Swisscom Ag Ittigen R/Shs

Conference call is now being recorded. Good morning. Welcome to the Swisscom 2024 first quarter results. We will begin with a presentation followed by a Q&A session. To ask questions, please press star 14. With that, I would like to hand over to Louis Schmid. Louis, the floor is yours.

good morning ladies and gentlemen and welcome to swisscom's q124 results presentation my name is louis schmidt head of investor relations and with me are our ceo christoph ashleyman and eugen stermetz our chief financial officer our ceo starts the presentation with chapter one and a quick overview on the highlights of operational financial performances of the first quarter Then in Chapter 2, Christoph presents a business update for Switzerland and Italy before he, in Chapter 3, gives a short update on the Vodafone Italia transaction. In the second part of today's results presentation, Eugen runs you through Chapter 4 with the first quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his presentation.

Christoph. Christoph Eichmann Thank you, Louis, and welcome everybody to our Q1 2024. I will go directly to slide number four with the highlights of Q1. So, financially, we are satisfied with the Q1 results. They are as expected. Top line is slightly lower as Q1 last year, and with the EBITDA of 1.16 billion ahead of consensus, I think it's a solid result in challenging market conditions. and we have also reiterated our full year guidance for 2024. If you look at the telecommunication business in Switzerland, it's operationally mixed. The revenues continue to go down, and we are compensating part of the revenue decline on the telco side by the IT or the growing IT business. We also managed to launch the new insurance tech offering for our B2C market segment in Switzerland and continue to build out FTTH footprint in Switzerland. On the contrary, Italy is performing very well with fast growing across all KPIs in revenues, number of customers, and EBITDA, especially the wholesale and B2B segments growing very strongly again in Q1 this year. We have also launched a new proposition in Italy around energy for consumers, which has a good start in April. And we will see how this continues to develop over the year. The highlight for me of the first quarter was the acquisition of Vodafone Italia or the signing of the transaction on the 15th of March, which will lead to substantial value creation for the Swisscom Group. And the closing is still expected in Q1 2025, as previously announced at the transaction signature. Now moving to the next slide, number five, you see the overview of the operational performance. So I will start for once on the right-hand side with FastWeb. You can see a very pleasing result. Mobile is still growing strongly. We had over 100,000 net ads. which is slightly lower than the Q1 2023, but also the market has changed quite a lot. And we think it's a very solid or very positive, actually, result delivered by FastWeb, the second best performer behind Iliad, bringing our mobile base to 3.6 million or plus 5% market share. On the broadband side, we continue to pursue our value strategy in Italy. to keep focused on value creation. This led to a slight decline in the broadband customer base of 19,000, which was largely compensated by the amazing growth on the wholesale side, with plus 72,000 lines generated, bringing our wholesale business to over 700,000 lines year-to-date. So overall, very satisfied with the development in Italy. and the strong performance of FastWeb in this competitive market. On the left-hand side, you see Swisscom Switzerland. We still had a slight growth on the mobile side post-paid, but substantially lower than one year ahead. And this is something that we are currently looking into as well to continue or to work on this for the coming quarters to make sure that we have increased net ads going forward. The broadband and TV sectors are slightly declining in line with the market. So we had a 50,000 net loss on the broadband side and TV with minus 11 and fixed voice with the 20 slightly lower than last year. Partly compensated by growth in wholesale. You can see that we have an accelerating growth on the wholesale side, which is very positive. Also, I think linked to the ongoing fiber rollout. But overall, it's, I would say, a mixed performance, mainly due to the B2C side of the market. Now, moving forward to the next slide, on slide six, you can see the overall financial results. Revenue was at 2.7 billion, which was slightly down on a year-on-year basis. If you look at it Net of Euro-Swiss exchange rates, the decline was 0.5 percent, so roughly a flattish development on revenue. Stable EBITDA with 1.15 billion, and net income up 2.9 percent at 455 million. And Eugen will go into more details on the financial numbers later in his update. So now I will move on to the business update of Switzerland and Italy. I will directly go to slide number eight. As you know, we have communicated last year our new group strategy, which applies to Switzerland and Italy, which resides on four pillars. We continue to execute along these four pillars. The most important one on the customer side being obviously to delight customers and continuously invest in our best networks. make sure that our wireline and mobile network both in Italy and in Switzerland perform as expected to customer expectation and continuously also launch new innovative products to try to generate new revenue for the future. And this has been materialized in Q1 by the launch of energy in FastWeb and InsurTech in Switzerland. We also continue to execute internally to improve the performance overall of internally and achieve more with less, continuously digitizing, automating, and adding AI to our operations. And we're, I think, making good progress on this side and have achieved 8 million cost savings in Q1 2024 on the telco side. Now, moving to slide number nine, a brief overview of the B2C business. So we have again worked or continue to work on our value focus in Switzerland. We have strengthened our blue offerings again. We invested more in our branding and executed a lower degree of promotions to focus really on the value side of the market and continue to invest in our customer experience. uh really um demonstrated also again by a test win of the the best mobile hotline service by connect test and the launch of new sort of mix of physical and digital experiences in store so we have a new store contact store concept with pop-up stores but also self-service cabins and terminals in shops where people can get the remote support for specific items to make the best use of the shop space. And the people working in the shop were essentially at the hotline. Overall, financially, you can see the results on the right-hand side. I think the team did an amazing job on the value side. On the ARPU side, you can see the ARPU wireline is stable at 89 Swiss francs. And the ARPU on mobile is slightly declined to 49. mainly due to the brand shift. So ARPUs per individual brand are also stable in a market which is actually declining. So I think this is a very good result that the team has achieved. And the brand shift obviously continues to sort of overall decrease the average ARPU on the mobile side. So you can see RGU base has grown year on year, Q1 23 to 24 by 84,000. And the second brand share has also slightly increased to 32%. The fixed mobile convergence is roughly stable. Overall, if you look at it, mobile and broadband, I would say the slight changes in the convergence mix. But overall, I would say it's stable. As well as on the churn side, we have still continued to have low churn numbers. Actually, slightly improved churn numbers showing that the customer base that is with Swisscom, is happy with Swisscom, and also remains with us for many, many years. Now moving to page number 10, you can see more sort of the innovation side or a new product that we launched. So we continue to strengthen our football proposition and launch some new aspects on the football side, also improving working on the quality of the football streams. But probably the most important or notable change in Q1 was the launch of our new insurance offering, where we are reselling insurance products of insurance companies. So we have no ambition to become an insurance company. We will remain a tech company, but we are using our distribution strengths to actually create a new service around sort of an ecosystem for consumers, which is based on digital services. and hoping to strengthen our proposition in the market. So far, we are happy with the launch of this new product. I think it also has some innovative features, selling insurance on a monthly basis, making the user experience in a digital space much easier for consumers, and we will see how this develops over the next years for the Swiss business. Now, moving over to B2B on page 11, We launched the enterprise mobile portfolio, which was an important milestone for our SME business because we had sort of an aging mobile portfolio for our SME customers. And now we have, after the full launch, we have again an adjusted and competitive portfolio in the market for our SME customers, which is, I think, an important milestone in our strategy execution. We also continue to strengthen our positioning on the IT side. We launched a new IT offering for the SMEs, which is an integrated workplace solution for IT network, internet, and telephony. And so far, we are very happy with the launch in the past four months. And the numbers are actually quite promising. And we also managed to make a small acquisition of a company called Camp2Camp. They are a specialist in geospatial information systems. which we believe will be an important aspect for the future in the coming years, especially on the government side. There are quite a lot of projects upcoming which require geospatial capabilities combined with IT skids. So on the right-hand side, you can see the service evolution. So telco service revenue slightly declined by 3.3%. to 387 million in the first quarter. This was mainly driven by price decreases. You can see it on the ARPU, the ARPU line in the middle, where ARPU has continued to decline by two Swiss francs to 26 Swiss francs average wireless ARPU. Actually, on the number of RGUs, the B2B business is stable. And on the contrary to the telecom revenue, you see that the IT revenue continues to grow by 4.9% year-on-year to 297 million, compensating a big part of the revenue decline on the telco side, which is a very pleasing result. Now moving to networks on slide 12. We continue to enhance our network leadership in Switzerland. We continue to invest heavily both on wireline and on mobile. We have, again, won the chip network test on the mobile side. We are very happy about this. I think it really demonstrates our leadership on the mobile side. You can see the results on the right-hand side. The download speed measured by chip for Swisscom was nearly double of the second best. which I think has never happened before and demonstrates the lead we have in the network quality in Switzerland. And together with Ericsson, where we renewed our partnership for the next three years, we will continue to drive the improvement of the network going forward, but with also a very high focus on more energy efficient and more cost efficient operations using AI and automation. On the wireline side, the Comco released their final decision in the ongoing investigation. We expect there will be no impact on our financials regarding to this decision as we communicated previously. Swisscom already changed the rollout mechanism to point-to-point because we anticipated a very tough ruling from the Comco, and also the fine is already reflected in our financial results, and it generates no impact this year. We managed to, and so we continue to build out new FTTH connectivity. If you compare it to Q1 2023, we managed to add four percentage point coverage, up to now 47% of the country covered, and we still plan to go over the 50% of coverage by the end of this year. building out more than half of Switzerland or covering more than half of Switzerland with FTTH connectivity. Also, the 5G plus side, we managed to increase connectivity up to 82%. And we also feel comfortable with our 25 target to cover 90% of Switzerland with the new 5G frequencies. Okay, now moving to page number 13. Obviously, the revenue, so I talked a lot about revenues and new products, but cost is also an important topic, as you know, in the telecom sector. So, we continue to be very focused on achieving telco cost savings to balance out the service revenue erosion. In Q1, we realized 8 million telco cost savings, which is slightly lower than the linear amount per hour target of 50 million plus this year. This is mainly due to seasonality and cost distribution, and we still confirm our full year cost target of at least 50 million this year. And I think what is very encouraging is the numbers you see on the right-hand side. We are in one important lever of reducing cost savings is obviously investing in automation, in more digital support, more self-service for customers built on AI and chatbots, for example. And you can actually see in the numbers that it is possible to simultaneously improve customer satisfaction and reduce costs, which I think is a very important achievement. So you can see that we invested a lot in shops and call center. MPS is roughly stable, but we managed to increase NPS in the digital space, while at the same time reducing the contact center workload by 11%. And I think that's quite an outstanding achievement, reducing workload by 11% year on year, and with the adequate cost savings coming in now over the year. Also, on the shop side, I already mentioned that we are experimenting with new store types to make, let's say, the cost per sales more effective we are using sort of pop-up store concepts in in shopping centers we are working with a new in shop like remote support or these uh cabins where people can get support in the shops and many more things to come uh to make the the sales force or the cost drive down cost per sales and keep customer satisfaction high uh internally internally we are also continually working on our call space so we are continuing our near-shoring activities in the call center now doing first trials in poland and bulgaria which produce very positive results and we also continue obviously our lifecycle management and automation activities on the network side to bring down the cost of networks in the future now i will move on to italy we'll start with B2C site, Telco at FastWeb. Also in Italy, we have launched many new offerings in the past month. I think the most important one is that we launched a new innovative AI-driven term prevention internally that we are using to detect and prevent churn in our customer base. And we launched also a new mobile offering together with Sky. leveraging the Sky customer base. This is called Sky Mobile, powered by FastWeb, and we are very pleased so far by the start. In the last two months, we actually have quite encouraging results from this partnership. Also, we launched our new energy offering, which is also like the insurance offering in Switzerland. It's a pure reselling offering. So we have three energy partners, Equitrade, AGSM, and Oxpo, which are providing the energy and managing the energy risk. So FAFSA is not assuming any energy market risk on this topic, but it's purely a distribution channel. And we intend to obviously on the one side generate incremental revenue in our customer base, but also further reduce the churn by a more converged or more complete customer base. And really also as in Switzerland, develop sort of a domestic ecosystem tailored to households providing digital services to households. On the customer base, you can see that the mobile customer base has grown 12% year-on-year to 3.6 million subs on the mobile side. Broadband continues to slightly decline because of our focus on value over volume. This also drives up the broadband share slightly by 0.1%, but overall, I think we can say the broadband base, including wholesale, is actually growing, and the wholesale piece is by large overcompensating the losses we have on the B2C side. Now moving to slide 15, B2B and wholesale. So B2B, again, performed very well in the first quarter. This was ahead of our expectations, I think, at the Annual results, we told you, don't expect another strong quarter in B2B. Luckily, or unfortunately, I mean, the guys overperformed the budget and the expectations, and they delivered 284 million revenues this quarter, which is up 9% on a year-on-year basis. I think quite an impressive evolution on the B2B side. And also, we launched a couple of new products in the cybersecurity site called Defender AI and a new private cloud offering called Fast Edge that will help us to continue to drive revenues in the future. On the wholesale side, we managed to grow in line with our customers. So basically, this is Enel, Sky, Iliad, and Wind Tray, which generated $222,000 new connections on a year-to-year basis, or up 45 percent in number of lines to 720,000. So, this is a very pleasing result. I think a very strong performance of the team, and driving up revenues in wholesale by 18 percent. So, FASTA has always invested in initiatives contributing to the development of FTTH in Italy. And so, with regard to the wholesale business, which is very important, I think we are closely observing also what is going on with the NETCO carve-out at Telecom Italia. And I think we have so far supported the idea of creating a vehicle to accelerate the fiber deployment. But nevertheless, by expanding the NETCO role as a wholesale provider and establishing an exclusive and long-term relationship with TeamServeCo, the NETCO transaction will change the structure of the market and may jeopardize the existing level of competition in the wholesale market and the retail market. And that's also why we have expressed specific concerns to the European Commission, and we hope that it will adopt adequate measures to preserve the existing level of competition to ensure the capability of alternative players like FastWeb to keep operating in the wholesale market and continue to be successful to help the other players be competitive in the telco market as well. Okay, now I will move to the transaction update Vodafone Italy. So we will go directly to slide 17. Just a quick reminder of what the transaction is about. We are acquiring 100% of Vodafone Italia at the valuation of 8 billion euros enterprise value, and we expect the closing in Q1 2025. This transaction will create a leading converged challenger in Italy, able to compete effectively based on improved scale, convergence and infrastructure. And we strongly believe this will create very clear benefits for all customers in Italy and the country itself. The merger will generate tangible synergies with a run rate of 600 million euros per year. and we also announced that we will increase our dividend distribution to 26 Swiss francs in 2026. So far, the deal is going exactly as planned according to the timeline. Post-announcement, Standard & Poor's and Moody's confirmed our A rating even post-transaction, and we have successfully completed the credit lines increase and the loans indication for the deal. And we have also started to submit the pre-notifications to the various regulatory bodies, and the regulatory process is initialized and ongoing. Okay, so now I will hand over to Eugen for the financial results.