop test and the best digital app test by Connect. So we can say we sort of combine the best of both worlds, physical and digital care in Switzerland. And this then leads to further penetration of our blue portfolio, which has positive results on churn and value generation. What is also maybe noteworthy is we launched a new kids mobile subscription a couple of months ago and it shows very pleasing results and the market pickup is very, very good. On the other side, we continue to work on our second brand to make it more attractive. So we launched new subscriptions which are a bit higher in value and focus on the higher end of the second brand market with the Swiss 5G subscription. And we're also pushing Vingo as a full-service provider, focusing more on convergence offer, broadband and wireless together, and the new app for our customer service. On page 10, you see the details on our new or the next step in our entertainment strategy. I think today we are market leader with 1.5 million R2s, and we just launched our new TV box, which is now based on the Google Android TV app. operating system which allows our consumers to open up the complete world of Google services. So they have access to any app which is available on the Play Store and can use it on the big screen in their living room. And we also made quite a big progress on adding new OTT subscriptions to basically transform the TV box from a regular classical TV box into an entertainment hub for the home. And we added Paramount and Disney subscriptions and also new bundles, which one example is the Supermax bundle, which includes Disney, Paramount, Sky, and the Best of Blue, Blue TV, together offering good value for our customers. On page 11, you can see the results of all these strategic improvements and new product launches. So we have... a really pleasing turn actually. We around stable turn around 7, 8% on broadband and postpaid value. And we were able to continuously increase the blue product portfolio penetration moving into 49% on the mobile side and 81% on the broadband side. FMC penetration is roughly stable. And if you look at the RGU and ARPU trends on mobile, we see an increase in the RGU base. So we have now 3.3 million subscriptions, which is a very nice increase of 117,000 year over year, which was a bit counterbalanced by a slight decline in ARPU by minus one Swiss franc. And you'll see in Eugen's part later on, that the RGU effect and the ARPU effect roughly cancel each other out financially. The ARPU effect is mainly due to the shift of second brand or first brand to second brand, whereas the prices on the first brand are mainly stable. On the broadband, we have a bit different effect. So ARPU is stable, which is a great job that the teams are doing to keep the price levels where they are. And we accept a slight loss in the RGU base by minus 12,000 to 1.7 million RGUs on the broadband side. Now on page number 12, we will move to the B2B side of our business. And we are happy to report that we have excellent NPS results. We are working very hard on our network quality, IT service quality to make our services more resilient We bring new innovative products to the market in various parts of the IT business, and they continuously improve our sales and service excellence. And I think we can see that the NPS of our customer base is continuously increasing since a couple of years, and we have now achieved a record values of 45 in corporate and 27 on the SME side, which is very pleasing to me. On the telco side, we are on track according to guidance. So we had a flat service revenue evolution Q3 over Q2 with 382 million. Unfortunately, the erosion is still continuing year over year. So you'll see in the financial sector that we have a minus 17 million service revenue erosion year over year in Q3, which is in line with the guidance we provided early of the year. What is very important to note is that we launched a new enterprise mobile portfolio in the market for the SME customers, which will help us in the coming years to work on stabilizing the service revenue and bringing new attractive products to the market on the telco side. On the IT, we see a similar trend as the ones we had in the previous quarters. So we have a slight growth of 2 million quarter over quarter. and plus 13 million or plus 5% year-over-year, part of which is organic growth, and another is linked to M&A or the acquisition of recent targets. IT is slightly behind our expectations, so we were actually planning for more growth, but the market is a bit sluggish at the moment. Many of our customers are delaying some of their key projects. So overall, we are happy with the IT results, but working on accelerating this again for the future. On page number 13, you see the latest standings on our technology side. So we are continuing to push both the wireless and wireline rollout and network coverage. And I'm happy to report that we have now hit 79% 5G plus coverage in the population, which is up 10% year over year. and we maintain our midterm aspiration of 90% coverage by end of 2025. On the wireline side, we are also going full steam ahead. We are now covering nearly 2.5 million households with FTTH, our 10 gig offering, which is 45% of Switzerland now covered by Swisscom FTTH. And there is also discussion in Parliament about gigabit funding for very remote locations. So this is still too early to tell what the impact could be of this, as the discussion in Parliament has just started, but this will be something to observe over the next quarters. On the IT side, we're also making good progress, building up our in-house capabilities and our local talent hubs in Rotterdam and Riga. and continuously simplifying and standardizing our IT landscape and moving to modern cloud architectures. So you can see that the impact of this on page 14 is our operational excellence and telco savings that we are delivering. And many of the savings are linked to networks and IT simplification, as I just mentioned. Also the digitization of customer interaction, On the service side, moving to chatbots, self-service in the app is an important lever. And then internally, always simplifying and making our organization leaner and becoming more data-driven and embedding AI and automation in our internal processes is helping us to deliver our cost savings. Year-to-date, we achieved approximately 75 million gross savings, leading to about 50 million in net. after increases in salaries and energy costs. And we expect, as already discussed in the last quarter, about 100 million gross this year, leading to about 70 million net end of the year, which should roughly compensate the service revenue decline, which we are expecting for the full year. Last slide about Switzerland. On page number 15, you see the overall Swisscom Switzerland But I will not go into the details as Eugen will outline this more later on. But revenue slightly declining to 2 billion in this quarter, minus 0.8%, mainly driven by slightly lower hardware sales and EBITDA at 911 million, slightly down by 0.7%, but up on a full year basis. Okay, so now I move to FastWeb on page number 16. So I can say that I'm very pleased with the evolution of FastWeb in this quarter and this year in general. We had another quarter of solid growth with 9% more revenue and 2% more EPTR. We have an increasing UBB and mobile customer base. And what is especially important is that we have a very positive momentum on the enterprise side. We have a strong development on the order book enterprise with plus 36%. And also on the wholesale side, our customer mix of Enel, Sky, Wintrae, and Iliad is paying off and performing very strongly in the market with the best result ever in Q3. Now, moving to page number 17, we can see some details on our RGU base. So we are continuing our value strategy on the B2C side. So our broadband subs are down by minus 3% to 2.6 million subs. But we are continuously, although we are executing price increase in the market, we have been able to improve the churn further year over year. Also, I think what is helping is an increased penetration of the UBB or ultra broadband penetration overall in our customer base. On the mobile side, we have a very pleasing growth of plus 17% of the customer base year over year, which leads to nearly 500,000 more subscriptions year over year or plus 85,000 in Q3. You can see that the FMC penetration is continuing to increase in our customer base. It's now at 42%. which is also an important result because our converged customers have more ARPU and highly reduced churn overall. So this is an important level for us to continue to work on. As mentioned before on page 18, you see the very pleasing results on the enterprise business. We have plus 20% in revenues, bringing us to 287 million revenues in Q3. maybe one word of caution on this revenue increase. Don't extrapolate this on a full year basis or for the next year. There are some phasing effects between Q2, Q3, and Q4, which lead to a spike in revenue in Q3, which is obviously very positive, but we shouldn't get overly excited about this and stick to the full year guidance regarding FastWeb. On the wholesale side, we are also moving ahead with full steam with our new customers. And the wholesale line increase you see with plus 39% is mainly driven by Sky, Enel, Vintre, and Iliad, and leading to 5% higher revenues, 84 million in this quarter. So passive financials, page number 19, we can see 660 million revenues in Q3 plus 9.5%. On a full year basis, 1.9 billion plus 6%. EBITDA is also slightly growing with plus 1.8% this quarter to 225 million more in the financial section of Oregon. So this I will now hand over to Eugen for the financial details.

Okay, here we go. Good morning, everybody, also from my side. I'll start, as usual, with group revenue on page 21, leaving aside the size of current currency index for the moment. Underlying revenue was up 77 million year to date. Swisscom Switzerland down 39 million and FastApp up 109 million. I'll start on the Swiss side. B2C revenue was down 23 million in the first nine months. That was primarily driven by lower hardware revenues. Service revenue was only marginally lower and other revenues were up, as we shall see. So that's mainly a reflection of lower hardware revenues, which means lower handset sales which seems to be a bit of a general market trend at the moment. B2B revenue down 13 million, the typical mix of service revenue decline on the one hand and IT service revenue growth on the other hand and the balance coming from hardware which didn't compensate fully for the service revenue decline. Wholesale is basically stable year over year in revenue. So more importantly, over to FastWeb with 109 million plus compared to prior year, or 6% plus in the first nine months, driven by increases in revenue, both on consumer enterprise and wholesale, obviously mainly driven by the enterprise segment. As Christoph already mentioned, the third quarter was exceptionally strong. It's plus 56 million compared to prior year or 9.4%. That was mainly driven by hardware revenues and ICD revenues with large customers and comparatively low margins. So Q3 is here certainly a bit of an outlier. And as Christoph mentioned, certainly not to be extrapolated and also doesn't drop down to EBITDA proportionately, as we shall see. So our advice, as Christopher already mentioned, is for the full year to stick to our revenue growth guidance of plus 4%, which simply mechanically means that growth in the fourth quarter year over year will be very weak or even negative. The comparable last year in the fourth quarter was very strong with high yield revenues in the wholesale segment and also some very strong one-off revenues in the enterprise segment. So the facing was very different last year and this year. Last year with an exceptionally strong fourth quarter, this year with an exceptionally strong third quarter. So that creates a bit of fluctuations in the year-over-year growth numbers if you look at individual quarters. I'll move on to page 22, Swiss revenue. The individual components on the left-hand, service revenue down by 56 million. B2C only marginally down with minus 14 million in the first nine months. B2B, a bit more pronounced as expected. All in all, the year-to-date service revenue decline is a bit higher than originally anticipated. You know that we hope for a flat service revenue in B2C. We are very close to that, but not exactly at at the flat point. IT service revenue up 22 million or 2.6%. Part of it is non-organic. The accept acquisition accounts for about a third of this growth. Hardware sales are down. This is mainly driven by B2C. As I mentioned, wholesale, we talked about and we have a positive effect from other revenues plus 26 million, about half of which is the pick up in our cinema business, which is obviously very positive and not entirely anticipated. It seems that cinema entry levels are almost back to where they were prior to the pandemic, and that's obviously a very positive thing and gives us positive impact on the Swiss revenue side. Service revenue evolution, top right, minus 23 million in the third quarter. B2C basically the same as in Q1 and in Q2. B2B service revenue decline is a bit higher than in the previous quarter. The difference is entirely driven by roaming. So we had a roaming pickup in Q3, Q4 last year, and this gives us a little bit of a decline in roaming revenues year over year, which we didn't have in the first two quarters. So that's entirely explained by this. There is no other structural shift that we could see in the numbers between Q1, Q2, and Q3. And so we do expect a similar picture also in Q4. If you look at the individual drivers on the bottom right side, they are basically the same as in Q2. The only difference you will find if you compare the individual drivers to the Q2 numbers is in B2B wireless, where we have a minus eight here in Q3. And this difference between Q2 and Q3, as I mentioned, is entirely driven by B2B roaming numbers. I'll move on to page 23. I'll go directly to the Switzerland and FASTA numbers and leave aside the exception as pension currency, et cetera, because there was not much news in Q3 on these topics anyway. Swisscom Switzerland basically fled with plus 10 million in the first nine months, year over year. B2C plus $9 million, that's cost savings overcompensating the anyway small service revenue decline. B2B, in B2B that's not the case. We have minus $32 million compared to previous year, very much driven by the third quarter. Overall, that's obviously the impact of the service revenue decline, not compensated by an EBITDA growth out of IT services or cost savings. The Q3 decline is particularly strong, not necessary to be extrapolated. We had lower cost savings in Q3. We had particularly low costs in the prior year quarter, Q3. And we had lower IT profitability in Q3. So that all adds up to these minus 20 million in Q3. Infrastructure and support functions plus 32 million that the cost savings Coming in, we'll cover that on the next page. And FASTEP APTR is up 12 million, or 1.9%, with a 4 million regular contribution to APTR growth in the third quarter, all as expected and as guided. I go to page 24, Swiss APTR, so the only noteworthy. uh topic on that page is obviously the cost savings in the telco business we stand here at plus 50 million in q3 with plus 10 million cost savings came in again at a very reasonable pace and as christoph already mentioned we are already where we expected to be roughly by the end of the year and we will certainly also have some more cost savings coming in in q4 So you can expect, as we guided at the beginning of the year, cost savings in the DELCO business to compensate, by and large, the service revenue decline we'll see for the full year. In the IT business, obviously, costs go up in line with higher revenues. It's also not entirely like-for-like, since the costs of the asset acquisition are also in here in the IT business for increase. I'll move on to page 25, CapEx. For the first nine months at 1.6 billion, CapEx is in line with guidance. In the breakdown on the Swiss side, on the right-hand side, fiber CapEx stands at 298 million, which is certainly a bit on the lower side. We practically have no FTTS rollout anymore. It was all done last year. So almost all of those 298 million come from the FTTH rollout, which is up 93 million year-over-year. For the full year, we will almost certainly be short of the 500 million we talked about in terms of fiber cutbacks. Envelope, the reason is we went a bit slower this year, given the switch from the point-to-multipoint rollout to the point-to-point rollout, where we had to redesign the rollout Obviously, this has no impact on our mid-term coverage target of 55% of households in 2025. I'll move to page 26, free cash flow bridge. So free cash flow was up 57 million compared to prior year. That's mainly driven by an increase in operating free cash flow proxy of 109 million. The only significant structural non-cash item The only significant structural effect between the operating free cash flow box and free cash flow is the pension effect. You know that we have an uplift in EBITDA out of lower pension expense, which is non-cash. It adds up to 66 million year-to-date. This will go up to roughly 90 or 100 million by the end of the year. So that's the only structural item. that will remain in that bridge. Apart from that, we have two more volatile effects. On the one hand, there is a change in net working capital. Net working capital changes minus 242 million year-to-date. That's not unusual for Q3. It has already come down from Q2 at 75 million above prior year, but we expect this to revert towards the end of the year and not give us any significant year-over-year effect once we come to year-end. And the second more volatile effect in there is the tax payment schedule, which was pretty accelerated last year. We have a more regular tax payment schedule this year. So this gives us a positive year-over-year effect of 81 million. So all in all, the 109 million operating free cash flow proxy deviation to the prior year translating to 57 million on free cash flow. I move on to page 27, the net income bridge. Net income is up by 98 million. Obviously, that's driven by the increase in EBITDA and EBITDA only compensating factor that reduces the impact a little bit is the lower financial result. We had an extraordinary positive financial result in the prior year, so that gives us a minus 46 compared to prior year. 36 which if there is up translating to 98 million in net income increase with that i come to the final page uh the guidance so first of all epita and capex guidance are unchanged we do adjust the revenue outlook from the outlook so far 11.1 to 11.2 billion to the new outlook approximately 11.0 billion Swiss Franc. There are two reasons for that. Reason number one is the strengthening Swiss Franc or weakening Euro, depending on how you would like to see it. So, we built the original guidance on an ethics rate of 1.0 Euro to Swiss Franc, which was the prevailing exchange rate at the time of the guidance, and now, obviously, This doesn't hold true anymore. We expect for the full year a 0.98 exchange rate, so that costs 50 million in revenue in terms of Swiss francs. That's effect number one. Effect number two, we have a mix of smaller revenue items in Switzerland that are a bit lower than originally anticipated. Most importantly, hardware sales are lower than expected. I already talked about this before. virtually no impact on bottom line. IT service revenue growth a bit lower than anticipated, virtually no impact on bottom line growth. And service revenue in B2C is a bit lower than originally anticipated, and that's fully compensated by higher cost savings. So all in all, no impact on the EBITDA guidance, although one word of caution that I repeat, I already mentioned it in Q2, we are certainly trending towards the lower end of the range because obviously the FX rate also impacts the EBITDA, even if not to the same extent as on the revenue side. Obviously, all of this has no impact whatsoever on our dividend guidance, which remains unchanged at 22 Swiss francs per share. And with that, I hand back to the operator.

Thank you. Dear participants, to ask questions, please press star 14. I repeat, star 14. To withdraw your request to speak, press star 15. Thank you. I will now open the lines one by one. You will hear the text unmuted as soon as your line is opened. And please introduce yourself before asking your question. I will now open the first line.

Hi, it's Paolo Tang from UBS. I just have two questions. The first question is about competitive dynamics. So your competitors have put through price rises of 3% to 4% in July and September, but what impact has this had on the market and what are you seeing in terms of promotional activity? So specifically, can you talk through what you're seeing in terms of the duration of promotions? My second question is really just about cost inflation. So you originally expected 100 million of gross savings and then 50 million of cost inflation to give you net savings of 50 million for this year. However, you're obviously running ahead of expectations on net savings. So can you talk through what is driving this higher level of net savings? And also, as we think about 2024 qualitatively, how should we think about cost inflation for the coming year? If Swiss inflation is easing, should we expect more of your gross savings to drop through to net savings? Thanks.

Hi, Paul. It's Christoph. Happy to take the first question on competitive dynamics. It's true that competitors increased headline prices on early, mid this year. The impact we see is not very big as the promotion activity is continuing to be very intense and mainly the market is driven by the behavior of salt and the second brand yellow of Sunrise, which has, I would say, the same aggressiveness as ever. Yesterday, they started Black November promotions with minus 70% lifetime discounts, which is very aggressive from our point of view. And this obviously also impacts our net ads going forward. And if you look at, let's say, customer behavior or competitive dynamics, they're mainly not so much driven by our front book or headline prices, but very much by the promotional activity of the second brands in the market, which continues to be very, very much aggressive.

Okay, then on the second question of... Of course, savings and cost inflation. Yes, you're right. These were the rough numbers we gave at the beginning of the year with roughly 100 million gross and roughly 50 million net with the difference coming from inflation impact. It now looks like that towards the end of the year, the inflationary impact will rather be around 30 million. So this is where the numbers come from that Christoph mentioned in the first part. of the presentation. For next year, you're right, inflation seems to be coming down a bit, although already at the beginning of the year, the forecast were for inflation to come down during the year and then peak up again towards the end of the year, because there are a couple of, or there's a number of regulated prices in Switzerland that kick in at a different time schedule, if you like, than the general inflation. So it remains to be seen what inflation will be Next year, we already see the first indications of personnel cost inflation. So the first bargaining agreements are being closed, sometimes north of 2%, with unions demanding even more than that. So I'm still a bit cautious when it comes to next year. I wouldn't assume that inflation goes away or anything. Quite to the contrary, it will certainly go. stay around. The question is at what level? You know, we'll make up our minds on that when we come to the full year conference and present the guidance for next year. What is clear is that our ambition and our commitment to continue to gain cost savings from the Swiss telco business is completely unchanged. And the exact outlook for the next year will present in February. Thanks.

Next question.

Good morning. It's from CT. I have two questions. The first one is just a follow up on the other question from Paul around the promotional intensity. You mentioned what your competitors are doing. I was curious from your side whether you feel the need to respond or whether you will accept a slightly lower growth in customers, but continue the creative strategy you're following this year. Um, and what could change that if you could comment on that as well. And then my second question, and again, you mentioned earlier is the hundred conference call of Swiss call. I think I dialed in just over 65 of them. And I think it's been more than 50 since I asked the question about the dividend. But I'm going to do it now in the following context. Your net debt to EBITDA is declining. You clearly have some buffer for options. I think Christoph mentioned the rural area fiber programs in Switzerland. I'm just curious if there is potential for CABEX to go up for you to also participate in some of these programs or whether you would think about returning more cash to shareholders in the next couple of years, or I guess the third option is more like M&A and other strategic opportunities. So if you could comment on those, it would be great. Thank you.

Okay, thank you, Giorgio, and happy that you have joined so many of our quarterly results and are still following us today. Maybe the follow-up on corporate competitive dynamics. We are continuing our focus on value in Switzerland and in Italy, but mostly in Switzerland. We continue to take out promotional aggressiveness. We have nearly removed all promotions on the main brand. We have increased prices on our second brand to try to execute the value strategy and not, let's say, accelerate price erosion in the market. But obviously, depending on how the market evolves and the impact on net ads, there might be a necessity to react in some way or the other, especially if things become too aggressive. But For the moment, I would say we are continuing our value strategy and observing the impact on the market.

We were smiling when you introduced your question, and now we are struggling who should answer it. I'm happy to answer it. You asked me directly. I think it's only my 11th quarterly result. But since I'm doing this, obviously, I get the question on a regular basis, not least from you. My answer is also always the same. Our dividend policy is tied to our free cash flow. We are committed to pay out a higher share of free cash flow. And any change in dividend would depend on a sustained change and substantial change in free cash flow. So if you think about the dividend going forward, you first of all need to think about free cash flow evolution. And I think for the last 10 years, not quarters, our free cash flow was about 1.4 billion. So this is why also the dividend was always the same. In particular, to your question on the fiber programs by potential fiber program by the government, you know, it's not done and dusted. Potential fiber program from the government for peripheral regions, that's not something that has a significant impact on our fiber carpets over the next couple of years. It will take a lot of time. In the definition, it's completely unclear at the moment how this will play out. So I think our cyber complex envelope that we mentioned many times for the years to come remains the same and is not affected by this program. And so there is certainly no impact to expect it out of that near term on our free cash flow generation, let alone on the dividend.

Thank you for the answer to that question. I understand the dividend linked to free cash flow, but at the same time, you are slightly deleveraging every year. Any thoughts about how you could use this flexibility in the future? It's not Fiber and it's not dividends. Is it more likely to be buybacks or M&A or nothing?

We feel quite comfortable with the leverage where it is. As you know, contrary to many of our peers, we do have an upper limit in leverage of how far we can go at 2.4x. Obviously, we have a considerable buffer to that number, but it's also necessary to have a buffer if you have an upper limit. Others don't have that. So, yes, leverage is coming down slightly, but we feel very comfortable with where it is.

Okay. Thank you. Next question.

Hi there, it's Josh Mills at BNP Power of Exxon. Maybe just a follow up on the Fiber debate and kind of plans for the future. So I believe you stopped working at least in scale with the Swiss Fibernet on co-investment and rollout a while ago now. They still have this target out there of covering another 3 million homes and finding additional financial and potentially strategic partners to help them with that. I just wondered whether you'd had any more conversations with them regarding a kind of cooperation and if there were federal gigabit funding on offer, if that could change the picture as well. So any update you can give us on that would be great.

Thanks very much. We don't have any conversation ongoing with SFN. I think that's, I believe, who you referred to before with their ambition to build a higher footprint. So we are focusing on our own rollout and we are collaborating locally, mostly with local utilities companies when there is an opportunity to collaborate, but it's more on a municipality by municipality basis of the local utility companies. rather than with SFN where there are no ongoing talks at the moment. With regards to the FIBA program of the government, which they are discussing in Parliament, the law they are discussing will only come into effect in 27 or 28, so it will in any way not impact our rollout for the next four or five years. And it also has quite a limited scope. What they are discussing right now is sort of really funding the most one or two expensive or most remote locations. So we are talking about quite a limited scope overall in the country. So we will see how this debate goes in Parliament. But as Eugen pointed out, for the next four or five years, this will not impact our CapEx or Fibro rollout CapEx in any way.

Understood. Thank you.

Next question.

yeah um good morning guys steve from uh redburn atlanta here thanks for taking the question a couple of i could first of all just going back to that fast web enterprise revenue growth um i guess the eu recovery fund it feels a bit like the yeti it's often talked about but never seen and this is from memory the first time i've seen any revenues come through so can you just help us understand you know it looked like you booked an extra you know 25 30 million of revenue this quarter given the normal growth rate sort of four or five percent enterprise with 20% cost of enterprise this quarter. So maybe just a bit more color on what drove that growth and why it will unwind so quickly in future quarters. That'd be great. And then just on Swiss service revenues, it looks like you're sort of annualizing at sort of minus 70, 80 now. Consensus thinks you might get to flat by 25. Is that realistic? Or are we kind of at a level you're happy with in terms of annual revenue loss? Obviously, a lot better than you were two years ago. But do you think you can continue to drive improvements there, given how competitive the market is, which you've already talked about?

Thanks a lot. I can take the first question. So, yes, your calculation is right. Over and above what you would expect is, say, a normal growth out of the enterprise business in Italy. There is an additional 25 or so million of revenue. As I pointed out, it's mostly related to large customer, one-off projects, hardware shipments, et cetera. So this is something that you don't repeat every quarter. It depends from time to time that you have these sort of high hardware deliveries, and you see everything in Q3. As I mentioned, with hardware deliveries, typically margin is very low, and that is also why you don't see

That seems like an awful lot of equipment from one or two large customers. Is there any sort of color as to what it would be?

We can't go into the details, obviously, of individual customer relationships. You're not on the wrong path that some of it is tied to large orders in connection with public authorities in Italy buying equipment and upgrading their IT systems as a consequence of the national recovery plan.

Okay, and then maybe on the service revenue question. I mean, so your calculation for this year is roughly correct. We probably end up somewhere at 70, 80 million on a full year basis for a service revenue reason. are we happy with it i wouldn't i mean it's much better than it used to be in the past yes a positive note but uh obviously uh we we cannot be entirely happy with something that is uh declining so probably I think from a commercial perspective, it is obviously our goal to continue to decrease the service revenue decline. Honestly, I mean, we are not providing any guidance for 2025, but having a flat service revenue in 2025 is very ambitious to me and very hard to execute. Maybe, you know, it's potentially possible on the B2C side, but certainly on B2B the market dynamics and price erosion in the market are such that flat service revenue evolution in 24 or even 25 seems very unlikely. But having said this, I think overall we are working and trying to find measures that we can execute to start to limit the service revenue erosion also on the B2B side. But we will see also how the market evolves and how competition behaves in 24, which will be a main driver in our service revenue evolution.

Thanks very much. Thanks for the answers.

Next question.

Good morning, everyone. Thank you for taking my question. This is Titus Crown from Bank of America. I have just two, if I may. First, maybe on your secondary brands in Switzerland, which you talked a little bit about during the presentation, mentioning that you want to improve the value focus there. And then maybe just given that currently we have, I think, 30% share in post-bate, 8% share in broadband of those secondary brands. looking ahead not just for the next quarter but really in the medium to long term steady state maybe even what share of secondary brands would you actually feel comfortable with in those two segments and then second question on just on your startup investments actually if I remember correctly you gave an interview quite recently in which you voiced an ambition to improve startup financing in Switzerland can you maybe talk a little bit about strategy that you're following in that area, how much synergies do you actually expect and get from those investments and how can we see those activities within your financial statements? Thank you.

Okay, thank you Titus. On the second brand, it's true that the second brand share on wireline is much lower than on wireless. So we think that there is a some value to be captured by positioning Wingo more as a full service provider in the market and recovering some of the customers we lose on the broadband side and moving them to the second brand. And so, you know, probably the 8% share will continue to slightly increase in the future. Whereas on the mobile side, we're already on 30% and continuing to increase. So this is, I would say, a Maybe not a watch point, but something that we are observing quite closely and also thinking about exactly what you would you ask this at what level are we comfortable with? Where do we want to end up with a second brand penetration? And it's something we are working on at the moment to to see how things should evolve in the future. But it's too early to say to talk about more more details. On the startup side, so basically the idea behind this initiative is that we believe that Switzerland is very strong on the innovation side. A lot of money is poured into R&D. We also have a lot of startups that are incorporated, but when it is going into sort of the scale-up phase, Switzerland is typically lacking capital to finance the scaling up of startups on a worldwide basis. which leads then to the startups being sold too early or them moving away or moving headquarters away to other countries, the US or some EU-based countries, which we believe is not in the interest of the country. And as a tech provider, I mean, we have a strong interest in having a strong economy in Switzerland with more companies which are successful that could be our customers. And we also have a strong interest in having a strong tech sector in Switzerland and the vibrant tech sector. And this is why we are engaging in this area and trying to make politics, but also the wider society aware that startup financing is an important lever for the financial success of the company in the coming decades. And this is also why we are participating in trying to convince people to put more money into this area. It's not a question that Switzerland does not have enough money that could be invested. The pension system alone invests over 1,000 billion Swiss francs. But it's more a question of where the money is allocated. Is it going into the blue chips and debt or obligations, or is it going into startup or alternative investments? And so this is basically the idea behind that we have continued to have a strong country, a strong economy, and a healthy evolution of Switzerland. Also, you know, making sure we have tech players here, which could potentially increase our sovereignty or relative sovereignty in terms of technology, which from our point of view is an important aspect if you look at the U.S. versus Europe versus Asia development, geopolitical development. But it's more, let's say, a long-term

uh contribution to the country's success rather than something that will immediately uh yield uh shorter cash flows for uh for swiss uh swisscom if i may may add just one thing we have been uh we have been running a corporate venture fund within swisscom for a very long time already so the the concept is uh is not uh not not entirely new and there is certainly not a new step change in any way to uh to our financials out of this initiative it's more about motivating others to join us in what we have been doing already for for a while okay very helpful thank you next question

Yes, good morning. It's Luigi Minerva from HSBC. Thanks for taking my questions. The first one is on the B2B service revenue outlook in Switzerland. I understand your comments that you still expect erosion in the next couple of years. But normally, MPS is a good early indicator of a turnaround in trends. And you mentioned the excellent MPS results on B2B. So I was wondering, where do you see the trough for the B2B service revenue decline? Are we close to the trough? Is it Q3 the trough? So yeah, if you can help us a bit on that. And also you mentioned that IT is behind expectations as many customers are delaying projects. Is that a sign of macro pressure or was it more specific? And then the second question is on fast web. And you mentioned your ambition to grow mobile to scale. I think there is a legislation work in progress in Italy about preventing large operators from targeted promotions. So it's quite normal in Italy to see offers specific for customers coming from MVNOs or from smaller operators. And I guess, you know, if that legislation was to go ahead, it would probably help a smaller operator like Fastweb. So I'm wondering whether your ambition to grow mobile to scale in Italy also is a reflection of this debate. Thank you.

Thank you, Luigi. I'll tackle your second question because it's excellent, very well spotted. So indeed, I mean, if you look at Q3 results, you know, the mobile growth, which has slowed down to some extent, is also driven because of these targeted, very, there are very aggressive targeted promotionals actually geared towards fast web customers, which are executed by the large operators, with sort of these targeted offers. So now the Commission of the Parliament has actually said yes to forbid these targeted offers, and we will see how the full Parliament, if the full Parliament goes ahead and approves the offer. But it is to some, I mean, this should generate some positive results on our net ad activity should this activity be forbidden in the coming weeks or months. So we will see how fast the Italian parliament moves on this. But there is, this is indeed something to watch and which should hopefully generate positive impact next year. Now on the Swiss B2B service revenue side. So yes, I think MPS, it's very encouraging that MPS is increasing and it helps us keep our customers. But if you look at what's going on in the market, the price aggressiveness of the other players in the B2B space is very high, which continues to put us under pressure when the contracts are up for renewal, which is certainly more the case on the mobile side, but also on the wireline side, you have a Renewals upcoming, you have technology changes with people moving to SD-WAN, et cetera. So we do expect continued revenue erosion to happen in spite of high NPS rates. Probably would be even worse if we had lower NPS rates. And that's also why customer satisfaction is so important to stabilize the business. On the IT side, I think there is some macro pressure and some of the companies are delaying because of declining order books, especially in the industry. You read more and more news in the newspapers that order books are declining and companies are sort of delaying investments. But overall, I think IT and digitization is a big driver of cost savings in many industries. And it is still valid for the years to come. So we do expect the IT investment to continue to stay high and not change dramatically. And this is also why we continue to believe that we can grow further in IT services and continue to focus on this, both on organic growth, but also inorganic growth if we find good opportunities to buy companies to complement our IT offerings.

Great.

Thank you so much.

Last question.

Good morning. This is Nuno Vash from Societe Generale. Thank you for the opportunity. I have two questions on my side. One is on the broadband net ads side in Switzerland because we saw you still with negative net ads. Sunrise yesterday also reported negative net ads. So I'm assuming that the overall number of broadband in Switzerland is not declining. So these lines must be going to someone else. Salt is the obvious candidate. And of course, they don't disclose their number of lines, but they announced back in May 200,000 customers. So they didn't seem to have a lot of momentum. So I was wondering if they gained momentum since then, or if these lines are potentially going to some other third-party providers like iWeigh or VTX and I was wondering what network they are using because your wholesale lines are not increasing. So just trying to understand a bit more of the broadband dynamics in Switzerland. Then the second question is pretty simple, but I think very relevant for your cost savings, which is your number of employees seems to be consistently increasing this year. I know you bought a business, but from what I understand, it's not so big that you would pay it. it will still not allow you to reduce your number of employees year over year, especially if your top line is declining. So just trying to understand why not let the natural reduction in headcount if the top line business service revenue is also coming down.

Thank you. Thank you. I'll take the first question. So on the broadband side, I mean, we haven't seen the full market numbers yet. So we, you know, we don't know if the market is declining or not. But I also assume that the market is not declining and actually feels slightly growing in line with the construction activities in Switzerland. And so as you mentioned, some of our competitors have a strong momentum and continue to grow. And we do see this in our wholesale figures as they are all customers of our wholesale business. But on the overall, let's say, wholesale numbers you see and we report, there is also a counter movement with Sunrise, which are optimizing their lines activities and moving some of their customer base to their own network. So overall, you see sort of a pretty flat wholesale business, but inside there are active, let's say, customers which are declining and others which are growing, which might explain why you can't add up the numbers from us losing and you don't see growth somewhere else.

Okay, I'll take the second question on the number of employees going up. Very well spotted. There is three... So first of all, we do reduce number of FTEs in a number of functions, but at the same time, there is, at this point in time, three specific compensating factors. One of them you mentioned, we did an acquisition in the B2B business that goes to close to 200 people that we added to the payroll due to this acquisition point number one Point number two, we have a long-running program of insourcing IT development ongoing. So we replace CapEx that is currently with external software providers with internal employees in our software development nearshoring centers. That's quite a significant development. It all plays out in CapEx. That's one of Steve's favorite topics. But it all plays out within CapEx, but obviously it shows up on the payroll and in the FTE numbers. And finally, the third specific factor is within FastWeb, we are re-insourcing parts of our customer care that was outsourced for a couple of years and for a number of reasons we insource again. So these three factors contribute to a net increase in FTEs where in reality behind these net numbers there is FTE savings on the one hand and the three factors cross additions on the other hand with a net positive effect.

Okay, that's clear. Thank you.

Okay. With that, I would like to conclude today's conference call. Thank you for your participation. Should you have any further questions, please do not hesitate to contact us from the IR team. Thank you again and have a nice day. Thank you. Goodbye. Bye-bye.

Dear participant, the conference call has come to an end. Thank you for your participation.