Swisscom acquired Fastweb in spring 2007 to profit from the growth in the Italian broadband market through that company's modern fibre optic infrastructure, and thus to allow it compensate for the expected erosion in revenues and earnings in the Swiss business. Fastweb developed positively since the acquisition: in 2010, the company's revenues increased by roughly 50% to EUR 1.9 billion; during the same period, EBITDA adjusted for one-off items rose by more than 50% to approximately EUR 490 million.
In the wake of the sovereign debt crisis, Italy's economic situation has worsened in the last few months. Yields on government bonds have increased significantly, as have the spreads over the low-risk interest rates of the euro. High sovereign debt, weak economic growth, increasing unemployment and political uncertainty are risk factors which have impaired future growth and thus the company's value. In an impairment test for Fastweb, Italy's increased country risk premium was therefore accounted for through a supplement to the cost of capital and the company's growth outlook reduced.
The massive collapse of the euro has various additional financial implications on Swisscom. For instance, equity varies with the extent of the currency translation differences of its foreign subsidiaries. When the euro weakens, equity drops; when the Swiss franc weakens, equity increases. At the end of 2010, the reduction in equity amounted to approximately CHF 1.55 billion, and has remained virtually stable during 2011. These changes are recorded in the accounts and are not realised. They have no impact on Swisscom's net income.
In order to achieve its mid-term goals, Fastweb is being put on a solid basis once again with a focussed strategy and an updated business plan. The new business plan - following reduced revenues in the first two years - anticipates average annual revenue growth of 2.5% (previous year 5.1%) measured over the entire five-year planning period. Revenue drivers are the partnership with Sky, the higher quality of the services and the expansion of the mobile communications services. Increased efficiency coupled with cost reductions amounting to EUR 120 million over the next two years and a further reduction in losses from bad debts should also lead to an improved EBITDA margin of 34% by 2016. The first successes have already been achieved, with an improved collection of receivables and an increased market share of new subscriber growth. The plan additionally anticipates that, in the same period, the ratio of capital expenditure to revenues will drop below 18%.
The impairment at Fastweb will have no impact on dividend payments. At the upcoming Annual General Meeting, an increase in dividends by CHF 1.00 to CHF 22.00 per share is being proposed. In relation to Swisscom's current market capitalisation, this results in a dividend yield of approximately 6.5%. There are also no direct impacts on EBITDA, cash flow or net debt. The tax payments will be lower as an indirect effect. Swisscom has solid financing with a relatively high credit rating and low financing costs.
Alte Tiefenaustrasse 6
Postfach, CH-3050 Bern
Tel. +41 58 221 98 04
Fax +41 58 221 81 53