Swisscom AG · SIX:SCMN
Swisscom — Vontobel Conference 2012, Interlaken
14 slides from Swisscom's conference presentation, Jun 21, 2012
Slide 1: Swisscom “investing for sustainable returns”
Swisscom “investing for sustainable returns” Presentation for Vontobel Conference Carsten Schloter, CEO Swisscom Interlaken, 21 June 2012
Slide 2: 1. Big Picture – investing for sustainable returns
1. Big Picture – investing for sustainable returns 2 A. Telecoms is a fixed cost business • Capital intensive (Capex) • Low COGS, high fixed Opex E. D. To sustain is about B. Making money in fixed FCF generation • Willingness and financial supported by cost business is about ability to (continue to)
Slide 3: A. Telco, a fixed cost business - Capital intensive (Capex)
A A. Telco, a fixed cost business - Capital intensive (Capex) D E B C 3 Networks by definition constructed to cover an entire country and all inhabitants (pop) 297 16.5% CAPEX to Sales 13.9% CAPEX CHF/year 194 to Sales 121 61 CAPEX per Pop CAPEX per Customer Swisscom European Average Based on 2011 f
Slide 4: A. Telco, a fixed cost business - Capex & Opex at Swisscom
A A. Telco, a fixed cost business - Capex & Opex at Swisscom D E B C 4 Operating a network involves mainly fixed, and only limited variable, cash out CHF mm Swisscom Switzerland 3'500 Percentage of total cost in 2011 3'000 23% 30% 2'500 2'000 OPEX variable 1'500 OPEX fixed CAPEX 1'000 500 0 47% OPEX
Slide 5: B. Making money in a fixed cost business is about scale
A B. Making money in a fixed cost business is about scale D E B C 5 Critical mass is crucial with minimum amount of customers to breakeven (on basis EBITDA – Capex) in Switzerland probably at around 1 million # customers 14'000 2'800 FCF in CHF mm (subs for fixed, TV and mobile access incl. 12'000 2
Slide 6: B. Market share is crucial to generate significant FCF
A B. Market share is crucial to generate significant FCF D E B C 6 Correlation FCF and Market share in the Swiss market % market 80% share 70% 60% 50% 40% 30% 20% 10% 0% Swisscom Sunrise UPC Orange Cablecom Switzerland Based on 2011 figures fixed voice broadband mobile digital TV FCF Proxy % source:
Slide 7: B. Market share and FCF are correlated, also internationally
A B. Market share and FCF are correlated, also internationally D E B C 7 Blended market share in domestic operations versus FCF per pop and per customer FCF per customer FCF per POP blended market share FCF p.a. in CHF 600 65% weigthed avg Capex/pop 63% & Market share in % 500 53% 54% 51% 48% 48% 48
Slide 8: B. Investing for market share pays off – also longer term
A B. Investing for market share pays off – also longer term D E B C 8 Swisscom market shares “more than” stable, with gap towards avg. incumbent increasing Market share 70% 65% Blended weighted market share 60% Swisscom 55% 50% Blended weighted market share of average 45% incumbent 40% 2006 2007 200
Slide 9: C. Customers desire more predictable pricing (less variable)
A C. Customers desire more predictable pricing (less variable) D E B C 9 Do not fight customers’ desire to move away from metered revenues, but create bundles which compensate this Swisscom Switzerland without 2008 2011 In around 3 years wholesale CHF 5.5 bln CHF 5.6 bln ~ CHF 5.6 bln and roaming re
Slide 10: C. Scale and share require best pricing strategy & best network
A C. Scale and share require best pricing strategy & best network D E B C 10 Pricing differentiation can only be maintained through transparency and superior quality • Intuitive pricing should be on “speed” as experienced by customers, not on “data consumed”: the average customer has no idea how muc
Slide 11: D. To sustain is about ... capacity to invest
A D. To sustain is about ... capacity to invest D E B C Financial strength compared 11 Debt/interest ratios in 2011 Net debt and avg. cost of debt in 2011 Bubble size = OpFCF proxy in bn CHF* Net debt ** Net interest/ [bn CHF*] avg. net debt 8% Liberty Global** 35 7% 8.0% Net interest / OpFCF proxy
Slide 12: D. Finding the right mix of technologies to invest into
D. To sustain is about ... Finding the right mix of technologies A D E B to invest into – at the right time C Potential 12 Area Competition Current deployment technologies 0% VDSL 8-30 Mbps Top 20 Utilities FTTC/VDSL cities as partner 20-50 Mbps FTTH 100-1000 Mbps 30% Vectoring 50-100 Mbps Smaller V
Slide 13: E. Superior FCF generation from higher Capex and market share
A E. Superior FCF generation from higher Capex and market share D E B C Investments (Capex) done by definition to cover entire country, therefore should be 13 compared with other incumbents on a per pop basis CHF/pop EBITDA p. pop Capex p. pop FCF p. pop 600 498 400 194 304 315 CHF 182 extra FCF/pop
Slide 14: Conclusion – investing for sustainable returns
Conclusion – investing for sustainable returns 14 A. Telecoms is a fixed cost business E. D. To sustain is about FCF generation investing in right supported by B. Making money in fixed technology mix at the Capex, cost business is about right time – to drive Market share & scale and share Pricing po