Swisscom Ag Ittigen R/Shs

The conference call is now being recorded. Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q2 2024 results conference call hosted by Christoph Aschleman, Eugen Sternmetz, and Louis Schmid. Louis, the floor is yours.

Good morning ladies and gentlemen and welcome to Swisscom's Q2 24 results presentation. My name is Louis Schmidt, Head of Investor Relations and with me are our CEO Christoph Eschlemann and Eugen Stermetz, our Chief Financial Officer. Our CEO starts the presentation with Chapter 1 and a quick overview on the highlights, the operation and financial performance of the second quarter. Then in Chapter 2 Christoph presents a business update for Switzerland and Italy. In the second part of today's results presentation, Eugen gives a short update on the Vodafone Italia transaction in Chapter 3 and then runs you through Chapter 4 with the second quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his part. Christoph.

Thank you, Louis, and welcome everybody to our first year, half year, 2024 results. I will move on directly to page number four. detailing the highlights of the first half year. Overall, we can say that the Q2 financials are on track to achieve the full year guidance. Our top line was up by 1.8%, mainly driven by the 7% growth in Italy, which is an outstanding achievement, giving the market context in the Italian market. Our EBITDA is in line with Q2 consensus. and we confirm our full year guidance for 2024. In Switzerland, we have unchanged business trends compared to Q1, but slightly better telco service revenue evolution, thanks to the measures that we started implementing in the last quarter. We also recorded appealing IT service revenue growth in the second quarter, mainly driven by AI and cloud offerings extensions. And also our FTTH rollout is going on in full swing. On the Italian side, we are continuously successful with FastWeb. We launched a new product energy offering for our B2C customer base, which we will talk about a little bit later. And we also launched an AI sovereign infrastructure as well in Italy and with an Italian LLM offering for our Italian customers. One of the highlights was also the attractive sale of our FibroCop stake for 439 million euros. The acquisition of Vodafone Italy is on track. Eugen will talk a bit in more detail about where we stand overall. We secured the financing, we received the first approvals and today we communicated that Valterena is the designated CEO of the new merged company. Moving on to slide number five, you can see the operational performance of Switzerland and Fastweb in Italy. In Switzerland, we have improved momentum both on mobile and broadband. I can see that the measures that we implemented in the past quarter are starting to show up in the numbers with increased postpaid subscriber base of plus 22,000. and still a slight decrease in broadband with minus 9,000, but substantially better than what we saw in Q1. TV as well as broadband is slightly impacted by the ongoing measures that we are executing with regard to phase out of older products and our more for more approach with our customer base, which leads to temporarily slightly higher churn both on broadband and on the TV side. If you look at the Italian numbers, you can see that we have a strong growth or strong continued growth on the mobile side with plus 113,000 net ads, bringing us to over 5% market share on the mobile side. We're the second best performer in the market just behind Iliad. On the broadband and wholesale segment, we see the same trend that we had over the past quarters, wholesale overcompensating the loss we are having in broadband due to our value strategy, but overall still a combined growth of 33,000 net ads if you accumulate broadband and wholesale. On slide six, you can see the overall financial results. Second quarter revenue growth of 1.8% to 2.75 billion Swiss francs, leading to a stable revenue of 5.45 billion in the first half year. EBITDA was slightly lower by 1.3%, 1.12 billion, mainly driven by the EBITDA decline in Switzerland, where we saw softer results on the cost saving side, which we will talk about a little bit later in the presentation. But overall, I would say both on the revenue and EBITDA are roughly in line with our expectation and with the full year expectations. Now we'll move on to the business update of Switzerland and Italy. starting with page number eight. Our strategic priorities for 2024 are unchanged, and we continue to execute on all four pillars simultaneously. The most important are starting with delighting customers. We are very much focused on our value strategy, both in Italy and in Switzerland, improving customer experience, investing in customer experience, both in the shops, but also the brand and the call centers. We also launched many new products in the past quarter in Italy and in Switzerland, as you will see later on in the slides. So we continue to invest in innovation to generate growth in the future, both on the telco side, but also the ICT market. An important pillar, despite the softer cost savings in Q2, achieving more with less remains an important pillar of our strategy execution and remains a top priority of the company improving or at the same time improving customer experience and reducing our cost base which will be one of our main focus is also going forward in the second half year of 2024 to achieve our full year targets last but not least we also work on our skill-based on our collaboration to increase overall performance of the company. Now, starting with Switzerland, the B2C telco business on slide number nine, you can see that we continue to execute our value strategy and our focus on NPS lead. Although competitors have been slightly improving in the past quarter, we still have a very substantial lead on the NPS side, and we continue to invest in the satisfaction of our customer base, because this leads to an exceptionally low customer churn. You can see just below, slightly increased on roughly stable on mobile and slightly decreased on the broadband side. But we continue to see very low customer churn, which is mainly linked to the high customer satisfaction that we have. And overall, we also see stable ARPU development on the broadband side, which is, I would say, an exceptional achievement, giving the markets aggressiveness that we see today and on the mobile side we have stable ARPU on the main brand or the different brand mix leading to a slightly lower post paid value ARPU which is also a great achievement in light of the promotional intensity that we see on the mobile market how did we achieve this we continue to invest in our value and brand orientation and We managed to secure the content rights for football, which is important for our TV offering until 2029. And we are now a new partner also of the Swiss national football team going forward for the next years, which will help us to position our brand in the market. Next to this, we invest a lot on ARPU evolution, new offerings to upsell and cross-sell to our customer base. We remodeled the Blue TV Room Max option. We introduced the new Wingo offerings and we are certainly working on phasing out older products which have lower ARPU and replacing these customers with or moving these old product customers to the new Blue portfolio in the same for more for same or a more for more approach driving up our average ARPU. On page number 10, you can see that we are also working on sales measures as we talked already about after Q1 when we had quite a weak net ad performance and we increased our intensity on the sales side, making promotions more visible, modifying the shop layouts slightly and really pushing more sales activities also in terms of advertising. increasing the convenience, making it easier to buy from Swisscom. And we can see that these measures are already showing some effect and stimulating the net ads in the market. We don't intend to increase promotional intensity and we'll certainly continue our price followership and do not intend to amp up or discount levels, but really working more on the sales side and the promotion advertising push to stimulate the market. We also launched or expanded our insurance portfolio in Switzerland, which was well received by the market. Overall, we have a slightly increasing RGU base in post-paid, year-on-year plus 74,000, and a slightly decreasing on the broadband side with minus 21,000. On page number 11, I will move on to Swiss. B2B, telco, and IT. So in both market segments, telco and IT, we continue to invest in new product offerings. On the telco side, we launched a new security offering, SignGate. And on the IT side, we also launched new cybersecurity offerings and launched our new AI platform, which is based on an NVIDIA offering to enable AI sovereign compute in Switzerland for our B2B customers. Overall, you can see the telco service revenue evolution was down minus 2.6% year on year, achieving 375 million Swiss francs in revenue, mainly driven by still price decreases in the market. So you can see that the ARPU wireless has decreased by two Swiss francs to 26, driven by the emotional intensiveness in the market. On the IT side, we were able to drive very appealing growth of plus 7%, mainly driven by cloud security and the platform business, but also some M&A we executed over the past month, leading for the first time to revenue over 300 million revenues in a quarter. On the network and IT side, you might have seen in our press release today, we announced the new CTIO. Mark Duesener, who was previously managing our mobile and B2B telco technical division, will take up the CTIO role starting 1st of September. So I'm very pleased that we were able to promote an internal talent to this important position. And we continue to execute the current strategy. We don't plan any strategy change, but we'll focus on continuity and execute our current priorities that we are working on since a number of years on the network side. First of all, this will be continue to increase the mobile coverage. We were able to increase the 5G plus coverage by six percentage points year on year. And we now stand at 83% population coverage. with 5G+, and also we made substantial progress on the FTTH rollout. Our rollout speed is now two times higher than it was one year ago, and we added five percentage points of FTTH coverage and now stand at 49% FTTH coverage for Switzerland, meaning that in the next quarter we can most likely report that more than half of Switzerland is built with FTTH connection. We are also making great progress in our internal network modernization. We were able to migrate the full mobile traffic to our new internal core network called Titan. This is an important milestone because it generates more operational stability, resilience, and also energy cost savings, and we will continue to execute the next core migrations over the coming two years to finalize the ongoing network modernization within Swisscom Switzerland. Overall, you can see on the right-hand side that the NPS of our customers regarding to stability is very high and stable. On page number 13, a quick highlight on our cost saving, where we stand on cost savings or achieving more with less. As I already mentioned, this remains an absolute top priority, although we had a weaker Q2, driven also by seasonal effects and some one-off costs that we had in Q2. But overall, we continue to work intensively on delivering cost savings. You can see some examples on this slide on the achievements we had in the last quarter, especially in the B2C side. We launched our new GenNI-based chatbot, which delivers very encouraging first results, both in resolution rates, but also in terms of customer satisfaction, and also continues to drive what you can see on the right-hand side, a move to more self-care and an increased, sorry, decreased workload on the call center side. which then helps us to overall reduce our cost base. We also celebrated the five-year anniversary of our DevOps centers. The first one we opened in Rotterdam five years ago. We now have over 500 people working in our DevOps centers, and we will continue to expand these centers over the next years to continue to increase our work we can deliver in a shoring mode versus a Switzerland or Swiss-based cost base. Now, moving on to Italy, I can also start with a personal highlight. You have seen that Walter Renner was confirmed as a designated new co-CEO. I'm very much delighted about this confirmation. Walter is doing an outstanding job with his management team at FastWeb in Italy, and I am convinced that with his inspirational and caring leadership, He is the perfect CEO to work on the integration of the two cultures, the two companies and bring together both Vodafone Italy and FastWeb and form a strong number two in the market in Italy. Now on the B2C side of FastWeb, we continue to execute our strategy and focusing on quality and pushing or expanding our offering beyond the core services. So we are also working on AI-driven activities on the Italian side. One of the examples is we introduced AI support for call center agents, which helped us to drive down the average handling time by 20%, while at the same time increasing the NPS of the customers calling our call center. And this also is a good example of achieving more with less in the future. We were also on the mobile side again awarded with the fastest network for the fourth time. And as you've seen, we managed to gain 113,000 net ads in the second quarter, which was the second best performance in the market just behind Iliad. The second quarter was also the start of our new energy offering, which allows our customers to buy energy with a fixed price or quite an innovative monthly tariff approach where we are reselling energy and we can say that the start was very well perceived that registrations are ahead of our expectations and we will continue to this offering in the next quarter until year end as it is a very nice effect on our ARPU uplift you can see that 81% of the customers are also broadband or mobile customers and generates a 45% ARPU uplift with regards to customers which are only buying telco services from us. On the core side, we can see that the conversion is up by 1.4% to 43.4%. And we continue to drive conversions in our customer base. And it also has positive effects on ARPU and overall insurance. Overall, the RGU base on mobile is up by 11% and we now send a 3.7 million mobile customers and the UBB customer base is slightly down by 0.3% and sends a 2.3 million customers. Moving on to slide number 15, you can see an overview of the FastWeb B2B and Wholesale, two business units which have excellent market momentum and produce amazing revenue results. B2B is up by 11% in revenues, now stands at 295 million euros in the second quarter. We have won many new contracts and the revenue increase is mainly driven by cloud and cybersecurity services. We also launched the new what we call Next AI Factory, which is an NVIDIA-based AI compute infrastructure to offer a sovereign AI infrastructure in Italy. We also released an Italian LLM, or Large Language Model, and entered into partnerships with primary editors and contact providers to improve the value of the LLM with our partners, such as Gruppo Mondadori, iStart, or eBee. so that the LLM is really of high value to our Italian customers. On the wholesale side, you can see that we have quite a high growth of plus 37% to 97 million euros in the second quarter, driven mainly by the increase in UBB lines and reselling of wireline connectivity by our partners such as Iliad or Enel and driven by Enel and Iliad. As I mentioned before, we were also able to sell our 4.5% fiber cob stake for 439 million euro. This represents a capital gain of 189 million euro, which is not recognized in the P&L as it was cooked directly in our equity. And we will use the proceeds of these sales to execute the deleveraging in light of the transaction, which I think is also good news for our bond investors. Now I'm handing over to Eugen to provide the transaction update on Vodafone Italy.