Swisscom Ag Ittigen R/Shs

Good morning, ladies and gentlemen, and welcome to Swisscom's Q1 26 results presentation. My name is Louis Schmidt, Head of Investor Relations, and with me are our CEO, Christoph Eschkeman, and Erving Stenmetz, our Chief Financial Officer. Let's now move to page two with the agenda of today. As you can see, our CEO starts presentation with chapter one, achievement, and a quick overview on the Q1 highlights, the operational and financial performances of the first quarter. Then in Chapter 2, Christoph presents the business update for Switzerland and Italy. In the second part of today's results presentation, Eugen runs you through Chapter 3 with our Q1 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 also from my side to this Q1 2026 course. I will move directly to page number four, highlighting our key achievements of this quarter with a consistent delivery reinforcing our position as the customer's preferred choice. I am pleased to announce that the operational results on the group level are as expected. We have sound financials with operating free cash flow ahead of consensus. However, we would like to highlight that this is mainly due to intra-quarter phasing during 2026, and we expect a result on a full year basis as guided. In Switzerland, I would like to highlight the successful price increase execution, which I will detail a bit more later on, and the improved B2B IT profitability that we have achieved during the first quarter. In Italy, the integration of Vodafone Italia is on track. Synergies are coming in as expected. and we are continuing on our turnaround of the B2C business to move from volume to value. And I will talk a bit in more detail about this later on during the call. You've also seen that we have achieved significant growth in the energy business, and we expect continued growth from that business throughout the full year of 2026. Now, moving on to page number five, you see the overview the commercial overview of 2026Q1. You can see that overall, both on mobile and prop and Switzerland and Italy, the results have been softer. I will explain those effects in detail later on. There are some overlapping effects in both countries coming from B2C and B2B. So I will mostly explain this in detail when we are in the section of Italy and Switzerland. But on the other side, you can also see that the wholesale business in both countries both in Switzerland and in Italy is doing very well. We have continued growth both on the broadband side and on the mobile side in Italy. Now I will move on to page number six which shows you the commercial overview of the Q1. We have a net revenue which is slightly softer due to a decline in revenues both in Italy and Switzerland and some overlapping currency effects causing 3.6 billion Swiss francs on revenue in line with guidance. Profitability or APTR is roughly flat at 1.28 billion Swiss francs, capping slightly down, delivering highly increased operating free cash flow of 494 million Swiss francs. You can see that the increase of 96 million is mainly driven by Italy segment where we see the synergy realization kicking in also a bit softer CapEx, but also Switzerland delivered on the guidance and contributed 34 million adjusted free cash flow on top compared to previous year's results. And I assume Eugen will go into the details of the financial results in his section later on. I will now move on to the business update. I will go directly to slide number eight, which highlights our priorities for 2026. So for both countries, we have clear priorities. I will start with Switzerland. Of course, priority number one in Switzerland is managing the telco service revenue top line, ensuring that our decline is slowing down and ideally coming to a halt. For this year, we expect a 120 million decline on the service revenue side. At the same time, we are continuously working on our cost base, boosting our efficiency, We expect as guided 50 million of Swiss francs of savings. And at the same time, we want to work on IT profitability and grow the revenue at the same time. We do expect soft growth this year, but increased profitability, as you've seen already in the Q1 results. On the Italian side, our main priority is, of course, working on the integration of Vodafone and FastWeb. driving the synergy realization, which is very well on the way. We are also working on the telco service revenue side, especially on the B2C business, turning around the B2C business, moving from volume to value to stabilize the service revenue and massively reduce the decline on the service revenue side. At the same time, we are also continuously scaling the energy business and the IT business. And overall, this should deliver stable free cash flows from Switzerland and growing free cash flows from Italy so that we have growing free cash flows on the group level and are able to increase the dividend to 27 Swiss francs for the year of 2026. I will now go into the details of Switzerland. I will start on page nine with the B2C business in Switzerland. Of course, let's say the main priority in Q1 and the highlight was the price adjustment that we executed for our own brand offerings. in order to sustain the best network quality and service excellence basically the price increase was executed as expected we had roughly as expected the churn in line with our business case we had some effects also on customers moving or spinning down to the second brand also roughly in line with expectations you can see the impact on churn on the right hand side of the chart mobile Post-pay churn is roughly stable, slightly increased compared to Q4. But if you compare it to Q1-25, it's roughly at the same level. Whereas on the broadband side, there was indeed more churn based on the price increase that we executed in the market. And you can see this on the left or the middle of the chart with the resulting net ads. Whereas on the broadband side, we had net ad losses due to the increased churn. and slightly lower order volumes due to the price increase. On the mobile side, we still managed to generate the growth. On the NetEd side, slightly lower than in the previous quarters, but still a positive growth in RGU despite executing the price increase, which is obviously an encouraging result. From a promotional perspective, Q1 was a bit mixed bag, or let's say the previous four months. On the one side, we have positive movement in the market with both salt and sunrise following the price increase. On the other side, we have seen excessive aggressiveness from sunrise, especially in the previous three months. After our price increase, they became really aggressive on the promotional side, even moving for lifetime discounts again on the main brand under the sunrise umbrella. which is kind of counteracting the price increase. So I would say from a promotional perspective, a bit of mixed situation right now and overall in line with sort of our expectation and not that much different from before. This is also why we continue to bolster the Wingo positioning on the full service side. So positioning Wingo as an integrated wireline and wireless provider. We are expanding the reach on the shop or the sales side. We open new shops. We bring Wingo in some of the Swisscom shops to make the brand more visible and sort of be more present in the market with the Wingo brand to make sure that we generate enough sales out of the Wingo side, especially on the broadband business where we see continued losses on the main brand. Next to the main telco service revenue, we are also working on new revenue potential. There are two areas where we are investing heavily at the moment. One is the security proposition. So we have launched a new security proposition in Q1, integrated directly into the router, which we believe is very important. And we will continue to drive security service revenue in the future, which will help us to offset some of the ongoing decline on the traditional connectivity side. And we are also continuously investing on the AI side. We see quite a good momentum on the MyAI solution, which achieved 78,000 registered users end of Q1. So we will continue to drive user adoption throughout 2026 and looking into how to monetize the AI potential going forward. But if you look at what's going on in the AI world and the general adoption throughout the planet, we do believe that there is potential also for us to generate revenue from this in the consumer space. I now move on to page number 10, B2B. So on the B2B side, you see that R2-wise, the development is nearly stable. There is a slight decline, mainly driven out of the SME space. But overall, I would say quite a stable R2 situation, whereas on the RGU side, you see continued losses. We had, especially on the mobile side, some corporate contracts that ended, but also some losses in the SME space on the mobile side, whereas broadband is roughly stable in terms of RGU development. What is important for 2026 is that we are on track with the migration from the legacy portfolios to the new modern portfolios, both on the wireline with Enterprise Connect and on the wireless. with the Protect and Connect products, which integrates the Beam security proposition, because this is an important element going forward, driving the convergence between connectivity and security, which we believe will make a real difference going forward, both in positioning, but also in generating new revenues. At the same time, we are also working on CVM, using better data analytics to drive targeted campaigns, especially in the SME space, to stabilize the SME price and RGU development going forward. I'm very happy about the Beam evolution. So we managed to secure nearly 60,000 users by end of Q1, over 1,000 locations. So we are very pleased with this development. And we can really see a big demand and a good fit or a product market fit with the Beam proposition and the requirements of our customers. So both in the SME segment, but also in the corporate segment, we managed to win first corporate customers, which really tells us that the direction is the right one and security will be an important or is and will be an important topic going forward. Now on the IT business side, I am very pleased with the development of the profitability. So you can see that we managed to increase profitability from 25 million to 32 million epidial in Q1. So this is obviously very pleasing development. On the other side, revenue evolution was flat. Market is not so easy at the moment. Demand is quite soft. So on the revenue growth side, probably there will be only slight growth this year. And we will focus mainly on improving the profitability throughout the year to make sure that the services that we do deliver are also making the required profit or at the required profitability level. One positive note going forward, especially also into 27, we have signed a multi-year contract with the Swiss Armed Forces, which should deliver continued growth on sovereign ICT investments going forward. Now on page 11, some words about network and wholesale. So we continue to invest in network coverage. So both FTTH coverage is up 3% to 56%, going as expected and well. And also on the mobile side, we increased the 5G plus coverage to 89. Sorry, I mixed up things now. So we increased the 5G coverage by 3% to 89%. And we increased the FTTH coverage by 4% to 56%. Sorry for this mix up. And we have also finalized the 5G SA dual mode core. It's fully cloud native, fully automated. And we will start migrating users now onto the 5G SA core. which is, I think, quite an important milestone for our mobile tech team and a good achievement that we are proud of and which will drive user experience and adoption of 5G going forward on the mobile side. On the wholesale side, we are pleased with the results I've already highlighted before. Access revenues have grown by 8% from 49 to 53 million. FTDA share is up by 8%. So you can see that this drives our wholesale market share in the market quite nicely, which stands now at 18.6%. And over half of this revenue is already coming from FTTH and continues to grow quite substantially, showing that the FTTH rollout is driving adoption, is driving revenues, especially on the wholesale side. Now moving on or finishing the Swiss side on page 12 with the cost saving view. So you've seen that Q1 has a quite extraordinary high cost savings of 25 million. Please do not extrapolate this number on the full year. We continue to expect slightly more than 50 million Swiss francs in savings on a full year basis, as we had some costs shifting between Q1 and the other quarters. For example, we had less marketing spend in Q1 then expected and shifted some of the spending to Q2 and Q3. And this explains most of the advance that we have on the cost saving side. And we will catch up or basically spend this money later in the year. So you shouldn't expect much more than the guided 50 million on a full year basis. But what is important, we continue to work obviously on the efficiency, both on the sales side, making our shops more efficient, finding new formats. We work on the call center efficiency. heavily investing into AI-driven technologies, both on, let's say, chatbot side, but also supporting and helping agents serving our customers better and faster. So this is an ongoing effort from which we continue to expect continued savings this year, but also next year. At the same time, we are also heavily investing internally. We are still working on phase-out of legacy IT systems, but also legacy network systems, and we are also building a new data platform which will help us move into the agentic world and deliver cost savings going forward when we shut down the old platforms in 2027. So you can see a lot of things going on, both on the commercial front but also on the efficiency front, which is making sure that we can deliver on our targeted and guided revenues and profitability. Now I'm moving to Italy. Page number 13 gives you an overview of the integration. So I am happy to announce that the integration activities are all on track. We have one legal entity since January this year. We have also merged the SAP systems into one system. We are now working on harmonizing all the financing activities. We are rolling out one integrated HR system. which allows us to streamline all the HR payrolling processes. So things are going as expected. We've delivered 77 million euros of synergies. So we are very well on track to deliver the full 300 million that we expect this year. So this is a topic I am very pleased about for Italy this year. And so if things go as expected, we will have reached half of the planned synergies that we expect from this deal by 2029. Also on the cost side, integration cost side, we are slightly below our planned values. So this is also good news from the integration cost side. Now moving on to page number 14, looking into the B2C business. So you can see that we are working on all fronts to turn around the business into a more value-oriented approach. So the first and foremost most important topic is making sure that our existing customers are happy, have high NPS and stay with the company. So you can see the effect of this on the right-hand side. Churn is down quite impressingly from 20% to 17.6% on mobile. and from 20.3 to 16% on broadband. And this is despite the fact that we are still have ongoing price increases going on. So as you know, we are executing what we call a back book to front book alignment. So we have increased front book prices past year, and we are now migrating all back book customers, which are below the front book prices onto the new front book prices. So despite these activities going on and of course generating some incremental churn, the overall resulting net churn is actually going down, demonstrating that all the activities that we are executing in the call center side, servicing side, network side are impacting positively the customer experience and customer happiness and driving down the related churn. Another important aspect that we are working on is driving down or bringing up, driving down the ARPU that is leaving the company. So making sure that the high value customers are not turning and staying with the company. And if they are turning, that less ARPU is flowing out. And at the same time, we are working on the inflow ARPU. So we have increased front book pricing. We are also... working on the mix of inflows. Historically, we had a very, very high percentage of inflow on the lowest value subscription. We have now managed to shift this. So now over one third of the subscription inflow is on the higher value subscription. So it lifts our inflow, average inflow ARPU up. And the resulting effect is that the differential between outflow ARPU and inflow ARPU has substantially decreased. It is nearly half on the mobile side, precisely minus 43%. But of course, this generates on the journey while we are executing this, this generates some more net ad losses as we have softer growth ads. We are focusing on higher value sales. For example, we are less aggressive on tourists or some of the other segments which generate very low revenue. So this generates lower growth ads and despite lower churn results in a bit softer net ads. We expect this to improve over the year. as we are reaching the end also of the back book to front book alignment, and we are more into stable territory. And going forward, we expect revenues to stabilize throughout the second half of the year. So this is, I would say, all I would like to say on this. On the other side, ARPU you can see is roughly stable, especially important on the mobile side. It's exactly stable, broadband slightly declining. And on the energy business, we are very pleased. We have now reached over 119,000 customers. So the growth has doubled as we have sold also into the Vodafone base. And we will continue to focus on the energy business as this revenue growth helps us to compensate still the expected service revenue decline going forward and making sure that the B2C business stabilizes overall throughout 2026. Now on page number 15, looking into B2B, on the telco side, I would say roughly stable. So you can see the RGU development slightly positive on mobile, slightly negative on broadband. But overall, we could say the telco service revenue on the RGU perspective is roughly stable. From a revenue perspective, it is still slightly declining. but most of the service revenue decline is actually coming out of the B2C business in Italy and on the B2B side, things are going quite well. The IT trajectory is also confirming the strategic directory. We have been selected as a AWS European sovereign cloud launch partner. We are continuing to push on the AI front and making sure that we can also, again, generate growth out of the IT business in Italy going forward. Now going to slide 16, network and wholesale. So you can see that also in Italy, we are continuously investing in our network. 5G coverage has reached 89%, up by 4%. And FTTH coverage has reached 58%, up 6%. So this is the first time that Italy has a higher FTTH coverage than Switzerland. And this will remain like this for many years to come as the rollout in Italy is driven by OpenFiber and FiberCorp. and they are heavily investing in expanding the FTGH coverage in Italy. On the wholesale business, we have seen very pleasing growth, both on mobile and on broadband. So you see plus 108,000 on mobile, plus 68,000 on broadband. So it really shows that our wholesale strategy is successful and working. We expect continued growth on broadband going forward. Whereas on wireline, as you know, Poste Mobile, is leaving our wholesale business. They are executing or have substantially finished executing the migration in Q2. So at the next quarterly call you will see a substantial decline on the wireless side from mobile. So we should enjoy this picture of growth in Q1 on both mobile and wireline. And we will of course or are already working this many months now on compensating the positive mobility loss with new customers on the mobile side. So we launched Sky Mobile, but we're also working on new customers on the broadband side, making sure that we can compensate the revenue loss from positive mobility going forward over the next quarters until we're running into 2027. Now, the final slide on Italy regarding our RAN or mobile infrastructure strategy. So we have taken three actions in the Q1 to work on accelerating the rollout, improving coverage, and at the same time decreasing our cost base. So the first one is the RAN sharing that we have announced with Tim. that will essentially help us in accelerating rollout and improving coverage. So we expect the final agreement in Q2 2026 to be signed and then subject to regulatory approval, which will last up to one year. So we will see if we can accelerate this a bit, but this will take some time. At the same time, we signed a tower JV with Telecom Italia to deploy up to 6,000 new towers. at sustainable market conditions. So this is also in the stage of finding the final agreements and the authority approvals. And then we have terminated the MSA with INVID where we believe we have the right to exit by 2028. And this will also help us moving or moving away the infrastructure from INVID onto a new infrastructure at sustainable market prices will help us reduce our cost base to effectively compete in this very competitive market in Italy. This was it from my side, and I will now hand over to Eugen for the financial results.

Thank you, Christoph, and good morning, everybody from my side. All in all, a very solid set of numbers, so I'm happy to walk you through the details as usual. I'll start with the group perspective on page 19 with revenue of Revenue is down 153 million. There are 44 million currency. The net of currency revenue is down minus 109 million. Switzerland, minus 25 million, essentially service revenue decline. Italy is down 76 million. That looks like quite a big number. So there is service revenue decline on the one hand, but there's also a sizable decline in hardware. Revenue with no impact on the margin and that is a bit distorting the picture in Q1. There is compensation by growth from the wholesale and from the energy business as well. On the APTR side, APTR is slightly up both on reported numbers and adjusted numbers. Switzerland almost stable thanks to higher telco cost savings. a bit of phasing in there, as Christoph already mentioned. And Italy is up 30 million so that their service revenue decline could be offset by the realization of synergies. And we also have lower costs there in the first quarter compared to prior year. On page 20, CapEx. CapEx is down 86 million in the group. That's very much driven by phasing effects both in Switzerland and in Italy. Switzerland CapEx is down 40 million with lower FTTH construction volumes, which were pretty high in the first quarter 2025. And Italy is down 63 million. It's a combination of somewhat lower CapEx for business as usual, as we guided, and also a number of facing effects in Q1. So by implication, the operating free cash flow is up 96%. millions, so we're clearly on track to deliver stable free cash flows from Switzerland and growing free cash flows from Italy as guided, given all the facing effects and objects and conflicts. Obviously, please don't multiply the year-over-year numbers by four, but stick to our guidance for the full year, which we're going to confirm in this call. I'm sorry. I move on to page 21, Switzerland. Switzerland revenue down 25 million. If we look at individual segments, B2C is down 12 million. So that's telco service revenue decline compensated by a bit of higher hardware revenues. B2B minus 13, lower telco service revenue and also slightly lower IT service revenue, as Christoph already pointed out. The wholesale minus eight is mainly due to roaming. The underlying excess service revenue is actually growing steadily as we communicate on a regular basis. Then on to EPITER, EPITER is almost stable with minus five. Also B2C, almost stable. We have the top line decline, which is compensated by DELCO cost savings. Here we have, as Christoph already mentioned, some phasing in there with advertising spend being much higher in the first quarter 2025 due to the introduction of the BR family offering back then. Then B2B is down 9 million. the telco decay almost partly compensated by the improved profitability from the IT business and wholesale amount of seven is just the revenue impact of the roaming effect I mentioned. Infrastructure and support functions plus 13, so this is the telco cost savings flowing in. Next page 22, capex is down 40 million. There is a number of in-year phasing effects across or categories. Obviously, the most important point is byline access, CapEx, which is down 28 million. This is related to the very high FTTH volume in the first quarter in the previous year. And as a result of stable APTR and lower CapEx, obviously, operating free cash flow is up by 34 million. Deep dive into Switzerland on page 23. Top right, the telco P&L. So telco service revenue came in at minus 34 million. That's pretty much in line with the previous quarters. There is no effect yet in there from the price increase, which becomes effective in the second quarter. So this is fully in line with our full year guidance of roughly 120 million of service revenue decline. In the P&L top right, you also see the impact in the indirect costs. So indirect costs are 25%. million down, which is obviously quite a bit above the expected quarterly run rate. So we stick to our original guidance of 50 million plus for the full year. Bottom right, the IT P&L, service revenue down minus 5 million. So the market environment is rather challenging. As Christoph already mentioned, we expect only limited growth for the full year. EPTR, however, is up in the first quarter, plus 7 million, with improved profitability. So the smaller growth outlook in IT services has neither an impact on our revenue guidance nor, obviously, on the EPTR guidance for the full year. I move on to page 24, Italy. Revenue Q1 was down 81 million B2C minus 45. So we have a service revenue decline of 35 million and also lower hardware sales. B2B is the biggest junkie with minus 55 million, service revenue down 20 million. But as I said, I think there is a significant decline in hardware revenues, which we expect to recover at least partly and has very little margin impact anyway. Wholesale is up due to wireless and wireline business growing, obviously. the boster effect will kick in from Q2, so this number will turn negative once we present the second quarter results. APPR up 36 million, very nice contribution margin from B2C up 21 million, so you clearly see the significant synergy realization out of MVNO costs in the B2C segment, which overcompensates the telco service revenue decline. B2B contribution margin down 10 million, so very little influence of the lower revenue line, in particular the hardware line, and also some compensation out of synergies that we realized on the B2B side. Wholesale up 9 million in line with revenue, and in indirect costs, we have lower costs of 15 million. It's also driven a bit by in-year phasing, so that number will probably not last once we go into the subsequent quarters. Page 25, CapEx down 42 million. Adjusted number is even down 67 million. Integration costs, obviously, up with 29 million year-over-year total adjustments, 25 million up CapEx. As you know, adjusted CapEx is expected lower for the full year as per our guidance, by about 100 million, but 60 million CapEx down in just one quarter is obviously driven by some phasing across all categories. And as a result, operating free cash flow is up by 78 million as a result of higher EPDR and lower CapEx. I'll move on to page 26, deep dive into Italy. So you see the service revenue on the left side. Service revenue began with minus 55 million, slightly better. than in previous quarters, obviously still not where we want it to be, and we clearly expect a greater improvement of that number over the coming quarters, in particular in the second half of the year, as guided in February. You already see the first signs of what is going on in the year-over-year numbers in B2C wireless, where we first started with our back book alignment to front book, and the consequent increase in the consequent positive effect onto the APU. So the service revenue decline in B2C wireless is just minus 13, significantly better than in the previous quarters. And this is back to alignment to front book already showing up in the APU effect, which is basically down to zero with just the RGU effect remaining in the service revenue decline. And this is the first sign of what we expect to come overall. Next page, 27, synergy and integration costs all on track. So synergy realization is running smoothly. We have reached a quarterly run rate of 77 million. This quarterly run rate will not increase dramatically over the course of the year, given that the biggest item in there is the MVNO synergies, which is now already at full quarterly run rate. And as already mentioned, we expect overall yearly run rate increase over the previous years of 200 million up to up to 300 million which is already half of all the synergies we expected and also integration cost is on track we expect this to pick up speed over the course of the year page 28 free cash flow free cash flow is up 115 million so i'm taking the group sorry up from italy back in the group free cash flow is up 115 million versus prior year, fully driven by the increase in operating free cash flow. Not much else to report on this page. I move on to page 29. Net income is down minus 35 million. Actually, EBITDA and EBITDA are all flat. So the only negative impact on net income that is driving the number is a transitory non-cash effect in the financial result. Otherwise, net income fully in line. with the operating numbers. And then on to page 30, last but not least, obviously given this solid set of Q1 results, we confirm the guidance for the full year, and we send a handbag to the operator.