Swisscom Ag · SIX:SCMN
Swisscom — FY2002 Earnings Presentation
49 slides from Swisscom's earnings presentation, Mar 26, 2003
Slide 1: Analyst meeting: Annual results 2002
Analyst meeting Annual results 2002 “rock-solid-return(s)” 26 March 2003, Zurich 1
Slide 2: Cautionary statement regarding forward-looking statements
Cautionary statement regarding forward-looking statements ”This communication contains statements that constitute "forward-looking statements". In this communication, such forward-looking statements include, without limitation, statements relating to our financial condition, results of operations an
Slide 3: Agenda Analyst meeting, 26 March 2003
Agenda Analyst meeting, 26 March 2003 Starts Subject Speaker on Slide The Overview Jens Alder, CEO 4 Domestic wireline business Adrian Bult, • highlights 2002 CEO Swisscom 13 • the key questions & answers Fixnet Domestic wireless business Carsten Schloter, • highlights 2002 CEO Swisscom 22 • the key
Slide 4: The Overview
The Overview Jens Alder, CEO Swisscom 4
Slide 5: 2002 in review
2002 in review Key financials Key achievements in CHF mm 2002 change 1. leading telco in CH Net revenue 14,526 2.5% § Successfully defended strong market position § Launched several new products and price packages EBITDA 4,413 0.1% in wireline and wireless markets EBIT 1 2,408 7.7% § On track with o
Slide 6: Swisscom introduces new Return Policy to shareholders
Swisscom introduces new Return Policy to shareholders from “dividend policy” to “return policy” returning the full annual equity free cash paying approx. half of adjusted net flow (EFCF) to shareholders, through: income + opportunistic return of • dividends funds through share buy back • par value r
Slide 7: New Return Policy - reflects strategy
a New Return Policy - reflects strategy Strategy Implication Return policy 2002 (definition of EFCF) 1 + EBITDA + 4,413 - CAPEX - 1,222 Leading multi service Optimise cash flow +/- working cap. D + 2 telco in Switzerland from current business - tax (cash) - 537 - net interest - 78 - minorities - 304
Slide 8: New Return Policy - ties in strategic flexibility and capital structure
b New Return Policy - ties in considerations of strategic flexibility and capital structure 1. leading telco in CH: optimise cash from current business § Return Policy takes it from cash flow perspective. Current business cash flows are higher than profits mainly due to fact that depreciation charge
Slide 9: New Return Policy and financial year 2002: better yield than dividends
c New Return Policy and financial year 2002: offers better yield than dividends only can do Return policy 2002 Remarks EFCF available to + 1,182 shareholders in t+1 CHF 12/share compares to CHF 11 for 2001, and represents 60% of adjusted net income. Higher Proposed to AGM to Size: dividend also poss
Slide 10: New Return Policy - builds on strong outlook
d New Return Policy - builds on strong outlook Return Policy 2002 Outlook 2003 Remarks + EBITDA + 4,413 + 4.4 - CAPEX - 1,222 - 1.2 Taxes payable in 2003 are expected to be +/- working cap. D + 2 + positive substantially lower due to loss-carry- - tax (cash) - 537 - lower forward and timing effects.
Slide 11: Update on the quest for acquisitions
Update on the “quest for acquisitions” Criteria Explanation Rationale Focus on sustainable cash flow What is the uniqueness of sustainability generation and accretion the constellation? to group cash flows what makes Swisscom a better investor than a financial Potential synergies, and ability invest
Slide 12: In summary: Your bets when investing in Swisscom
In summary Your 3 “bets” when investing in Swisscom 1. leading telco in CH Swisscom is able to sustain strong annual equity free cash flows - through continued strong operational performance 2. intelligent investor Swisscom doesn’t have a long term strategic (scale) problem if it doesn’t acquire, an
Slide 13: Domestic wireline business
Domestic wireline business Adrian Bult, CEO Swisscom Fixnet 13
Slide 14: Highlights 2002
Highlights 2002 Key financials Fixnet Key achievements FX in CHF mm 2002 change § Stabilised overall market share after Net revenue 1 6,443 (2.2%) renumbering at 59% EBITDA 1,903 (4.3%) § Reduced FTE’s by 7%, costs by 1% and EBITDA margin 29.5% (2.3%) CAPEX by 2% while increasing EBIT 848 (6.7%) inv
Slide 15: Significant retail traffic reduction through renumbering and market reduction
Q1. Overall volume development? Significant retail traffic reduction through renumbering and market reduction Change in retail traffic volumes of FX+ES (in mm minutes) § Decline in local and DLD traffic – New renumbering introduced 25,178 - 10% in April 2002 - one off effect -2’067 (1,000mm) +661) -
Slide 16: Overall mobile impact on wireline revenues neutral
Q2. Fixed-to-Mobile substitution? Overall mobile impact on wireline revenues neutral Estimated impact of Mobile on FX + ES national retail traffic 1 National traffic volumes (in mm minutes) § Loss of ca. 1.5% access lines due 73 (7) to hard mobile substitution (largely (72) line cancellation) – Esti
Slide 17: Cablecom's recent Voice offer appears quite attractive
Q3. Voice over Cable? Cablecom’s recent Voice offer appears quite attractive as first line offer Strong growth of broadband in 2002 Comparison of Cablecom to FX offers 2 Registered broadband HH One Line Two Lines 197% 455 k Add-on to existing § -18% § -23% Other Cable Cable BB-offer 125 ISPs 1 Combi
Slide 18: ADSL expected to be cash flow positive from 2004/2005
Q4. ADSL business case? ADSL expected to be cash flow positive from 2004/2005 Background Business case characteristics § Recurrent ARPU/Subs1) (CHF/month): § Swiss market characterised by aggressive growth in broadband market. Swisscom – around CHF 49 on a standalone basis – around CHF 31 on a net b
Slide 19: Swisscom and regulation: general overview
Q5. Swisscom and regulation? A. General overview New regulatory obligations in 2002 Important legal proceedings in 2002 § USO ‘03-’07; price ceiling access/traffic § Cost-orientation of IC-charges § Numbering plan and local CPS § ADSL WS-pricing and cross subsidies § Lawful interception § Mobile ter
Slide 20: Swisscom's position on Swiss regulation
Q5. Swisscom and regulation? B. Where does Swiss regulation differ from the rest of Europe? Ex-post type of regulation instead of ex-ante regulation as in Europe No ULL in Switzerland Swiss regulator wanted to have ex-ante Situation Regulator wants to introduce all forms of regulation introduced. Sw
Slide 21: Outlook Swisscom Fixnet
Q6. Outlook Swisscom Fixnet? § Increasing regulatory pressure Key § Increasing mobile substitution Trends § Continued Broadband growth § Secure leading position in voice § Continued cost reductions: Strategy platforms and products § Continued broadband push § EBITDA-Margin at 30% Targets § Improved
Slide 22: Domestic wireless business
Domestic wireless business Carsten Schloter, CEO Swisscom Mobile 22
Slide 23: Key financials and achievements
Key financials and achievements Key financials Key achievements in CHF mm 2002 change § Grew revenues by 3.2% to CHF 4,1bln Total subscribers (mm) 3.6 6.9% while Swisscom Mobile market share ARPU (CHF/month) 86 -4.4% remained constant at 65% 1 Net revenue 4,112 3.2% § Increased EBITDA by 5.2% to alm
Slide 24: Operational development: ARPU
Q7. Operational development? ARPU development Comments § Market penetration in CH reached 77.5% at 180 Total Postpaid Prepaid YE 2002 154 160 § Market gross adds reduced to 1.6mm, of 140 130 126 which Swisscom Mobile achieved over 50% 121 CHF per month 120 105 § Swisscom Mobile’s successful retentio
Slide 25: Update on partnership with Vodafone
Q8. Update on partnership with Vodafone? § Enlarged operative co-operation and collaboration – active use of global purchasing agreements – complete integration into operative and financial benchmarks – extensive management and specialist training and development – governance through Supervisory Boa
Slide 26: UMTS roll out advancing faster than competition
Q9. Update on roll out UMTS / WLAN? Comments Investments § UMTS network rollout on track § CHF 113mm cumulative investment by end § Rollout based on an aggressive site of 2002 - license inclusive acquisition § CHF 350 mm further capital expenditure – Original license obligation of 20% planned until
Slide 27: Outlook Swisscom Mobile
Q10. Outlook Swisscom Mobile? Key § On-going pressure on voice ARPU, continued growth in Data trends § Emphasis on go to market for new products (e.g. MMS, Mobile Office solutions, WLAN, third parties B2B2C) § Key regulatory issues: mobile termination costs and NISV § Extend USP’s (Network Quality,
Slide 28: Other businesses
Other businesses Mike Shipton, CSO Swisscom 28
Slide 29: Key financials and achievements - debitel
Key financials and achievements - debitel Key financials - debitel Key achievements in CHF mm 2002 change § Robust performance Total subscribers (mm) 10.1 0.6% – 8%-revenue2 increase (driven by all 1 ARPU (€/month) 17 2.8% countries) 2 Net revenue 4,111 8.0% – further cost savings realised EBITDA 2
Slide 30: Swisscom and Debitel
Q 11: Swisscom and Debitel? 1999 - Swisscom acquires majority in 2003 - Swisscom holds majority in Debitel - Debitel - for strategic reasons as important financial stake Rationale: Implications (2): § acquire UMTS license in Germany § Swisscom has to treat Debitel as any other § turn Debitel into an
Slide 31: Key financials and achievements - segment Other
Key financials and achievements - segment Other Key financials - segment Other Key achievements in CHF mm 2002 change Swisscom IT Services: External revenue 833 12.3% § Completed PMI process with AGI § Successfully positioned IT Services brand of which Systems 406 (14.7%) in the Swiss IT Market of w
Slide 32: Impact of general economic development on the business
Q12. How is the general economic development impacting your business? Overall economic environment Impact and outlook for Swisscom § Slow economic recovery with modest § Residential Market: Revenues in fixed- but robust GDP growth - small line and mobile more protected against improvement for 2003 a
Slide 33: Outlook Swisscom IT Services and Swisscom Systems
Q13. Outlook Swisscom IT Services and Swisscom Systems? Swisscom IT Services and Swisscom Systems § Decline in demand for network and telephony equipment § Delay of new investment in telecom and IT systems due to economic climate Key trends § Market growth below expectations mainly due to pricing pr
Slide 34: Options for product bundling
Q14. How do you look at options for product bundling? Residential: price bundles Corporate: solution bundles § Swisscom well positioned to provide § Corporate customers demand for bundles as market leader in fixed and integrated solutions including e.g. voice, mobile telephony but considers bundles
Slide 35: CAPEX profile
Q15. How does your CAPEX-profile look? CAPEX development Background Other Swisscom Mobile § 80% of CAPEX in the Fixnet and Mobile segment 1500 Swisscom Fixnet § Fixnet: CHF 585mm (-2% YOY) – CAPEX in new businesses and capacity (in CHF mm) 1000 322 245 extension represent 60-65% of total with 315 39
Slide 36: Group financials 2002
Group financials 2002 Ueli Dietiker, CFO Swisscom 36
Slide 37: Key figures and financial highlights
Key figures and financial highlights Key figures Financial highlights in CHF mm 2002 change § Revenue development inline with expectations Net revenue 14,526 2,5% § Solid EBITDA performance: CHF 4,4bln EBITDA 4,413 0.1% § EBIT grew by 7.7% mainly due to lower 1 depreciation and amortisation EBIT 2,4
Slide 38: External revenue development
External revenue development (in CHF mm) net revenue ´02 14,526 debitel Other 14,500 303 Corporate net revenue ´01 91 Mobile ES (16) 14,174 128 (121) 14,000 Fixnet (33) 13,500 +352 [+2.5%] 0 in CHF mm Fixnet Mobile ES debitel Other Corporate Net revenue 2001 4,921 3,127 1,486 3,808 742 90 14,174 200
Slide 39: Cost overview
Cost overview 2001 2002 (in CHF mm) Goods and services 4,959 purchased 4,513 2,593 Personnel expenses 2,461 Other operating 2,827 expenses 3,004 1,578 Depreciation 1,702 427 Amortisation 472 0,000 1,000 2,000 3,000 4,000 5,000 Compared to 2001, almost unchanged level of total OPEX 39
Slide 40: Group EBITDA development
Group EBITDA development (in CHF mm) 4,500 EBITDA ´01 Mobile ES EBITDA ´02 98 (46) debitel Other 4,413 4,409 4,400 (28) (25) Fixnet Corporate 4,300 (86) 91 +4 [+0.1%] 0 in CHF mm Fixnet Mobile ES debitel Other Corporate EBITDA 2001 1,989 1,876 114 187 136 107 4,409 2002 1,903 1,974 68 159 111 198 4,
Slide 41: Reported net income
Reported net income (in CHF mm) 2001 2002 EBIT excluding exceptional items 2,235 2,408 Exceptional items 1 3,275 (702) EBIT including exceptional items 5,510 1,706 Net financial result (355) (311) Income before income taxes, equity in net income of affiliated companies and minority interest 5,155 1,
Slide 42: Adjusted net income
Adjusted net income (in CHF mm) 2001 2002 Net income 4,964 824 Impairment of debitel goodwill 1,130 702 Gain on sale of real estate portfolios (568) Gain on partial sale of Swisscom Mobile (3,837) Tax effect on exceptional items, net (515) (207) Adjusted net income 1,174 1,319 Number of shares (in m
Slide 43: Reconciliation: loss under US GAAP from new impairment rule
Reconciliation: loss under US GAAP resulting from new rule on impairment accounting under IAS under US GAAP P+L impact (in CHF mm) Goodwill Goodwill Customer list delta US GAAP to IAS Balance at YE '01 2,085 2,648 174 Impairment because of new US GAAP standard (1,636) (1,636) Additions (28) 4 8 Amor
Slide 44: Group capital structure
Group capital structure (in CHF mm) 31.12.2001 31.12.2002 Short term debt 1,757 1,016 Long term debt 2,413 1,505 Interest bearing debt excl. finance lease 4,170 2,521 Long term net finance lease obligation 1,330 1,192 Less: financial assets from lease-and-leaseback transactions (1,295) (1,104) Less:
Slide 45: Effective distributable reserves increased
Q16. What’s the situation with your distributable reserves? Shareholders' non- distri- Share (in CHF mm) equity distributable butable capital Swisscom AG reserves reserves 31.12.2001 8,013 1,250 250 6,513 Dividend, PVR and SBB paid in 2002 (5,521) (654) (131) (4,736) Net income under Swiss GAAP 1,59
Slide 46: Pension fund: facts at YE 2002
Q17a. Pension fund: facts at YE 2002? comPlan The pension fund under IAS the pension fund of SCM Inflation-linked Unrecognized rises, PKB actuarial losses Other effects Inflation-linked Unrecognized rises, comPlan Early prior service Future retirements cost salary Balance increases sheet under-fundi
Slide 47: Pension fund: implications
Q17b. Pension fund: implications? § From the difference under IAS between the PV of funded obligations and the fair value of plan assets, legally only the under-funding of CHF 304mm determined by Swiss pension regime requires further financing measures § There are different ways to finance the under
Slide 48: Outlook - striving for CHF 4,4bn EBITDA
Q18. Overall outlook? Revenues¹ EBITDA¹ issues/remarks issues/remarks n Unified tariffs & avg. market n Cost control (incl. restructuring) share development Fixnet - n Local CPS as of 1.4.02 - follows at slower pace than revenue decline n F2M, ADSL n Stabilise margin as % n Data and VAS n Retention
Slide 49: Thank you for your attention! Questions & Answers
Thank you for your attention! (Other) Questions & Answers For further information, please contact: Swisscom - Investor Relations phone +41 31 342 2538 fax +41 31 342 6411 or visit our homepage: www.swisscom.com/ir 49