Bloomberg News

Swisscom First-Quarter Net Drops Less Than Analyst Estimates

May 02, 2012

Swisscom AG (SCMN), Switzerland’s biggest phone company, reported first-quarter profit fell less than analysts expected as new offerings offset price competition.

Net income declined to 453 million Swiss francs ($498 million) from 469 million francs a year earlier, the Bern-based company said today in a statement. Revenue fell 2.1 percent to 2.8 billion francs. Analysts surveyed by Bloomberg estimated net income of 437.6 million francs and sales of 2.79 billion francs.

“This set of results seems to indicate that the company has reached a near-bottom, with the Swiss business providing stability,” Saeed Baradar, a telecommunications sales specialist at Societe Generale, said in a note. “Defensive credentials are re-established and in my view a good place to hide in a sector which is in long-term structural decline.”

Swisscom is countering competition and declining revenue from traditional phone calls and text messages by adding customers and launching flat-rate and bundled offerings, such as Vivo Casa, which combines telephone, broadband and television services.

Swisscom rose 2.7 percent to 347.30 francs as of 10:08 a.m. in Zurich trading, giving the company a market value of 18 billion francs. The shares have dropped 2.3 percent this year compared with a 3.8 percent increase in the 20-stock Swiss Market Index.

Declining Revenue

In February, Swisscom predicted lower revenue in 2012 after posting its first quarterly loss in almost a decade on a writedown of Italian fixed-line unit Fastweb SpA. Swisscom, which bought Fastweb in 2007 to make up for slowing growth in Switzerland, has suffered from competition in Italy and a declining euro that hurts sales converted into francs. Almost half of the 4.3 percent decline in Swisscom’s revenue last year was caused by the weakening of the euro, the company said.

Swisscom has predicted that 2012 revenue will drop to 11.4 billion francs with earnings before interest, taxes, depreciation and amortization of 4.4 billion francs. Swisscom reiterated that if all 2012 targets are met, it plans to propose a dividend of 22 francs per share to be paid next year.

Swisscom’s domestic operations reported a 0.1 percent decline in revenue. Customer growth and new bundled offerings made up for the decline in revenue resulting from “intense” competition, pressure on prices and changes in the behavior of customer, the company said. Users are increasingly switching from traditional services such as phone calls and text messages to new IP-based applications and social media platforms, Swisscom added.

Price Erosion

The company said in February that customer growth and revenue from new businesses isn’t expected to fully offset price erosion caused by increased competition and regulation in 2012. A non-cash increase of about 70 million francs in pension costs will also weigh on Ebitda.

“At the moment we’re assuming that price erosion will be similar to last year, between 400 million francs and 500 million francs,” Chief Executive Officer Carsten Schloter said in a conference call today.

The customer base at Fastweb grew by 59,000 users to 1.65 million. Net revenue at the business fell 2.8 percent to 423 million euros ($559 million) due to a decline in low-margin wholesale revenue from interconnection services, known as hubbing.

“Customer acquisition in Italy was extremely strong,” the CEO said. “We won many more customers than we originally planned.”

Schloter said the company plans to increase the share of outsourcing at Fastweb, relying on external companies for functions such as customer care.

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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