Swisscom Ag Ittigen R/Shs

Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q1 2025 results conference call hosted by Christoph Aschliemann, Eugen Sternmetz, and Louis Schmidt. Louis, the floor is yours.

Good morning, ladies and gentlemen, and welcome to Swisscom's Q1 results presentation. My name is Louis Schmidt, Head of Investor Relations, and with me are our CEO, Christoph Aschliemann, and Eugen Sternmetz, our Chief Financial Officer. Let's now move to page number two with the agenda of today. As you can see, our CEO starts presentation with chapter one and a quick overview on the highlights, the operational and financial performances of the first quarter. Then in chapter two, Christoph presents a business update for Switzerland and Italy. In the second part of today's results presentation, Eugen runs you through chapter three with the first quarter financial, including the confirmation of our full year guidance. On page three, some brief remarks in our financial communication this year, explaining the focus of the presentation, which is the comparison of 2025 figures with pro forma 2024 figures as Iguodafone Italia had been consolidated from 1st January 2024, adjusted based on Swiss Consent counting and reporting policies and unaudited. This comparison ensures that we provide a meaningful comparison on a life-for-life basis. With that, I would like to hand over to Christoph to start his part. Christoph.

Thank you, Louis, and welcome also from my side to this Q1 2025 fall. I will start on page number five with some group achievements. Overall, I'm pleased with the financial results in the first quarter. We are spot on and on track to achieve the full year guidance, and as you have seen, we are also confirming the full year 2024 guidance with revenue between 15 and 15.2 billion Swiss francs and maybe down around 5 billion Swiss francs. I'm also very pleased that we have successfully started the integration in Italy with FASO and Vodafone. The execution is in full swing and progressing very well. as we are executing our plan, and the new EXCO is in place and executing all required and planned integration actions, and maybe some more words on this later on in the Italy section. In Switzerland, we have been awarded again, according to Brand Finance, the strongest telco brand worldwide, being a testimony to the strength of the Swisscom brand in Switzerland, building on the best experience and the best network. We also won, again, numerous awards for our network and the service we provide, especially on the B2C side. And we have launched in Q1 a new multi-mobile offering we are calling We Are Family to build the next level of convergence, not only between wireline and wireless, but especially increase the household penetration of mobile on the main brand Swisscom. In Italy, you will see that we are driving the value focus and taking first steps to drive differentiation in the Italian market and stabilize the telco business. Now, moving to slide number six. Sorry, I need to drink some water. Sorry. Sorry for that. I'm slightly cold. Our RGU base is overall broadly stable in Switzerland and Italy. If you look at post-pain, we had a slight growth of 51,000 net adds to 5.5 million RGUs. While on the broadband side, we have a slight decline of 14,000 net adds in the first quarter and correspondingly a slight decrease also on the TV side as the new net adds broadband come more from second brand with less TV attachment. On the wholesale, we were able to continue our growth. We have seen during 2024, also in this year, by adding 11,000 lead ads on the wholesale side, nearly compensating the decline of 14,000 on the B2C side. In Italy, we have a stable R2 development on mobile, albeit with very different trends in B2C and B2B. As you will see later on, B2C R2 loss is around 400,000. compensated by an equivalent growth on the B2B side, mainly driven by a large government contract leading to an overall exactly stable RGU base at company level. The broadband RGU base was declining by 67,000, mainly driven by our value approach, trying to keep ARPU high and focusing on high-quality sales in this area, suffering slightly from still higher churn on the Vodafone side, which I will explain a bit later. But as in Switzerland, we are also continuing our wholesale growth in Italy with plus 63,000, bringing our wholesale RQ base to nearly or close to 1 million. So, hopefully, we can report in Q2 that we will overpass the 1 million mark either next quarter or the third quarter of this year. So, if you look at the overall group financials on slide number seven, you see that we are on track to achieve the full year guidance 2025. Revenue at the group is standing at 3.75 billion Swiss francs, slightly down by 1%, mainly driven by a decline in Switzerland and some strengthening of the Swiss franc against the Euro, whereas in Italy, overall revenue has been roughly stable. On the EBITDA side, we have a decline of 6.6%, bringing it to 1.27 billion, driven by a decline in Switzerland and the declining EBITDA in Italy based on integration cost and some weaker telecom service revenue performance. Eugen will dive into the details also of CapEx and operating free cash flow later in the financial section. So, I will leave this to Eugen later on and move on to the business update of Switzerland and Italy. On page number nine, we will start directly with P2C in, sorry, with the overall priorities for both countries before we dive into the details of each individual country. So, as we outlined in February, When we announced the full year 24, it does. We have a very clear roadmap for 2025 to drive the value creation. In Switzerland, it's all about cementing our number one position in the country, managing the telco top line, making sure that service revenue erosion is as small as possible, and at the same time, execute the cost transformation to achieve more with less cost, and at the same time, drive profitable IT growth. growth. In Italy, the priorities are similar, but slightly different. Of course, the main priority is to integrate the Vodafone and FastWeb business and capture the synergy potential, which leads to substantially lower cost base in the coming years. And at the same time, we are also very much focused on stabilizing the B2C service revenue, which I will talk a bit more in detail later on, and at the same time scale up new revenues in wholesale, in IT, and in the B2C energy business to create compensating revenues and EBITDA in Italy. Now, moving on to B2C Switzerland on page number 10. You can see that overall the B2C evolution is actually very pleasing in Switzerland. We can also see some first signs in the market of easing tension at least on the mobile side. So there is still, let's say, some aggressive promotions in the market, but they are slightly less promotional. Instead of seeing minus 70, minus 75% discounts, we are now at around minus 50, minus 60. So tension is slightly decreasing. We have also seen that several brands have increased the prices. We have followed this on the Wingo side. We've also a plus one Swiss franc price increase. and we will now see how the mobile market evolves further in Switzerland over the year. Overall, on the RGU base, we had a nice growth of plus 94,000 RGUs, bringing the RGU base to 3.47 million, and broadband was slightly down by 25,000 lines on the B2C side. I think one important priority this year is really to increase the multi-mobile convergence and household penetration. This is why we launched this new We Are Family offer, which offers up to discounts for household penetration of up to five mobiles. We are very pleased with the start in the market in the first quarter, and we will continue to push this throughout the whole year to really accelerate the inflow on the main brand on the mobile side and make sure that our offerings are positioned on an affordable basis in the market. At the same time, we are investing heavily in defending the customer base, customer value management, and at the same time pushing sales. So we are experimenting with different new store formats, pop-up stores for the second brand, like Wingo you see on the slide, but also strengthening other channels online or the M-Budget and CodeMobile sales points, which is an important piece to defend and at the same time attack in the market to create enough inflow overall for the B2C business. On page number 11, you can see some other actions that we are taking to further enhance our B2C business. So, we are very focused also on upselling the existing customer base into higher value tariffs, especially linked to the fiber rollout in FTTH Turf, where we are very successful in bringing our customers from the lower end subscription S or M level up to the L gigabit type speed subscriptions that leads to higher ARPUs. And you can also see this on the wireline ARPU chart on the right-hand side, where the wireline ARPU average has continued to increase by plus 1%. This is driven by these upsetting activities, but also, More value-added services sold, more TV packages, more entertainment value-added services that we are quite successfully bringing into the customer base, and we will continue to push also in this year. And one important piece that we will bring more to the customer base is also around security. So we already have quite a lot of security offerings on the B2C side, and we will further push this now this year to continue to drive ARPU development on the fixed side. Another important piece of the puzzle to keep churn at the low level it is currently is to further invest in our benefits or in the Swisscom benefits program, really making sure that loyal customers profit from their relationship with Swisscom and they get additional benefits that customers On the mobile side, maybe one word around ARPU. So, you see that the mobile ARPU continue to decline. This is mainly due to the brand shift from main brands to second brands, but also driven by the new, by ongoing optimizations of customers, for example, by using the VR family discount, which is also likely or creating a small ARPU erosion effect. Now, moving to B2B in Switzerland on slide number 12, you can see that we have been, in general, still facing quite a high price pressure in the market, especially in the SME segment, which is driving the average ARPU erosion that you can see in the top left of the slide. On the wider side, minus one Swiss franc, which is mainly driven by the SME segment. where we face quite stiff competition from salt and sun, and we expect this to continue throughout the full year. To mitigate this, we are putting up attractive offers. We are investing a lot in customer base management and upselling campaign to mitigate this price pressure. And on the corporate side, we are focused on finalizing our SD1 migration. to protect the wireline business going forward. So you can see that we have nearly completed the contractual migration of migrating all customer contracts to the new SD-WAN product base. So we stand at 95% completion, and our aim is to finalize this by the end of this year and have all customers on the new SD-WAN contract. The technical migration is lagging behind the contractual migration, so we migrated roughly two-thirds of the cultural base from the MPLS product onto the new SD1 product, and we aim to finalize the migration by end of next year, so by end of 2026. And until then, we will still see structural revenue erosion due to the shift of technology from MPLS to the SD1 product base. As by then, all the customers, by end of 26, all the customers will be on the new products with a lower price point, and then we should see also some easing on the service revenue erosion on the wireline side in B2B. One product news I'm excessively excited about is what you see on the bottom left. So, in two weeks' time, we will launch a new, a fully modular four times convergent product offering. It's the biggest product launch in B2B in the last decade, which will over time replace most of the offerings we have today, which will really bring together connectivity and security, as we believe that security is at the center of B2B connectivity in the future. And we really can bring a new, very highly differentiated product offering to the market. And we will launch this and announce this to the press in exactly two weeks. And I'm really excited to see the impact of this. Revenue-wise, this will not create a big impact in 2025, but I do believe that it is a very important move going forward for the B2B business in 26 and especially beyond 27 to create a more differentiated positioning on the market and protect or differentiate against sort of the regular pure plain connectivity business. And I think we will talk a bit more in detail about this offering at the Q2 call once we launch the offer in the market and also give you an outlook of how we evolve this in the coming years. On the IT side, we have some revenue growth, 2.4%, still slightly below expectations on the organic side. But anyway, up by 2.5%, so it's a good progress. And we are further looking how we can accelerate this year. We are facing some headwinds on the IT side due to macroevolvement on the, let's say, economic outlook. As you obviously know, the Trump administration is creating some uncertainty with their approach to tariffs and other aspects. which is also slowing down investment in Switzerland on the IT side. You have many companies that are currently holding back with investments or scaling back slightly on IT projects to face or to deal with this uncertainty. And we can already see this slightly slowing down our IT business. So, I'm happy that we managed to continue to grow this in Q1. And we also established a new dedicated unit for customized solutions to serve and special customers which have special needs and critical infrastructures like the army or police first responders such as police forces, for example. Okay. So, I would move on to network on page number 13 and wholesale. We further invested heavily in our mobile and wireline network. Wireline 5G plus coverage is up by 4%. whereas the wireline coverage is up by 6% moving or bringing us to 53% FTTH coverage overall. Another noteworthy news is the win of the chip award. We won it for the 10th time in a row. And you can see the chip performance measured, the share, basically what you can see on the chart is the share of connections with over 100 megabits performance. where Swisscom achieved 93%, and Sunrise and Salt were at 71% and 76%. So there is really a huge gap in performance of the network, and I think we can say that our network is really forming another league, distancing the other two networks in download speed very, very clearly. And we will continue to invest in our mobile network to make sure that we keep this quality lead also going forward for our customers. The FDTH rollout is completely on track. As I said, we are up by 6%. We are on track to achieve our full-year target of 57% coverage. And as you can see on the right-hand side, it also drives our positioning in the wholesale market. So we are currently gaining market share with this extended FDTH footprint. And we can also monetize the technology advantage or the build-out of the network. You can see that our access service revenue has increased by 11% from 44 to 49 million in Q1. And you can also see that already 45% of our wholesale access business is on fiber. So we have nearly half of the wholesale connections on fiber connectivity. It is up from 40% to 45, and we expect this fiber share to continue to grow over time as we are now successfully phasing out copper and customers are moving more and more to the fiber connections as we continue to increase our footprint. And I think this is a very pleasing result to show that we can also monetize the FTTH rollout, not only in our own B2C business, but also on the wholesale side. So this brings me to the last slide concerning the Swiss business, page number 14. You can see some examples of initiatives we have in place to reduce our cost base, but not only to reduce the cost base, but also to improve the customer experience. So, for example, we are experimenting with different new formats in the shops, for example, self-service cabins to provide better experience or better support in shops on, let's say, specialized topics where you don't always have an expert onsite in the shop. We have self-service screens that are really combining also the physical elements with the digital elements and creating sort of what we call a digital shop. It's a bit of a strange word, but I think it symbolizes well that we try to get the best out of both worlds and create a great customer experience in the store and at the same time reduce the cost of service by bringing in digital or centralized elements as it is called a self-service cabin. At the same time, we are obviously also very focused on deploying automation and AI internally in our operations, not only in the call center, but also in the IT rollout, in the IT operations, network construction, network operations, to really improve customer experience, reduce meantime restore, fault detection, CapEx efficiency. And we have launched several projects several projects that are ongoing in this area. Do you see that we have delivered 9 million cost savings in Q1? So we are on track to deliver our full year target of 50 million for this year. Okay, now I would close Switzerland and we move over to Italy on page number 15. So as I said in the introduction, the integration is on track and in full swing. We have built the connections between the FastWeb network and the Vodafone network. We have completed this sort of all the technical work and have migrated the first thousand SIM cards. And starting mid-May, new customer activations on FastWeb will happen on the Vodafone network. And we will now pick up the migration speed, which will happen to Q3 and Q3 until the end of the year. On the savings side, you will see most of these migrational savings in the second half essentially are very much backloaded into Q4 as the migration is slowly picking up speed. You will have not so big effect in Q2, obviously, and most of the financial impact will then come in Q3 and mostly Q4. But I am happy that this is on track as this will deliver 200 million of cost savings in 2026 or one-third of the full synergies planned with our deal. So, it is very positive and good that we are completely on track to realize this important piece of cost synergy. Also, another piece of, another important piece of the integration is the design of the new organization. So we have completed the design up to the entry level, and we are now finalizing the last layers of the organization until end of June. So we are completely on track there as well so that we have a full and consolidated organization in place where everybody can really concentrate on their job instead of asking themselves who will be their boss next month. I think this is a really important and essential piece of our integration that we finalize this as quickly as possible. And we have also, or are doing a lot of work on cultural integration, making sure that people behave in the way we want them to behave, that we can create this combined culture going forward, focusing on the important elements that we want to keep from both the cultural board of phone and fast web. And as you will see later on, also synergy delivery is still small in Q1, but it is completely on track. and we are confirming that we will deliver the plan synergies in 2025. Now, moving on to B2C on page number 16, you have seen that we have had 35 million of service revenue erosion in Q1 in B2C, mainly driven by B2C mobile. This is at the upper end of our expectations and clearly not where we want to remain in the long run, and we have taken number of actions to start working on the stabilization of the telco top line in the first quarter. So some examples are we have increased the price on the FastWave mobile subscriptions. We have increased the price of the Vodafone broadband subscriptions. We have stopped some telesales activity to improve the customer or the net ad inflow. We have also stopped the repricing of the Vodafone customer base. to get churn down in the customer base of Vodafone and improve the NPS or start working on improving the NPS, which we think is an important element going forward, working on reducing the churn and then getting a high quality NetApp in to stabilize the ARPU development over time. And then this will over time also stabilize obviously the service revenue. We have also launched a couple of new products. like FastWeb Protect or . And we have started cross-selling FastWeb Energia across the Vodafone base in April. So you don't see this yet in the Q1 numbers. But we can already say that the FastWeb Energia this year is performing very well above our expectations. And so we are excited about bringing this product also into the Vodafone customer base to make sure that all our customers can profit from this great product, and I think this will also already deliver some compensation of service losses this year, so we can compensate part of this with the new energy growth. But overall, if we look at the telecom market in Italy, it's obviously still a competitive market, and the market has quite, or historically has had a very high focus on, or was very volume-focused driven, with targeted below-the-line offerings, to gain customers, and we believe that Vodafone, FastWeb, and the market should more move into a value-based approach. And we are now taking the first steps to making these changes in our strategy to drive a change from volume back to value across our whole customer base. And you can see on slide 17 what this means. So we have or want to position FastWeb and Vodafone as premium multi-product conversion brands, and then clearly separated from home as a mobile-only, no-thrills, sort of smart shopper brand. And we really want to reposition both the Faso and the Vodafone, or not reposition, but reinforce the positioning of Faso and Vodafone as a quality leader with the best network and the best shops and the best service in Italy, and then focus on our stabilization in these two brands. One other aspect which would be important going forward is really driving the convergence benefit, not only on fixed and mobile, which is the obvious part of the convergence that we can drive now with the merger, but also the multi-mobile convergence and really work as we do in Switzerland on the mobile or household penetration on the mobile side, and at the same time, scale up new beyond core products such as the fast web energy. We will further refine this B2C strategy now going forward. The teams are working on this to make sure that we have a great plan in place, and we will for sure talk a bit more about this with the half-year results, and we still plan to deliver a new completely integrated product portfolio in autumn this year, sort of to implement this new value-based strategy going forward. Okay, moving to page number 18 on the B2B side. So, you've seen we have quite a high growth on the mobile side, up by 12% to 4.2 million RGU's. This is mainly driven by the TM9 contract, which is basically delivering mobile connectivity to the federal government, and this is still ramping up in the course of this year, whereas the overall wireline side was roughly flat in RTU base. On the B2C side, we're also finalizing the organization, the pieces and bringing sort of a combined product portfolio to our customer base so that we can really unlock the unique potential of FASO and Vodafone as we are the only provider within network infrastructure in Italy. offering both mobile and wireline services. So we believe we have a really unique product portfolio and opportunity. And we are now equipping our sales force across both FastWeb and Vodafone with all the tools they need to really accelerate sales on the B2B side and bring all these great products to our customers. On the IT side in Italy, you see we had quite pleasing growth, plus 9.2%. bringing the revenue for the first time over 200 million in Q1 25. So we are very happy about this growth, driven mostly by cloud cybersecurity and other IT products, but also we are sort of wrapping up our AI pieces in Italy, which is I think an important offering going forward. Also the sovereign cloud of everything that is going on currently in the world, sovereignty and local solutions take a bit more place in or a bit more space in the mind of our B2B customers. So, the offering with fast cloud pushing really the sovereign cloud solutions is an important aspect going forward and will drive some of the revenue growth going forward. Now, on page 19, a couple of words on network and wholesale. Also, in Italy, we continue to invest in the best network of Italy, and we brought 5G coverage up by 5% to now 78% of population coverage on track to achieve our full-year target of 2025. And also, FTTH expansion is progressing well. We now stand at 52% FTTH coverage in Italy, so pretty similar to what we see in Switzerland, actually, quite similar coverages of the country. And in this footprint, we have about a 50-50 active passive fiber split share. We continue to drive our wholesale growth. So, you've seen we had an amazing growth of another 34% of access line growth, bringing us to 968,000 access lines in the first quarter. And we expect it to continue pretty much at the same speed this year, also increasing our wireline service revenue by 10 million. Overall wholesale revenue was slightly down because we had some non-core low margin revenues, which were also linked to the Invit contract that we can explain a bit later, which were down by 19 million. So, overall, you've seen a small decline in wholesale, but the important pieces, the wireline and the mobile piece, are both continuing to grow. That was it from my side, and I will now hand over to Eugen.