Results of operations

Income statement

In CHF million, except where indicated   2016   2015   Change
Swisscom Switzerland   9,374   9,475   –1.1%
Fastweb   1,948   1,862   4.6%
Other Operating Segments   320   340   –5.9%
Group Headquarters   1   1   0.0%
Revenue from external customers   11,643   11,678   –0.3%
Swisscom Switzerland   3,686   3,601   2.4%
Fastweb   721   619   16.5%
Other Operating Segments   94   69   36.2%
Group Headquarters   (114)   (117)   –2.6%
Reconciliation pension cost 1   (72)   (60)   20.0%
Intersegment elimination   (22)   (14)   57.1%
Operating income before depreciation and amortisation (EBITDA)   4,293   4,098   4.8%
Net revenue   11,643   11,678   –0.3%
Goods and services purchased   (2,323)   (2,342)   –0.8%
Personnel expense   (2,947)   (3,019)   –2.4%
Other operating expense   (2,548)   (2,697)   –5.5%
Capitalised costs of self-constructed assets and other income   468   478   –2.1%
Operating expenses   (7,350)   (7,580)   –3.0%
Operating income before depreciation and amortisation (EBITDA)   4,293   4,098   4.8%
Depreciation, amortisation and impairment losses   (2,145)   (2,086)   2.8%
Operating income (EBIT)   2,148   2,012   6.8%
Net interest expense   (155)   (189)   –18.0%
Other financial result     (83)   –100.0%
Share of results of associates   (3)   23    
Income before income taxes   1,990   1,763   12.9%
Income tax expense   (386)   (401)   –3.7%
Net income   1,604   1,362   17.8%
Share of net income attributable to equity holders of Swisscom Ltd   1,604   1,361   17.9%
Share of net income attributable to non-controlling interests     1   –100.0%
Average number of shares outstanding (in millions of shares)   51.800   51.802   0.0%
Earnings per share (in CHF)   30.97   26.27   17.9%
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.
Operating results
Net revenue

Swisscom’s net revenue declined by CHF 35 million or 0.3% year-on-year to CHF 11,643 million, of which Swisscom Switzerland accounted for 81%, Fastweb for 17% and Other Operating Segments for 2%. At constant exchange rates and excluding company acquisitions and disposals, Swisscom’s net revenue decreased by CHF 55 million or 0.5%. Revenue from external customers at Swisscom Switzerland contracted by CHF 101 million or 1.1%, due primarily to lower revenue from telecommunications services. By contrast, the revenue of Italian subsidiary Fastweb increased on the back of customer growth by EUR 59 million or 3.4% to EUR 1,795 million (measured in local currency). Adjusted for the sale of companies, the net revenue from external customers of Other Operating Segments was CHF 9 million or 2.9% higher due to a rise in construction services performed by cablex. At Swisscom Switzerland, the number of revenue generating units (RGU) dropped by 96,000 or 0.8% to 12.4 million as a result of market saturation. The increase in Swisscom TV and broadband was offset by a decline in connections for fixed-line telephony. The number of mobile lines remained on a par with the previous year. The number of Fastweb broadband customers rose by 154,000 or 7.0% to 2.4 million.

Operating expense

Operating expense of Swisscom fell by CHF 230 million or 3.0% year-on-year to CHF 7,350 million. The prior year’s operating expense included the recognition of provisions for the ongoing Competition Commission proceedings on broadband services (CHF 186 million) and for headcount reduction (CHF 70 million). Adjusted for these provisions and other non-recurring items such as gains from the sale of real estate, non-cash pension expenses in accordance with IAS 19, compensation from legal proceedings, company acquisitions and disposals and the provisions created in 2016 for termination benefits and regulatory risks, and on the basis of constant exchange rates, operating expense remained stable. Higher costs at Swisscom Switzerland for subscriber acquisition and retention activities and higher costs in the solutions business for corporate customers and in relation with the parallel operation of networks were offset by cost savings of CHF 50 million as a result of efficiency gains.

Operating income before depreciation and amortisation (EBITDA)

Operating income before depreciation and amortisation (EBITDA) was CHF 195 million or 4.8% higher at CHF 4,293 million. In the previous year in particular, one-off expenses significantly impacted operating income. On a like-for-like basis, EBITDA fell by CHF 54 million or 1.2%. At Swisscom Switzerland, the adjusted decline amounted to CHF 125 million or 3.2% and was attributable to a drop in revenue from telecommunications services and to higher costs for subscriber acquisition and retention. At Fastweb, EBITDA rose by EUR 45 million or 8.0% on a like-for-like basis, mainly due to higher revenue as a result of customer growth. On an adjusted basis, Swisscom’s profit margin decreased 0.3 percentage points to 36.9%.

Depreciation and amortisation, non-operating results
Depreciation, amortisation and impairment losses

Swisscom’s depreciation, amortisation and impairment losses increased by CHF 59 million or 2.8% to CHF 2,145 million year-on-year, mainly reflecting an increase in depreciation and amortisation at Swisscom Switzerland because of the high level of capital expenditure. Intangible assets resulting from business combinations were capitalised for purchase price allocation purposes. Depreciation and amortisation includes scheduled amortisation of intangible assets deriving from business combinations (e.g. brands and customer relationships) totalling CHF 104 million (prior year: CHF 125 million).

Net interest expense and other financial result

Net interest expense declined by CHF 34 million to CHF 155 million as a result of lower average interest costs. The other financial result for 2016 was a break-even result after posting a net expense of CHF 83 million in the previous year. In 2016, the other financial result included a gain of CHF 41 million from the sale of associate Metroweb S.p.A. The prior-year other financial result includes foreign exchange losses of CHF 40 million due to the Swiss National Bank’s lifting of the minimum exchange rate.

Investments in associates

The share of results of associates primarily involves Belgacom International Carrier Services Ltd, siroop Ltd, Zanox AG and Admeira Ltd. The result includes the initial costs for companies currently being built up. Dividends of CHF 17 million (prior year: CHF 22 million) mainly resulted from dividend payments made by Belgacom International Carrier Services Ltd.

Income tax expense

Income tax expense was CHF 386 million (prior year: CHF 401 million), corresponding to an effective income tax rate of 19.4% (prior year: 22.7%). The above-average income tax rate in 2015 is mainly attributable to the fact that no income tax effects were recognised on the provision created in 2015 for the ongoing Competition Commission proceedings regarding broadband services. Excluding non-recurring items, Swisscom expects the income tax rate to remain around 21% in the long term.

Net income

Net income increased by CHF 242 million or 17.8% to CHF 1,604 million year-on-year, largely due to non-recurring items. Earnings per share increased accordingly from CHF 26.27 to CHF 30.97.