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.

Thank you, Christoph. Good morning, everybody from my side. I'll walk you through the numbers as usual. I'll start on page 19. We have rearranged slightly the slide deck, as you might have noticed, in order to provide a bit more transparency also on FastWeb and in order to align the reporting between Switzerland and Italy and in anticipation of obviously bigger Italian business in the future. So we hope this is helpful for you. I'll start out on page 19 and 20 with an overview over the group financials and then dive into Switzerland and Italy as usual. So page 19, revenue in the group down 44 million, but we had a negative currency effect due to the Euro compared to previous year of minus 31 million. So underlying revenue was down 13 million, very different dynamics in Switzerland and in Italy. On the Swiss side, revenue was down 52 million. I'll get to the reasons for that later. And FastWeb was up plus 35 million, which is obviously a very positive result. EBITDA reported basically flat, minus 9 million, but we had a couple of smaller exceptional items, in particular in connection with the release of provisions from regulatory litigation, but also transaction costs in connection with the waterfront transaction, et cetera, and some currency effects. So the underlying number is really minus 18 million on the EBITDA. Switzerland down minus 19 million, faster up plus 4 million. Details will come later. I'll move on to page 20. CapEx for the group was up 49 million. It's entirely driven by higher CapEx in Switzerland, which is mainly due to the FTTH rollout being in full swing. And operating free cash flow came in at 489. That's minus 57 million, obviously, as a result of the somewhat lower EBITDA and higher CAPEX in the first quarter. So far, for a very quick overview, I'll now dive into the Swiss side on page 21, and I'll start with revenue. Revenue down minus 52 million. If you split it into the individual segments, it's all down to basically B2C. with revenues down minus 59 million. The major factor, lower hardware revenues, so we sold a lower number of smartphones in the first quarter compared to prior year, which subtracted 32 million from our revenue. Second biggest effect, Delco service revenue, minus 17 million in B2C. I'll obviously talk about that in a second and some other revenue items, mainly IFRS balances of minus 10 million. So that's the B2C side. On the B2B side, basically revenue is flat, plus 4 million, combination of lower telco service revenue, minus 13 million, and higher IT service revenue of plus 14 million, part of which was non-organic due to the except acquisition last year and also to a minor extent due to the come-to-come acquisition this year. So that's on wholesale was basically flat. That's on revenue, on EBITDA, reported EBITDA in Switzerland is flat, but we had a couple of exceptionals, as I mentioned already. So underlying EBITDA is down minus 19 million. If we go through the individual segments, B2C down just 6 million, despite the minus 59 million in revenue. That's obviously the balance between DELCO service revenue and cost savings with quite significant cost savings in the B2C segment in the first quarter, which is very good. The whole decrease in hardware revenues obviously has very little to no margin impact, so the B2C result is actually quite good. EBITDA minus 17 million, it's a bit the other way around, despite stable revenues or even increasing revenues. Lower EBITDA, that's a mix of high margin telco service revenues dropping out of the P&L and the IT service revenues that are coming in have a lower margin, and also it's a bit of a volatile business. So the profitability in this quarter compared to the first quarter in the previous year was a bit weaker. So that gave us the minus 17 million in B2B. Finally, wholesale EBITDA was up by 8 million. It's mostly driven by a decrease in roaming outbound prices, also a bit of a volatile item, as you know. So I move on to page 22, the typical deep dive into the Swiss business and the Swiss P&L by line item. I'll start as usual with service revenue. It's on the top left and all the bottom bar gives you all the details over time and the individual drivers as we also presented them previously. So I'll start with the service revenue. Service revenue was down 30 million. split into minus 17 million on the B2C side and minus 13 million on the B2B side. B2B is pretty much as you would have expected. B2C minus 17 million looks a bit low compared to our previous quarters, so let me briefly explain. Number one, 4 million out of these 17 are due to the VAT increase. that we did not pass on to our customers. So this is a fact. It doesn't change the number, but it's important. This is a one-step change that will accompany us through this year, but it's not an underlying long-term change in underlying long-term trends. So the 4 million VAT impact split into about two each for wireless. and ViaLine. So if you look at the underlying drivers of B2C service revenue, which we always split in Wireless, ViaLine, and ARCHU, and ARPU, if you look at the Wireless side and factor out the 2 million of VAT, the Wireless side is pretty much what it was in the previous quarters. So the main change really compared to the previous quarters is due to the ViaLine side, where we, in the first quarter of this year, we have a minus 4 million impact on service revenue. From the side, if you remember the previous quarters in 2023, every quarter, we had a positive number here. So we managed to increase up on the violent side due to a number of small, but significant in totality significant measures. We also have a whole list of measures lined up this year, the main effect of which, however, will impact the service revenue progressively in the subsequent quarters, quarter two to quarter four. So, we didn't have much of a positive impact out of these in the first quarter. Obviously, outlook unchanged. We stick to our guidance that we gave a couple of months ago on service revenue, which was similar evolution as in 2023. To remind you, 2023 was minus 72 million, but with 20 million on top out of the VAT impact, so that guidance is unchanged. On the third item in the P&L, I'll not comment at length, just on indirect costs, plus 8 million, as Christoph mentioned. indirect LCO cost savings in the first quarter. A bit lower than the typical run rate and the expected run rate. It's all down to seasonality, and we confirm our guidance to have 50 million plus net savings this year. I'll move on to page 23 quickly. CapEx was up 51 million in Switzerland. Down to two factors. Number one, we spent more on the violet network in Q1. It's some multi-year licenses that we acquired in Q1, but no change whatsoever to underlying trends. That's just seasonality. The more important change and more positive change is actually the pickup in the complex for the wireline access network. We did not invest as much in Q1 2023 because, as you remember, we had to engineer the whole change from the point-to-multipoint network to the point-to- point architecture. So last year we were actually below our guided envelope for the fiber rollout of 500 to 550 million. Now the rollout is finally in full swing, which is very good. So we have higher capex than last year. Obviously, all of this is fully consistent with the guidance for the full year we gave in February. And finally, operating free cash flow down 54 million, which is obvious given the higher capex in the first quarter. Page 24, FASEP, so that's the new part where we provide a bit more clarity, I hope, or transparency compared to our previous communication. I'll start with revenue. Revenue, as Christoph mentioned, is up 35 million in the first quarter, plus 5.6%. That's an excellent growth rate. If you look at the individual business segments, B2C was flat with wireline revenues down and wireless revenues making up for the difference. B2B strong growth in the first quarter, mainly driven by IT services revenues, pretty low margin, as you can see from the epitaph graph below. And more importantly, wholesale revenues were up 17.8% of 13 million in absolute numbers, which is driven by the additional UBB lines with ANL and some of our other wholesale customers. That's obviously a very good result. On the EBITDA side, plus 4 million or plus 2.1%, exactly in line with our guidance. The main driver of the EBITDA increase was the wholesale business, which obviously except for the outpayments has very incremental revenue, comes with very little incremental cost. It's a solid margin business. So the plus 4 million in over EBITDA goals are mainly driven by the wholesale business. On B2C, minus 3, very simply put, the revenue we lose on the byline side is obviously much higher margin than the revenue we gain on the wireless side, which is one of the main drivers for the acquisition of Vodafone Italy to get our own infrastructure. So this is all very much as expected. I'll move on to page 25, capex in Italy, 157 million, virtually unchanged compared to the previous year. It's the first time we give a capex split for FastWeb. So please refer to the page in the appendix where we explain what goes into the different categories. But as we communicated previously, a lot of the capex at FastWeb is customer driven. CPs, et cetera, and so it typically moves together with revenue and tends to be a rather fixed percentage of revenues over time with little scale effects. Operating free cash flow was flat compared to previous year, 22 million. The first quarter is always quite weak in operating free cash flow. It's simply the result of the epithelial complex numbers that I discussed. I'll now move back up to the group for the free cash flow bridge and the net income bridge. Free cash flow at 198 million basically fled despite the lower operating free cash flow, which was over 57 million. What are the reasons? Slightly better network and capital development. Network and capital is always negative in the first quarter, but it was better this year than previous year. And on taxes, we had a different timing of income tax payments and one of income tax payment last year. So that made up for the difference. And so we ended up with just minus 11 million on group free cash flow. Page 27, group net income. Net income at 455 million is 13 million up, despite the slightly lower EBITDA, which was 9 million down. The main difference is or actually the only difference is the financial result, which was a bit better than last year. A part of the release of the provisions that I mentioned that in EBITDA end up in exception as see actually in the financial result and show up as a positive effect here. So net income was up 13 million. And finally, page 28, we confirm the guidance for revenue EBITDA CapEx and obviously also the dividend. And with that, I hand back to the operator.

Thank you, Eugen. Ladies and gentlemen, to ask questions, please press star 1-4. I repeat, star 14. To withdraw, please press star 15. Thank you. I will now open the lines one by one. You will hear a short text as soon as I open your own line. Then please introduce yourself by name and company before asking your question. First question.

Hello, it's Paolo Tang from UBS. I just have three quick questions. The first question is on Swiss service revenues. So you saw a notable step down in Q1 to minus 30 million from 16 million the prior quarter. But could you just maybe talk about how we should think about the trajectory from here? So is minus 30 million a quarter the new normal? Or can you maybe explain why there might be reasons in terms of what might be driving an improvement in Swiss service revenues in the coming quarters? Second question is just on Swiss competitive dynamics. So can you maybe just talk through what you're seeing in the market, and can you specifically talk about promotional activity, and if you are losing subscribers, who is gaining? And my third question is really just about Swiss cost savings and Swiss EBITDA. So your cost savings were only 8 million in Q1, but can you maybe just talk about the phasing of these savings through the year? And what does this mean in terms of phasing of Swiss EBITDA growth in the coming quarters? So should we expect Q2, Q3 EBITDA, Swiss EBITDA to be stable, but then Q4 to be down, just given the dropping out of the one-off gain? Thanks.

Okay, so I can, I follow, so thanks for your question. I'll maybe answer the first two. So Swiss service revenue, so minus 30 million is not the new normal. I think the B2B side is very much in line with what we guided for the full year. So we had minus 13 million in Q1 and we expect minus 50 roughly for the full year. So I think that's going as expected. And on the B2C side, we had a slightly weaker quarter in Q1. But as Eugen already pointed out, we have implemented several measures now going forward. So we are working on some of the fees. We are working on continue to work on product phase out. We are working on some of the pricing of the option. Some of it has already been announced, and there have been quite a lot of press articles about it in the Swiss press. And some of the measures are still to come in the next weeks. So we do expect this to improve the B2C service revenue evolution. So for the full year, I think we guided early in February, we guided for like a total minus 70 plus the 20 million VAT impact. So I think you can expect it to be somewhere around those 70 to 90, 100 million, which is probably on a full year basis, which is probably in the right ballpark. Now the Swiss competitive dynamics. So I would say the dynamics are pretty much unchanged. Still very aggressive offers from salt in the market with a lifetime minus 70%. A lot of simultaneous promotions ongoing. I think this puts all the players under pressure. And we don't see this changing sort of anytime soon. And so we also, we don't have an intention to increase promotional intensity from the Swisscom side. I think we will continue with the level we have now. But we also intend to, as part of the measures, to sort of change a bit maybe, you know, the The way we push sales internally, the way we communicate the promotions, I think we can do a slightly better job on that side to make the promotions more appealing, but without actually changing prices of the promotions, which I think is not the right way to go as we continue to focus on value.

Okay, Paolo, I'll cover question number three. As I mentioned, yes, the 8 million are look quite low compared to, you know, an average linear number you would derive from our full-year target. But as I explained, that's pure seasonality. So we expect cost savings to be higher in Quarters 2 to Quarter 4 and end up at at our guidance. So that's for that. I'm not going to, or I'm a bit cautious to venture into forecasting Swiss EBITDA for the coming quarters, because, you know, there are also exceptional items last year and this year, et cetera. But on the specific item of cost savings, you should stick to the guidance we gave at the start of the year, which is 50 million plus net savings. Thank you.

Thank you, Paula. Next question.

Hi there. It's Steve from Redburn Atlantic. Can you hear me okay, guys?

Yes.

Yeah, hi there. I've got two questions, first on Italy and then a second just on, I think, Switzerland, but you can maybe clarify. And thanks, Eugen, for the extra disclosure on Italy. The problem is you give us more, we want more. I'm just curious on the sort of apparent 60% gross margin drop during wholesale, you know, 13 of revenue and eight of costs. I mean, it's kind of that slightly at odds with what I would assume your margin is on selling, reselling open fiber and flash fiber lines. So can you maybe help us understand how you get to that and maybe what the price of the lines you're selling is and what the payaway is or any sort of color at all on that sort of underlying, that implies 60% gross margin drop through. And then just on capitalized self-construction costs, I think they were up about 15 million in the quarter. Does that largely drop into Switzerland? given your higher capex? And we think by the rest of the year, should we expect a kind of similar increase, you know, as you step up your fiber spend that sort of 15 million quarterly run rate? That'd be very helpful. Thank you.

Sure. So, first on the wholesale margin in Italy, as you say, we give more information if you want even more, but that's fair enough. You know, we show incremental revenue in wholesale and incremental . on the faster side. Obviously, it's always a bit dangerous to derive from instrumentals an estimate for the margin of the whole business because there is an existing business and then there is an incremental business and there are changes in the existing business as well. However, I'll go as far as to say the about, you know, 50% or 60% margin that you derive from the incremental wholesale revenue is a bit on the high side if you look at the whole UBB business. Because there is in the incremental business, you also have one of items once you activate the lines. And so they grow basically with the incremental revenue, and the stable existing revenue doesn't have this one-off revenue items. So also if you look at the wholesale prices in Italy, you know, I think Telecom Italia publishes Vula prices, et cetera. You can imagine that it would be very hard to make a 60, 60% increase. margin on top because also we buy typically the passive service and on sale the active service. So long story short, it's lower than the 60%, but it's still a healthy margin and obviously growth in UPP revenues comes with increased EBITDA. On the second question, capitalized expense, yes, a large part of the 15, although not everything, is on the Swiss side and almost all of it is in our infrastructure division. As explained previously, that's basically CapEx that moves from external software development CapEx into internal CapEx. I can't, unfortunately, can't give you an exact guidance of where this number will be in Q2, 3, and 4, simply also for the reason because we don't know at that level of detail because CapEx also has some fluctuations over the quarter. So, sorry, I can't give you a full answer on this one, but yes, it's related to the typically software development CapEx, and yes, it's on the Swiss side.

Okay, that's super helpful. Thanks for the comment.

Next question.

Good morning. It's Andrew Lee from Goldman Sachs here. I just had a follow-up question to one of Polo's questions earlier, just on the competitive environment in Switzerland and specifically on fixed broadband. You mentioned the ongoing competitive aggression from SALT. Just note that sunrises net ads inflected positively this quarter, and the company saying that's partly due to your customer loyalty initiatives. I wonder if you've seen any impact on your business from Sunrise's efforts there, or any change from their side of things. Thank you.

So I didn't have a chance yet to look at the Sunrise results, and I think I don't want to comment on what they are doing. But obviously, in the aggressiveness of salt, what we perceive is that also Sunrise is following the same level of aggressiveness with their second brand, Yellow. And my assumption would be that a lot of the net ads are driven by this promotional activity. And we decided for us that we clearly want to focus on value. And you can also see that, you know, the churn numbers we have are actually decreasing on the broadband side. So the issue is not with the existing customer base. I think we have a very healthy and happy customer base, but it's more about sort of the new entrance in the market actually attracting enough net ads from the market growth, which now goes essentially to salt and sunrise. And this is, I think, a topic we need to work on. And as I mentioned, for example, we focused very much on branding in the past quarters and If you walk into a shop now, it's nearly, you know, you don't, let's say the promotion is not completely in your face. It's more about brand experience. And I think on this side, we need to change some of the aspects to make promotions also that we have without making them more aggressive, but we need to make them more visible and increase sort of the sales orientation of the employees to a more, in a different way to balance out sort of the brand approach versus the sales approach. And this is one of the measures we have put in place now as well, I think.

Okay, thank you very much. That's really helpful.

Next question.

The first one is . We can't understand you.

It's acoustics. We hear you speaking, but we don't understand a word. I'm sorry.

George, do you have any chance to speak a little louder? Oh, okay. He withdraws his line. So next question, please.

Good morning, everyone. Thanks a lot for the presentation. Titus Krohn here from Bank of America. I just had one or two quick questions on the Swiss fiber rollout and the recent decision by Comco just trying to reconcile some of the numbers. And if I may, so first of all, could you confirm that the kind of change in infrastructure of the existing line has to be done by the end of 2025? And how big is your confidence to actually achieve that, given that I think quite a significant share of your lines are still on old technology. And then secondly, maybe on how that fits into your fiber capex budget. I'm doing my own little kind of back of the envelope calculation on how much this refurbishment costs. I think I get to like nearly 400 million Swiss francs over two years. that leaves only, I think, 600, 700 maybe for actual new rollouts. How can you reach 57% or so by the end of 2025 when we kind of have those numbers in mind? Or maybe I'm totally wrong on one of those assumptions. Thank you.

All right. Thanks, Peter. So there is – you're right, there is – A condition in the Comco ruling that until end of 2025, the point-to-multipoint lines which have been activated need to be changed to point-to-point to continue to be in operation in 26 and going onwards. But this condition only applies to the point-to-multipoint lines that have been activated before the investigation started. So it doesn't apply to all the multipoint lines built which are currently blocked. So we still have about 450,000 lines which are multipoint that are blocked, but about 100,000 which have been activated that need to be changed until 2025. So in our plan, we plan to upgrade all those activated lines until the end of 2025. to continue to operate them. It's included in our CAPEX guidance for this year. So all the work that we are doing for the refurbishment is included in the 500 to 600 million CAPEX guidance. And also with regards to, you know, the target of reaching 57% build-out, this also, so we confirmed this target. We are confident that we can reach it. also within our CAPEX guidance. So I think we can say that your refurbishment cost calculation you made, I think it's way too high. And that's also why you can't reconcile the 57% with the CAPEX envelope. But I think we don't publicly communicate on the refurbishment cost individually. But what we can say is that the refurbishment required plus the rollout target of 57% fits into the CAPEX guidance of 500, 600 million per year. Yeah.

Maybe just to add, we gave a very rough pack of the envelope calculation previously, which I'm happy to share. And this is super rough because obviously conditions also change over time depending on where you are in the rollout. But it's about 250,000 units times 2,000. which is 500 million, and then there is an added 50 million or so for, let's say, 500 Swiss francs times 100,000, how do you call them, refurbishment or retrofitting lines. And so that's how you end up at the 550 million. So that's a very rough bag of the envelope. I think in your model, the number that was too high was obviously the number of retrofittings. Because as Christoph explained, most of them are not active and we can do this over time and over the years.

Yes, that's true. Just the retrofitted lines were quite off. Thanks. It's super helpful. Very helpful. Thank you.

Next question.

Yes, good morning. It's Luigi Minerva from HSBC. Thanks for taking my questions. I have two on Italy. I guess if we look at the bonus on Italy acquisitions, it can be very attractive on free cash flow accretion on a three-year basis. and therefore supports dividend growth. And I think this is all very positive. Where we hear investors' concerns is on the Panshi synergies guidance. And therefore, the attention is really on your ability to execute well the integration. So I know it's quite early, but I was wondering if you can give us some reassurance. What are the critical points that you see when you think about integration of Vodafone Italy and how can you reassure us that you are well prepared to execute well. And secondly, on your comments about the European Commission review on the NETCO deal, perhaps if you can elaborate a bit more on what kind of concerns you expressed when it comes to the impact on competition and whether in your experience you think the DG Comp will do the review as a phase one or whether it will require a phase two investigation. Thank you.

Okay, so on the Vodafone transaction, so as you highlight, I think it's very attractive from a free cash flow growth. And obviously, the free cash flow growth is mainly driven by the synergy realization. So this obviously is, I think, understandably the main concern of investors, can this be realized? But I think all I can say about it is that we are confident that we will realize the announced synergy run rate of 600 million euro. A big chunk of it is related to the mobile Cox, which basically entails moving the fast-wave SIMs, which are currently running on Telecom Italia and Win3 networks, onto the Vodafone network. So this is a piece of synergy realization which has, let's say, limited execution risk and can be also realized rather at the front end of the integration. And then there are other synergy buckets more linked to carve out of group services from Vodafone, IT realization or other sort of typical synergies from mergers that need more time and have a bit more or higher execution risk. But I think we are working very intensively already now on the synergy implementation plans to be prepared that we can really kick off on day one after closing. And I think so far, everything goes according to expectations, and we are confident that we can deliver them. Now, on the EU Commission side, I think what is important to us is that we have a healthy wholesale business, and we believe that it also delivers a lot of benefits to the other market participants in the market, as you can see with the growth of Enel, Sky, Telecom Italia, but also Win3 and Iliad. And now the new NETCO obviously also will start to provide a full range of services rather than just access to dark fiber. So the NETCO might have an incentive to reduce the ability or reduce competition in the market and then reduce the ability of Fastweb to compete effectively in this market. So for us, what is really important is that the NETCO provides a full range of passive services at the right economic conditions or the right pricing. that guarantees the capability of other players to operate effectively in the wholesale market.

Thank you, Christoph. And your guess, whether it's going to be a phase one or phase two?

Yeah, so I think phase two is quite unlikely, honestly. But, I mean, I'm not an antitrust expert. But from what I'm told, you know, everybody is expecting phase one. But even in phase one, the EU Commission can impose already certain remedies or, you know, sets of conditions that need to be observed. So, this is what we are currently focusing on.

That's great. Thank you so much.

Next question.

The first one is just going back to the guidance for improving trends in Switzerland during the course of this year. So we've talked about using fees as a way of driving better revenue growth. Can you just clarify whether that's increasing fees on new customers or whether there'll be any kind of increase for fees on existing ones as well? Because I believe it's ruled out. back with price increase until next year. In either way, should it be fair to expect that if you're going to increase fees and do a bit more on that side, we might expect to see slightly weakness in the course of 2024, but with the hope that service revenue improves, it's interesting to hear how you think about the balance between those two. And then the second question, if I look at slide 13 where you highlighted the improvement in NPS on the digital sales channel, I'd be interested to hear what you did in practical terms between Q4 and Q4 last year, Q1 this year. It looked like initially the digital channels had weaker MPS, but it's now improved quite a bit. So any learnings or takeaways there as to how you improved on digital would be appreciated. Thanks.

Thank you. I mean, I had some trouble acoustically understanding your questions. I'm not sure if I entirely understood it. I understood it was about price increases from existing customers versus new customers. So the price increases that we are currently executing touch both new customers and existing customers. So some of them are not communicated yet, so I don't want to go into the details. But we are working not only on the front book, but also on the back book. Mainly not on the, let's say, the base subscriptions. Those remain stable. but collectively on fees and options in the TV space or other options that we are selling that we are currently changing or simplifying as well. And this results in price changes both for new customers and existing customers. Now, on the digital channel, so MPS, you know, went slightly down in the digital channel and then up again. I think this is... And so we are constantly, I would say, working on the digital channel, experimenting with new elements like chatbots or moving service requests from an assistant channel to a self-care channel. And some of these, let's say, changes, sometimes they don't work immediately as intended. That might impact MPS on a short-term basis, but then we obviously do a lot of measurements on these changes. and then adapt again what is not working, and then change it again until we find a way to make it work in the sense that the customer is happy. It also has a lot to do with process flows or customer user experience flows with a lot of A-B testing, and I think now we managed to find a couple of ways of making it nicer for the customer, and this also resulted now in this uptake in MPS in the digital channels.

Thanks. Sorry about the connection there. Hopefully you can hear me a bit better now. So just so I'm clear, it sounds like you are going to be doing back book price increases on some of the tariffs during the course of 2024. That's the right read of what you just said, right?

That's correct, but mostly on options and add-ons and not on the, let's say, the blue main subscription.

Got it. And sorry, then the second... Yeah, go ahead. Simple example. So we... We have lots of customers who actually go to the shops to, you know, believe it or not, to pay their bill in cash. And we ask for a fee for them to do this because obviously this creates a lot of work in the shops. And one of the measures, just an example, is to increase the fee for this type of activity. And so it does touch the existing customer base, but it, you know, does not touch the high visibility price points of the subscriptions, for example.

Got it. And sorry if the second part of my first question wasn't clear, but should we then expect maybe to see slightly weaker net ad trends continue through 2024 with the focus being on improving the service revenue trends? Or do you have any initiatives which you think can drive better net ad growth as well during the course of this year? Thanks.

So I think we will work on both simultaneously, improving net ads and continue to work on ARPU and value. I would say in terms of priority orders, we focus first on service revenue and value and only in the second line on net ads.

Great. Thank you.

Last question.

Usman Ghazi from Barenburg. I have a few follow-ups, please. The first one was just on what you mentioned that to improve your growth ads momentum, in Switzerland, you're going to try and make the promotions more visible with marketing and also incentivize the sales force to push these promotions. I mean, that makes sense, but, you know, but isn't that just going to mean that your net ad trends might improve because you get a better growth ad share, but the R4 impact is going to be weaker because these promotions are then actually taken up, whereas right now they're not visible I guess, you know, the service revenue impact is the same, right? So that was the first question. The second question was just going to the consumer wireline ARPU again. I think it's the first time that we've disclosed a mixed effect in the ARPU. And I just wanted to make sure that is this kind of a new trend suddenly in Q1, or did you have a mixed effect also last year, but it was just mitigated by the pricing measures that you took? And my final question was just on the B2B net ads. Obviously, they've been very strong in the wireless segment in Q1. I think you did 70,000 ads. Is this all organic? And if so, can you give us comments on, you know, what has given a significant improvement. Thank you.

So, Usman, can you maybe just repeat the third question? We had some trouble.

Yeah. So, wireless net additions in the B2B segment have been very strong in Q1. I think it was 70,000 by my calculations. I know you've said that you revamped the SME proposition. But we just wanted to double check if that was all driven by this revamp, or is there something else in the numbers? Thank you.

Okay. Maybe starting from three to two to one. On three, we need to check the numbers. I'm not sure we are talking about the same number, and please get in touch with on this one. Otherwise, we are talking about different numbers that might just confuse everybody. uh on on two on question number two i'm not entirely sure whether we showed the mix effect on apu wireline b2c in the past we might have done but i'm not sure but it certainly existed so uh we we do have uh we do have sales obviously also on the violin side for for vingo in particular our second brand uh it's not uh as pronounced as on the wireless side as you know the by the second and third brand second and third branch share in the overall base is much lower on the byline side. So the effect is not as pronounced as on the byline side, but it's still there. And yes, this time we showed it. But it's not new. It's just new that we showed it if we did not do it before. Okay. So that's question number two. I think was, is there an additional revenue from additional net ads? And I would say yes.

So clearly, you know, I mean, the net ads are incremental revenue. So, I mean, when we look at the ARPU and the customer base, I mean, the mobile market is still growing. So there are, you know, additional net ads in the market. So this will typically generate also on top revenues for and help supporting the service revenue of the B2C segment.

All right, thank you. Sorry, so just to clarify, just that question, the first one, it was more, I mean, I guess I was asking if you make promotions more visible in the market, you might not be increasing the aggressiveness of the promotion, but if you make them more visible in the market, does it not have the same impact as making these promotions more visible, more aggressive? Because, you know, concurrently part of the rationality in the market might be because the others are being aggressive And, you know, the Swisscom promotions aren't really visible in the market. But if you make them more visible and the others are being aggressive at the same time, you know, it could, does it not worsen the market?

Yeah, maybe. I mean, we will see. It's really hard to predict. But I think the important message is that we don't intend to increase the aggressiveness, which I think would be producing not the right effect. But, I mean, we don't know if this will change the market dynamics, and so we will see how this evolves over the coming quarters.

All right. Thank you. Thank you, everyone. And with that, I would like to end today's conference call. If you should have any further questions, please do not hesitate to contact us from the IR team. Thank you, and have a nice day. Thank you. Bye-bye. Thank you. Cheers.