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Segment results

In CHF million   31.3.2017   31.3.2016   Change
             
Net revenue
Retail Customers   1,517   1,565   –3.1%
Enterprise Customers   612   642   –4.7%
Wholesale   206   217   –5.1%
IT, Network & Infrastructure   42   41   2.4%
Intersegment elimination   (131)   (160)   –18.1%
Swisscom Switzerland   2,246   2,305   –2.6%
Fastweb   484   482   0.4%
Other Operating segments   187   170   10.0%
Intersegment elimination   (86)   (72)   19.4%
Net revenue   2,831   2,885   –1.9%
             
Operating income before depreciation and amortisation (EBITDA)
Retail Customers   931   951   –2.1%
Enterprise Customers   201   217   –7.4%
Wholesale   104   91   14.3%
IT, Network & Infrastructure   (308)   (305)   1.0%
Swisscom Switzerland   928   954   –2.7%
Fastweb   155   144   7.6%
Other Operating segments   40   34   17.6%
Group Headquarters   (26)   (30)   –13.3%
Intersegment elimination   (4)   (3)   33.3%
Reconciliation to pension cost 1   (20)   (18)   11.1%
Operating income before depreciation and amortisation (EBITDA)   1,073   1,081   –0.7%
1 Operating income of segments includes ordinary employer contributions as pension fund expense. The difference to the pension cost according to IAS 19 is recognised as a reconciliation item.

Segment reporting was adapted to the management structure in 2017. Swisscom’s financial reporting focuses on the three operating divisions Swisscom Switzerland, Fastweb and Other Operating Segments, and Group Headquarters. Swisscom Switzerland is the Swiss market leader in the field of telecommunications and comprises the customer segments Retail Customers, Enterprise Customers and Wholesale, as well as the IT, Network & Infrastructure division. Fastweb is one of the largest broadband telecom companies in Italy. Other Operating Segments primarily comprises the Digital Business division, Swisscom Broadcast Ltd (radio transmitters) and cablex Ltd (network construction and maintenance). Group Headquarters largely comprises the Group divisions.

The IT, Network & Infrastructure segment does not charge any network costs to other segments, nor does Group Headquarters charge any management fees to other segments. Other services between the segments are recharged between the segments at market prices. Network costs in Switzerland are budgeted, monitored and controlled by the IT, Network & Infrastructure division, which is managed as a cost centre. For this reason, no revenue is credited to the IT, Network & Infrastructure segment within the segment reporting, with the exception of the rental and administration of buildings and vehicles. The results of the Retail Customers, Enterprise Customers and Wholesale segments correspond to a contribution margin before network costs.

Segment expense includes the costs of goods and services purchased, personnel expense and other operating costs less capitalised costs and other income. Segment expense contains the ordinary employer contributions as pension costs. The difference between the ordinary employer contributions and the pension cost according to IAS 19 is reported as a reconciliation item between the operating incomes of the segments and Group operating income.

Swisscom Switzerland

In CHF million, except where indicated   31.3.2017   31.3.2016   Change
             
Net revenue and results
Telecommunications services   1,632   1,669   –2.2%
Solution business   269   274   –1.8%
Trade goods   147   157   –6.4%
Wholesale   138   139   –0.7%
Other revenue   41   46   –10.9%
Revenue from external customers   2,227   2,285   –2.5%
Intersegment revenue   19   20   –5.0%
Net revenue   2,246   2,305   –2.6%
Direct costs   (440)   (467)   –5.8%
Indirect costs   (878)   (884)   –0.7%
Segment expenses   (1,318)   (1,351)   –2.4%
Segment result before depreciation and amortisation (EBITDA)   928   954   –2.7%
Margin as % of net revenue   41.3   41.4    
Depreciation, amortisation and impairment losses   (367)   (363)   1.1%
Segment result   561   591   –5.1%
             
Operational data at end of period in thousand
Fixed telephony access lines   2,297   2,582   –11.0%
Broadband access lines   1,988   1,968   1.0%
Swisscom TV access lines   1,438   1,323   8.7%
Mobile access lines   6,601   6,615   –0.2%
Revenue generating units (RGU)   12,324   12,488   –1.3%
Bundles   1,737   1,465   18.6%
Unbundled fixed access lines   120   120  
Broadband access lines wholesale   385   329   17.0%
             
Capital expenditure and headcount
Capital expenditure   357   424   –15.8%
Full-time equivalent employees at end of period   15,719   16,417   –4.3%

Net revenue for Swisscom Switzerland fell by CHF 59 million or 2.6% to CHF 2,246 million as a result of sustained competitive pressure. Of this decline, CHF 35 million (–2.3%) was attributable to the Retail Customers segment and CHF 23 million (–3.8%) to the Enterprise Customers segment. In Wholesale, revenue from external customers remained relatively stable (–0.7%). Revenue from telecommunications services decreased by CHF 37 million or 2.2% to CHF 1,632 million, with the trends from 2016 continuing as expected in the first quarter of 2017. Around half of the reduction is due to the declining subscriber base in the fixed-line telephony business, which dropped year-on-year by 11.0% to 2.3 million, and by 3.0% in the first quarter of 2017. The other half of the reduction is the result of price cuts, including roaming fees, and price pressure in the Enterprise Customers segment. In addition, revenue from the solutions business within Enterprise Customers decreased by CHF 7 million or 2.6% to CHF 261 million. In Wholesale, lower revenue as a result of the reduction in termination tariffs on mobile networks were offset by higher inbound roaming volumes.

In the saturated market, subscriber numbers in mobile telecommunications remained flat. Swisscom saw slight growth in postpaid offerings in the first quarter of 2017 (+0.2%), while the number of prepaid customers fell (–1.0%). The number of broadband connections rose year-on-year by 20,000 or 1.0% to 1.99 million (–4,000 in the first quarter). The number of TV connections increased by 115,000 or 8.7% to 1.44 million (+20,000 in the first quarter). Bundled offerings with flat-rate tariffs continue to be in strong demand. By the end of March 2017, 1.74 million customers were using a bundled offering, which corresponds to an increase year-on-year of 18.6% (+65,000 in the first quarter). Revenue from bundled contracts increased year-on-year by CHF 73 million or 12.1% to CHF 676 million. In the roaming business, a drop in roaming fees and the inclusion of roaming in the Natel infinity plus subscription packages have driven roaming volumes up at an even faster pace.

Segment expense fell by CHF 33 million or 2.4% to CHF 1,318 million, with both direct and indirect costs decreasing versus the prior year. The decrease of CHF 27 million or 5.8% in direct costs to CHF 440 million is due to the lower termination tariffs on mobile networks and lower costs for trade goods. Indirect costs were CHF 6 million or 0.7% lower at CHF 878 million. Excluding gains from the sale of real estate in the prior year, the decrease was 1.8% and is chiefly due to the lower headcount and lower costs for external employees. Headcount fell year-on-year as a result of efficiency measures by 698 FTEs or 4.3% to 15,719, including 157 FTEs in the first quarter of 2017. The segment result before depreciation and amortisation fell by CHF 26 million or 2.7% to CHF 928 million. Excluding gains from the sale of real estate in the previous year, the decline was 1.7%. A large proportion of the drop in revenue was offset by active cost management. Depreciation and amortisation remained relatively stable at CHF 367 million (+1.1%). Capital expenditure decreased as a result of delayed investments by CHF 67 million or 15.8% to CHF 357 million.

Fastweb

In EUR million, except where indicated   31.3.2017   31.3.2016   Change
Residential Customers   232   223   4.0%
Corporate Business   168   171   –1.8%
Wholesale   51   44   15.9%
Revenue from external customers   451   438   3.0%
Intersegment revenue   2   2  
Net revenue   453   440   3.0%
Segment expenses   (308)   (309)   –0.3%
Segment result before depreciation and amortisation (EBITDA)   145   131   10.7%
Margin as % of net revenue   32.0   29.8    
 
Capital expenditure   155   154   0.6%
Full-time equivalent employees at end of period   2,503   2,407   4.0%
Broadband access lines in thousand   2,400   2,241   7.1%
Mobile access lines in thousand   763   582   31.1%

Compared to the previous year, Fastweb’s net revenue rose by EUR 13 million or 3.0% to EUR 453 million. Despite a difficult market environment, Fastweb’s broadband customer base grew year-on-year by 159,000 or 7.1% to 2.4 million (+45,000 in the first quarter). Fastweb is also growing in mobile telephony. Compared to the previous year, the number of mobile access lines increased by 181,000 or 31.1% to 763,000 (+87,000 in the first quarter). Fierce competition reduced average revenue per residential broadband customer by almost 5% over the prior year. This decline was offset by customer growth. Revenue from residential customers rose accordingly by EUR 9 million or 4.0% to EUR 232 million. Despite the high level of competition, Fastweb held its strong position in the market for business customers. Revenue from business customers declined EUR 3 million or 1.8% to EUR 168 million. Revenue from wholesale business increased by EUR 7 million or 15.9% to EUR 51 million.

The segment result before depreciation and amortisation totalled EUR 145 million, corresponding to a year-on-year rise of EUR 14 million or 10.7%. This increase was mainly the result of higher revenue and improved regulatory conditions. The EBITDA margin rose by 2.2 percentage points to 32.0%. At EUR 155 million, capital expenditure was practically unchanged from the previous year’s high level. The ratio of capital expenditure to net revenue was 34.2% (prior year: 35.0%). Headcount at Fastweb rose by 96 FTEs or 4.0% to 2,503 FTEs, driven primarily by the appointment of external employees in the technical areas.

Other Operating Segments

In CHF million, except where indicated   31.3.2017   31.3.2016   Change
Revenue from external customers   122   120   1.7%
Intersegment revenue   65   50   30.0%
Net revenue   187   170   10.0%
Segment expenses   (147)   (136)   8.1%
Segment result before depreciation and amortisation (EBITDA)   40   34   17.6%
Margin as % of net revenue   21.4   20.0    
 
Capital expenditure   11   7   57.1%
Full-time equivalent employees at end of period   2,575   2,507   2.7%

The net revenue of the Other Operating Segments rose year-on-year by CHF 17 million or 10.0% to CHF 187 million. The increase was mainly due to higher revenue from construction services rendered by cablex for Swisscom Switzerland. The segment result before depreciation and amortisation increased accordingly by CHF 6 million or 17.6% to CHF 40 million, which corresponds to a profit margin of 21.4%. Headcount rose by 68 FTEs to 2,575 FTEs, driven primarily by the appointment of new employees at cablex.

Group Headquarters and reconciliation of pension cost

Operating income before depreciation and amortisation improved year-on-year by CHF 4 million or 13.3% to CHF –26 million. Headcount fell year-on-year by 10.2% to 282 FTEs.

An expense of CHF 20 million (prior year: CHF 18 million) is recognised as a pension cost reconciliation item under IAS 19 for the first quarter of 2017.