Bloomberg News

Swisscom Falls on First Quarterly Loss Since 2002: Zurich Mover

February 21, 2012

Feb. 15 (Bloomberg) -- Swisscom AG, Switzerland’s biggest phone company, dropped 1.9 percent in Zurich after predicting lower revenue and an unchanged dividend for 2012 as it posted its first quarterly loss in almost a decade.

The fourth-quarter net loss was 835 million Swiss francs ($911 million) compared with net income of 389 million francs a year earlier, the company said today in a statement. It was the first three-month loss since 2002, according to data compiled by Bloomberg.

Swisscom said in December that 2011 net income would be cut by 1.2 billion francs because of a writedown on Italian fixed- line unit Fastweb SpA as the European sovereign-debt crisis and Italy’s worsening economy hurts the unit’s growth. Bern-based Swisscom has suffered from competition in Italy and a declining euro that hurts sales converted into francs.

Costs at Fastweb will be cut by 120 million euros ($158 million) in the next two years through “a variety of measures, such as bad debt management, organizational optimization and targeting the number of managers,” Chief Executive Officer Carsten Schloter said at a Zurich press conference today. There will be continued price decline in the Swiss market this year, he predicted.

Swisscom fell 7 francs to close at 360.60 francs, giving the company a market value of 18.7 billion francs. The shares have risen 1.3 percent this year.

Guidance Cut

“Continuing price erosion is not expected to be fully offset by customer growth and revenue from new business” in 2012, Swisscom said in today’s release. “In addition to the revenue-based decline in margins, a non-cash increase of around 70 million francs in pension costs is expected to contribute” to a reduction in earnings before interest, tax, depreciation and amortization.

“The market is very disappointed by the continual cut to guidance,” said Saeed Baradar, a telecommunications sales specialist at Societe Generale in London.

Fourth-quarter sales fell to 2.93 billion francs from 3.01 billion francs. Analysts surveyed by Bloomberg estimated a loss of 810 million francs and revenue of 2.9 billion francs.

The company predicted today that 2012 revenue will drop to 11.4 billion francs with Ebitda at 4.4 billion francs. That compares with 2011 sales of 11.5 billion francs and Ebitda of 4.58 billion francs.

Dividend Plan

Swisscom plans to increase its dividend on 2011 profit by 1 franc to 22 francs a share. If all 2012 targets are met, Swisscom plans to propose a dividend of 22 francs per share to the shareholder meeting in 2013 “despite the additional expenses arising in connection with mobile frequencies.”

To help Swisscom deal with the expenses of auctioned frequencies the dividend on 2012 profit won’t be raised, Schloter said in an interview.

“This expenditure will probably lead to an increase of our overall debt level and a company should not take debt in order to increase dividend,” Schloter said. “So it’s something exceptional for this year.” In future “the door for further dividend increases is definitely open.”

“Today, Swisscom’s future dividend policy has been revised to the downside,” analysts at Exane BNP Paribas, including Michael Zorko, wrote in a note.

Credit Checks

Swisscom projected capital expenditure of as much as 2.2 billion francs for 2012, increasing investment in the Swiss business by 100 million francs to 1.7 billion francs. This doesn’t include expenses from the mobile frequencies auction, it said.

In Switzerland “the trend towards bundled products and flat-rate tariffs continued” and mobile termination and data roaming rates were “significantly lower,” Swisscom said. Price erosion in the “Swiss core business” of 508 million francs was not fully offset by customer and volume growth of 404 million francs, it said.

Fastweb’s net revenue fell by 7.1 percent to 1.75 billion euros last year. Price pressure and measures to reduce bad debt losses weighed on Fastweb’s revenue. The company introduced stricter credit checks for new customers as price pressure remained strong due to “intense competition,” resulting in a 10 percent decline in revenue per broadband customer, it said.

Fastweb’s Ebitda is “set to rise slightly” in 2012, Swisscom said.

--Editors: Robert Valpuesta, Tom Lavell.

To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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