1 Changes in accounting principles
As of 1 January 2019, Swisscom adopted various amendments to existing International Financial Reporting Standards (IFRS) and Interpretations; with the exception of the changes described below, these have no material impact on the results or financial position of the Group.
IFRS 16 Leases
IFRS 16 (applicable from 1 January 2019) replaces IAS 17, IFRIC 4 and SIC 27 and lays down the principles governing the recognition, measurement and disclosure of leases. IFRS 16 provides a single lessee accounting model. The differentiation between finance and operating leases required until now under IAS 17 is thus dropped in future for the lessee. The lessee recognises leasing liabilities in its balance sheet for all future lease payments to be made as well as a right to use the underlying asset. In future, depreciation and amortisation and interest will be recognised in the income statement instead of rental expense. This will lead to a material increase in operating income before depreciation, amortisation and impairment losses. In the statement of cash flows, the share of the lease payments representing amortisation under the leases to be accounted for under the new rules will reduce cash flows from financing activities and no longer cash flows from operating activities, as previously. Interest payments will continue to be reported as cash flows from operating activities. As regards lessors, they will continue to differentiate between finance and operating leases for financial reporting purposes. In this regard, the accounting model foreseen under IFRS 16 does not materially differ from the previous provisions under IAS 17.
Swisscom has elected to apply the modified retrospective approach for the initial adoption of IFRS 16. For reasons of simplicity, a reassessment as to whether a contract as of 1 January 2019 constitutes or includes a lease was dispensed with. The payment obligations arising under the operating leases disclosed in note 2.3 of the 2018 Annual Report for the most part comprise leasing payments from the rental of operation and office buildings as well as of antenna sites. The net present value of the payment obligations arising from current operating leases will be accounted for as a lease liability. The corresponding right-of-use assets are recognised in the amount of the lease liabilities. The reconciliation of payment obligations from operating leases as at 31 December 2018 for initial recognition as at 1 January 2019 is as follows:
| In CHF million | 1.1.2019 | |
|---|---|---|
| Obligations from operating leases as at 31 December 2018 | 1,298 | |
| Lease contracts and options previously not taken into account | 102 | |
| Discounting | (86) | |
| Carrying amount of finance lease liabilities as of 31 December 2018 | 384 | |
| Lease liabilities as of 1 January 2019 | 1,698 |
The lease liabilities were discounted using the incremental borrowing rate of interest applicable as at 1 January 2019. The weighted average interest was 0.6%. The impact of the first-time adoption of IFRS 16 on the balance sheet as at 1 January 2019 was as follows:
In CHF million |
31.12.2018 |
Application IFRS 16 |
1.1.2019 |
|||
|---|---|---|---|---|---|---|
| Property, plant and equipment | 10,894 | (281) | 10,613 | |||
| Intangible assets | 1,858 | (88) | 1,770 | |||
| Right-of-use assets | – | 1,683 | 1,683 | |||
| Other financial assets | 421 | 78 | 499 | |||
| Other assets | 9,413 | – | 9,413 | |||
| Total assets | 22,586 | 1,392 | 23,978 | |||
| Financial liabilities | 8,167 | (306) | 7,861 | |||
| Lease liabilities | – | 1,698 | 1,698 | |||
| Miscellaneous liabilities | 6,211 | – | 6,211 | |||
| Total liabilities | 14,378 | 1,392 | 15,770 | |||
| Total equity | 8,208 | – | 8,208 | |||
| Total liabilities and equity | 22,586 | 1,392 | 23,978 |
From the first-time adoption of IFRS 16 as at 1 January 2019, additional right-of-use assets and lease liabilities amounting to CHF 1,314 million are recognised. The prior year’s comparative figures were not restated. The adoption of IFRS 16 has no impact on equity as of 1 January 2019. With regard to the 2018 financial year, the application of IFRS 16 would have led to an increase in operating income before depreciation, amortisation and impairment losses (EBITDA) of some CHF 0.2 billion and to higher depreciation and amortisation as well as interest expense of a combined aggregate amount of some CHF 0.2 billion. In addition, because SIC 27 no longer applies, other financial assets and financial liabilities previously not recognised in the balance sheet amounting to USD 79 million (CHF 78 million) are recognised. The Italian subsidiary, Fastweb, procures various access services from other fixed-network operators for the use of access lines to the end customer. A part of these access services is now classified as leases in accordance with IFRS 16. The value of the individual access lines fulfils the criterion as an asset of low value. Swisscom will apply the low value exemption of IFRS 16 for these leases. Accordingly, no right-of-use assets and lease liabilities will be recognised for these access services, the costs of which will continue to be reported as operating expense.