Swisscom AG (SCMN) Earnings Call Transcript

Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q2 2026 results hosted by Christoph Aeschlimann, Eugen Stermetz and Louis Schmid. Louis, the floor is yours.

Can you hear me now? Can you hear me?

Yes, we can hear you. it's fine. Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q2 2026 results hosted by Christoph Aeschlimann, Eugen Stermetz and Louis Schmid. Louis, the floor is yours.

Good morning, ladies and gentlemen, and also a warm welcome from our side to Swisscom's Q2 2026 Results Presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Christoph Aeschlimann; and Eugen Stermetz, our Chief Financial Officer. Let's now move to Page #2 with the agenda of today. As you can see, our CEO starts the presentation with Chapter 1 achievements, a quick overview on the Q2 highlights, the operational and financial performances of the second quarter. Then in Chapter 2, Christoph presents the business update for Switzerland and Italy. In the second part of today's presentation, our CFO, Eugen runs you through Chapter 3 with our Q2 financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his presentation. Christoph?

Thank you, Louis. Welcome to the Q2 call also from my side. I'll start directly on Page #4 with the quarter highlights. You have seen from the numbers that we delivered a solid performance, and we are operationally and financially on track. I'm very pleased with the first half year results. And based on these results, we have also confirmed the full year guidance. In Switzerland, we were able to again win the Mobile Connect hotline test, and we managed to secure the Champions League rights until 2030, which further strengthens our entertainment offering in Switzerland. We also announced a couple of management changes in Switzerland. We decided to put in place a dedicated Swiss CEO and CFO. All positions have been nominated by internal successors, ensuring continuity and allowing more focus on the Swiss market and the ongoing AI-based transformation in Switzerland. We also nominated a successor of the B2C business with Michel Siegenthaler, who is a long-standing member of the B2C management team. And also on that side, we have ensured continuity and full focus on executing our current strategy. As a group CEO, I will continue to provide strategic leadership across Switzerland and Italy, and Eugen will hold overall financial responsibility for the group as Group CFO. Our strategy remains exactly the same and is unchanged, both for Switzerland and for the whole group of Swisscom. Now moving to Italy. We are fully on track on the integration, integrating Vodafone Italia into Fastweb and synergy realization is going on faster as planned, and we are ahead of budget and plan on the integration side. We're also leading with innovation in Italy. We launched numerous products, one which is noteworthy is ROSS, our AI app for consumers, and we also enhanced the energy portfolio, and I will talk a bit more about energy later on during the call. Now moving on to Slide #5. You can see the Q2 financials have a consistent operating free cash flow increase, reaffirming our full year guidance. Revenue is still slightly down by 2%, posting CHF 3.6 billion in revenue, driven by lower service revenue, both in Italy and Switzerland and lower hardware in Italy. And Eugen will give a bit more color on the revenue development later on in the presentation. EBITDAL is up 6.1% to CHF 1.269 billion, driven by synergies in Italy and strong cost savings in Switzerland. We had seasonally lower CapEx, down minus 6.3%, leading to a high growth on operating free cash flow with CHF 608 million, which is up 23.9% compared to previous year-on-year comparison. On the right-hand side, you can see the operating free cash flow bridge, which I will not comment as Eugen will go into detail through these numbers later on in the finance section. But overall, I think we can say that we are very pleased with the Q2 and H1 results, posted a solid and good performance in the first 6 months of 2026. I will now provide an update on our business in Switzerland and Italy. As you know, we have clear priorities to grow the free cash flow by ensuring stable free cash flows from Switzerland. So I'm now on Page #7. ensuring the free cash flows or stable free cash flow, sorry, in Switzerland, we do this by managing 3 things. First, managing the telco top line. We are working on boosting efficiency and delivering cost savings and achieving profitable IT growth in B2B space. Second, we are ensuring growing free cash flows from Italy. This is achieved by 3 actions: driving the integration and delivering the synergies, delivering the telco turnaround, specifically on the B2C side and also growing IT business, but also the energy business in Italy. And I will now go into a bit more details how we are doing according to these 3 objectives, both in Switzerland and in Italy. Now diving into Switzerland, we start with B2C on Page #8. You can see that we are operationally on track, and we have successfully implemented the price increase. As you can see on the right-hand side, this has led to a temporary increase in churn numbers in Q1. And this churn is now coming down again to, let's say, the seasonally normal churn figures. You can see that in Q2, churn has come down substantially. It is still slightly elevated to the historical churn levels, but we are confident that churn will now normalize over the coming quarters in 2026. We still had some negative impact on the RGU side, especially on broadband, while the mobile side is working quite nicely with plus 10,000 RGUs in Q2. Broadband was also better than Q1, but still slightly negative with minus 8,000. And we will -- this will be one of our main priorities going forward, working on making sure that also on the broadband side, we can achieve stability on the RGU side. This will require additional measures on the Wingo side as we want to strengthen Wingo also as a broadband provider. This is one of the reasons why we launched the Wingo brand refresh to position Wingo more strongly in the market. And we also executed a price increase on the Wingo side with a more-for-more approach with plus CHF 1 from September 1 going on. And we did the same on the Micro mobile side on our third brand. So you can see that we are working on various levers to improve the service revenue evolution and make sure that we deliver the most value out of the B2C business. Another important pillar next to service revenue is working on all the value-added services. So we are very pleased that we were able to confirm or continue to work together with UEFA Champions League until the end of the decade, which strengthens our blue TV proposition. But also, we see very good momentum on the security side with strong net adds and also the AI proposition for consumers is developing a very positive traction overall. And we will continue to invest both on the AI and security side as this is important to positively impact ARPU over time and counteract the brand switches and deliver new revenues overall for our B2C business. Maybe one last comment before we move on, on the ARPU side, you can see that ARPU is slightly up, impacted positively on the one side by the price increase of own brands and then some negative effects due to continued brand switching from own brands to Wingo. But overall, you can see that for this quarter, we had a positive impact roughly driving up ARPU CHF 1, both on mobile and on wireline. Now I'm moving on to B2B, where we -- starting with the telco business. The operational trends are roughly in line with what we've seen in previous quarters. So losing RGUs, both on mobile and on broadband, while ARPU is also slightly up also due to selected pricing measures that we took in the past quarters. So it's sort of stable, slightly improving on the ARPU side, but still negative on the net add side. So one of our main focus in B2B is also working on the RGU side, making sure that we stop the continued loss of connections. We do this by working on several aspects. First, we do a lot of actions on the customer value management, increasing retention and value realization, especially on the SME side. We are executing numbers -- numerous activities. We are scaling up further the sales of beem. So basically delivering more value and different products to our customers on the security side to make sure that our offers are more sticky, combining security with connectivity. And we are also working on strengthening our partner strategy, especially in the mid-market to further scale Beam and the IT platform reselling. Maybe one note on beem. We see quite positive numbers on the growth side of beem. The mobile business is delivering very well. We already have over 100,000 users. And on the broadband side, pickup is also -- is picking up, slightly lower numbers with 1,200 locations being secured. And we are -- we will continue to focus on the Beam scale-up in the ongoing quarters this year and especially also next year as we believe that secure -- delivering secure connectivity will be one of the key topics going forward in the B2B space. On the IT side, there is a bit light and shadow. On the one side, we have a softer revenue top line, mainly driven by lower volumes for workplace and UCC, which we were not able to compensate with the higher demand that we see for sovereign cloud and AI. So overall, slightly lower revenues. And we expect this to continue for the full year. Probably IT service revenue will come in slightly lower on a full year basis than last year as also the market is quite demanding at the moment. So we decided to focus on the profitability improvement and making sure that we can deliver more EBITDAaL despite softer revenues. And you have -- you can see that already in Q1 and Q2, we were able to deliver an increased profitability with strict cost discipline and better project execution, and we expect this to continue also on a full year basis, bringing up profitability of the IT business to a much better and more profitable level. At the same time, we are also working on new growth avenues for B2B. So we are further investing in the Swiss AI assistant as we see increased demand on the AI front, especially in the SME, but also the corporate side. And we are working on many opportunities in the defense sector, where we have a lot of multiyear contracts in place now, which should allow us to give new growth going on coming in the coming years. Now moving on to network and wholesale on Page 10. You can see that we continued fully cloud-enabled positively is, I think, positive news we have on the wholesale front. So you can see that we have consistent RGU growth on the broad side, again, plus 14,000 net adds, exactly the same as in Q1. So we have substance potentially better and higher run rate now than in 2025. Savings. So we are [indiscernible] late the Q2 now. We also announced the opening gives us more flexibly I will now [indiscernible] million for the first half. So we are fully on track to deliver this CHF 300 million is going as planned. And at the same time, I think to generate more growth at [indiscernible]. So overall, we [indiscernible] under the Fastweb and Vodafone umbrella and a more small [indiscernible]. We now have 141,000 [indiscernible] continue to maximize value in [indiscernible] is quite challenging at the moment. Services, where we see very good demand to strengthen our server plus coverage is up 3%, standing exactly at [indiscernible] pilot with rural areas. So this is a technical pilot. It's delivering encouraging results, but still a lot of work required and also regulatory approvals required to be able to launch this as a full commercial offering. Now some words on the development of the [indiscernible] effect of roughly 2.6 million [indiscernible] and other MVNOs, but still we have a net reduction of RGUs by minus 2.3 million. This net reduction will continue [indiscernible] that will be migrated away from our network -- investment on the network -- mobile network side due to less SIMs on the network. On the other side, broadband is developing very positively. You see plus 49,000 net adds plus 22% on a year-on-year basis. driven by solid demand and expanded partners in this space, and we are continuously working on acquiring new partners to continue to -- so we are continuous inferencing will be a major growth drivers in the years to come. We also launched the ROSS proposition for consumers, which is basically an AI-agentic app for consumers, and we will see how this delivers in the coming quarters and years. I think more importantly, on this slide are the infrastructure initiatives, which are progressing very well. So you have seen that the quarter state probably in the Q3 results, how we intend to migrate of the INWIT grid. We are also progressing on the tower JV with Telecom Italia, which is the initiative to deploy roughly 6,000 sites. And we are currently working on the long-form agreement which we expect to be completed by year-end. And we are also working on the run sharing agreement with Telecom Italia to accelerate 5G deployment or 5G coverage in low-density area. This is currently in the regulatory process, where we are making progress. So the antitrust review is ongoing, and we expect it to be completed also next year, and we will update you [indiscernible]. So overall, very pleased -- on the one side, accelerated investment in network, make sure that the networks become better in Italy and at the same time, reduce our cost base in the year. Now I hand over to Eugen for the financial results.

Thank you, Christoph, and good morning, everybody, from my side. Let's dive directly into the group numbers on Page 18. Revenue was down CHF 225 million year-over-year, net of currency, that's [indiscernible] revenue slightly down but higher hardware and software revenues in B2B. And CHF 11 million basic equation here, telco service revenue down, also [indiscernible] but Energy up. Q2 also here was -- the service revenue decline in the second quarter, among other. On the EBITDA side in the group [indiscernible] full year. So I'm not going to add much on that topic. There was another factor in play in the second quarter with a better IT results despite lower revenues commented very much to the point. Italy, EBITDA was up CHF 92 million, obviously to meet the EBITDA guidance for the full year. Page 19. CapEx was down CHF 131 million in the group in Switzerland. In the first half of 2025, we had very high FTTH volumes, so there will be some CapEx catch up to be expected [indiscernible] year and integration CapEx up in the full year. Then operating [indiscernible] CHF 14 million, obviously driven by higher here for the full year, we are fully on track to deliver as guided. Stable free cash flows from Switzerland and Italy. I'll move on to Switzerland, Page 20. Revenue first, down CHF 27 million. B2C, minus CHF 23 million, pretty equal in the first 2 quarters. The service revenue development was better in Q2 than Q1. You don't see it here in the total revenue numbers because there was a change in hardware revenues quarter-over-quarter but we'll see the service revenue on the next page. B2B down CHF 11 million with telco service revenue down [indiscernible] from the wireline access business that will continue to go on for a very long time due to the fiber rollout. EBIT compensated by shift of advertising from Q1 to Q2 compared to prior year. So this is why the improvement in the service revenue doesn't show up in the EBITDA number this quarter. B2B, minus CHF 8 million here also telco service revenue partly compensated the cost savings and in particular, the improvement in IT business EBITDA due to the effect of that Christoph already mentioned. Shows up here also in the sequential evolution of year-over-year numbers. Infrastructure and support functions, cost savings flowing in as expected. I move on to Page 21. You see it here on [indiscernible] tightly due to lower CapEx. The wireline access network are [indiscernible]. Page 22, [indiscernible] CHF 2 million that we delivered in the first half of the year. I'm not going to comment any further on the phasing. We already did that. Top left, you see the telco service revenue development, very nicely B2C in minus CHF 16 million and year-over-year and in Q2, only minus three. So this is the price increase that works as planned ARPU effects are improving, both in wireless and in wireline. Moving pieces and just the price increase also going ahead into the third and the fourth in the third quarter. So we don't [indiscernible]. On to Italy, Page 23, revenue down CHF 118 million [indiscernible] that service revenue decline improved significantly in Q2. We'll see it on the next page. B2B, down CHF 82 million -- so compared to prior year, so this is the loss kicking in is in the financial other MVNOs ramping up over the last 12 months and also the year-over-year site development of our wireline business. Is that development will not be the case in the coming quarters as the post in and also the like in B2C, which is obviously in turn the MVNO synergy ramp-up, Contribution margin in B2B minus CHF 15 million reflects the lower revenues given the -- also the revenue mix of the revenue decline contribution margin wholesale is [indiscernible] come in with a lower margin. And then indirect costs were lower at CHF 50 million, 5-0. In particular, Q2 was impacted by [indiscernible] use of every trade to be extrapolated into the second half. Still ramping up. For the full year, we expect up to CHF 200 million CapEx integration costs. Operating free cash flow is up by CHF 156 million in the first half of the year, but with the bulk of the integration CapEx yet to come. Page 25, service revenue evolution in Italy. Similar picture to Switzerland. So finally, on B2C, we see the value strategy at work also in year-over-year service revenue. A positive impact from the ARPU effect both in wireless and in wireline, where in wireless, we have completed the back to front book alignment. And wireline, as Christoph explained, it's still going. [indiscernible] is always a bit more volatile with some onetime revenues that we had through [indiscernible]. Synergies on trade, we reached a quarterly run rate of CHF 80 million. So we are on track to deliver CHF 300 million plus for the full year. Integration costs, CHF 51 million so far. We still expect up to CHF 250 million in total, out of which up to CHF 200 million in CapEx, as I mentioned, rate is yet to come also prior year 2025 was quite [indiscernible] for this year. I will now move back up to the group. Page 27, free cash flow bridge, free cash flow [indiscernible] compared to prior year of plus CHF 85 million. On the other hand, we had a second moving piece, which is higher tax payments [indiscernible] equivalent size. So all in all, free cash flow increase is simply in line with operating free cash flow increase. Also, Page 28 net income is up by CHF 43 million, simply driven.

Now starting with the Q&A session. [Operator Instructions] First line is open.

Polo Tang from UBS. I have 3 questions. The first one is really about Swiss price rises. So you raised pricing on the Swisscom brand by, I think, 3%, 4% in April and by 1% to 2% on the Wingo brand that will take full effect by September. So I'm just curious what's been the reaction from your customers? And given your competitors are also trying to land price rises. Have you seen any changes in terms of behavior or promotional activity in terms of the market? That's the first question. Second question is really just coming back to the soft guidance on Swiss telco revenues. So you mentioned the still expected CHF 120 million of decline for Swiss Telco revenues for the full year. But given that Q1 was CHF 25 million, Q2 was, I think, CHF 19 million, I mean it's -- I'm just trying to understand why you've left unchanged. So can you maybe talk about some of the headwinds and tailwinds to consider over Q3 and Q4? I know you flagged the roaming drag in Q3, but is there anything else? And my third question is really just a bigger picture question in terms of satellites. So how should we think about satellites in terms of impact or not in terms of the Swiss in Italian markets? And is there a difference in terms of how you think about the impact on broadband versus mobile.

Thank you, Polo. So on the price increase. So overall, I would say, reactions from customers was as expected. So you've seen that we had slightly elevated churn figures in Q1 and now churn is sort of normalizing again, but the price increase did generate incremental churn from our customers, both on mobile and on broadband. And we also saw some increased down trading from the main brands to Wingo, which I think also highlights that the room for further price increases on the main brand is somehow limited. Although our competitors also reacted with price increases, the market remains very promotional, especially on the MVNO front, but also the main MVNOs are still out there with very aggressive promotions. So on the one side, you have increases on the back foot and front foot, but at the same time, executing very aggressive promotions. And we -- so this sort of counterbalances affects some of the price increase. And we expect this to continue also in the coming quarters.

Okay. I'll take the second question on the service revenue guidance. So as you mentioned, our initial full year guidance was in a similar range to prior year, about minus CHF 120 million. And I think the split last year was roughly minus CHF 70 million on B2B and minus [indiscernible] on B2C. Now we are in the first half of the year, we are at minus CHF 35 million. So this is very much in line with what we gave as a full year guidance. Yes, B2C is better. So that the currency of minus CHF 18 million would not be in line with minus 50 million. This is also why I said we expect something similar to the first half of the year and the second half of the year, maybe slightly better than the CHF 50 million we gave at the beginning of the year and so also maybe slightly better than the minus 120 million in B2C and B2B taken together. So what prevents telco service our view for the full year to be something like minus -- on B2C, minus CHF 16 million quarter, [ minus CHF 3 million ] second quarter and then another minus CHF 3 million in Q3, Q4. There are a couple of pieces. One, I mentioned is the roaming dynamics in the third quarter. There's also packages for international cores, which goes a bit in line with roaming and the geopolitical situation, which impacts trade patterns. And then finally, there is the gross add dynamics as we still recover from the price increase that Christoph mentioned with close quite weak. China is probably not in a growth in the past. -- but gross adds still have to discover and this will also have an impact. So these are the 3 things that we see. Obviously, there might be things that we don't see. So we came to the conclusion the most plausible forecast, if you like, for the moment is the minus CHF 120 million, but maybe a bit better on the B2C side. So coming to your question on satellite. I would say in -- I mean probably the impact is one, very hard to predict because technology is developing very quickly consumer perception is changing quickly. And at the same time, we have the ongoing fiber rollout and very different dynamics both in Switzerland for mobile and broadband. So I think it's not so easy to give like a single answer to your question. Probably quite more newer look. I think on the Swiss side, I believe the satellite impact will be quite moderate. Because the broadband infrastructure we already have today is very [indiscernible] performance, and we are progressing well. The FTTH monetization and then the migration to the FTTH network. So that's right, we see it mostly as a complement on the broadband side for sort of extreme rural areas where we will most likely not build out fiber infrastructure. And on the mobile side, at the moment, the networks in Switzerland are so good that we don't really see meaningful competition on the mobile side from satellite. We also rather see it as a complement, delivering more resilience especially for emergency communication or should a mobile tower sort of break down for a couple of hours. I think in Italy, broadband, the situation is slightly different. There you can also see already quite a big pickup from satellite business. I think Starlink is quite successful in Italy. Especially in the rural areas where there is no fiber and also the copper infrastructure is not that strong. So that's why it's very important in Italy that the ongoing fiber rollout is really completed that we reached 90% fiber coverage by end of the decade. But also not only building out the coverage but also starting to focus more on migration of corporate and fiber infrastructure because we do believe that once the customer is on fiber, this product far superior to what satellite can deliver and delivers a much better customer experience. So it is the best way to ensure that there is not too much erosion on the broadband side or a loss of market share to the satellite services. On mobile, as we said, we are testing mobile services to complement our mobile coverage with satellite. So this could be an interesting avenue but also the mobile development on satellite will be very heavily impacted by the European regulation, which is still under discussion. So depending on what you regulate ultimately on the division of the MSS spectrum, it will have either a higher impact or mobile or a negligible impact depending on how much spectrum is really available to deliver services over satellite in the coming years.

It's Maurice Patrick from Barclays. Just a couple from my side. The first question, and you alluded to it in your prepared remarks around the spin down from main brands to discount brands. in the Swiss market. But historically, you have given some specific data points very helpful on the spin down from main brand to discount brand. You highlighted, I think, in this presentation that continues. But I'd love to get a sense in terms of if that sort of 2 to 3 percentage point annual swing is still at the same pace and maybe if that's going to continue through the rest of '26 and '27. And the second question, just on AGCOM and INWIT in Italy. So AGCOM, the regulators kind of proposing license extensions or spectrum extensions in exchange for higher quality delivery of mobile services. Clearly very helpful to get a cost tailwind if that comes through for you. But you remain in deadlock with INWIT, if I'm not wrong, having one of the latest court case, which they're going to appeal. Just curious to understand if those 2 processes can go in parallel, i.e., the extent to which you can agree or negotiate with AGCOM guaranteed improvements in mobile service whilst planning to remove your entire infrastructure from INWIT.

Maybe on the first one, I'm not sure whether you were referring to the impact of the shift to the second trend on service revenue or whether you were referring to cannibalization rates or the penetration while trying to cover whatever we have. On mobile, the second and third penetration is at the moment that on broadband, it's much lower. So that's one data point you might have had in mind. On the service revenue, you see it on Page 22. Where we highlight in the ARPU effect, how much of this ARPU effect was driven by the change in brand mix. So you can see that then I don't think that we ever publish anything on the topic. Did that helps?

Yes. I mean just on -- so 38% of your mobile is coming in second, third brand on our fixed line was how much?

Some of coming in, but already in the phase.

Yes. I think it was -- sorry to jump in or, I think historically, you showed like a market share shift, rather a market -- it was like a circle diagram showing the extent to which your customer base is shifting from main brand to second brand?

Well, what we do have, obviously, we show on a regular basis, the penetration rate in the base. And so you can deduct the change in this penetration rate. year-over-year, the penetration rate went up by 3 percentage points on the mobile side. So the 38% was respectively -- 35% or whatever last year and also improved when it went up.

Now on your second question, Italy, AGCOM and INWIT. So the AGCOM published the new rules a couple of days ago. Actually, the details came out only this week. So we are still analyzing the impact of exactly what this would potentially mean in terms of service coverage, service, quality of service obligations. And how we -- what kind of investments are required to fulfill these obligations. So I would say I can update you in more detail on the impact at the next quarter. And then we can also estimate it actually what AGCOM has proposed is net positive or not negative compared to the cost of spectrum or an auction. So I think analysis is still ongoing. It looks encouraging. It really depends on the details of what is expected in terms of coverage and quality of service investments. Now irrespective of what AGCOM would like us to do on coverage and quality of service. We have [indiscernible] plans to continue to invest in our mobile network, both to densify the network the demand is increasing and to increase coverage. So ongoing investments in mobile are fully passable with what we are doing on the INWIT side. So that's also one of the reasons why we launched the tower JV because it will be one of the means to actually build on new towers. And we are also in discussion with other tower operators to use existing towers for the densification. So I would say both activities progress in parallel at this situation and at the same time, continuing to densify our mobile network.

It's Josh Mills here from BNP Paribas. A couple of questions from my side. Firstly, on the Swiss price increases. It does look like alongside the service revenue tailwinds, the impact on churn in it adds hasn't been as negative as you might have feared. So, do you think that this could become more of a structural annual price increase? Or is there a specific reason why for you, this is more of a 2026 one-off that wouldn't be repeated, I think you mentioned on the call, but you don't want to test the limits of customer needs to pay too much, but it does look like it could become a bit more structural. So some of your thoughts on that would be helpful. And then secondly, on Italy, TI is challenging some of the NSA terms or at least having a discussion with fiber [indiscernible] about them going forward. Is that something that you're looking at doing? What does your current guidance retail assume in terms of MSA costs and can you just explain whether there's any potential upside benefit if you were to secure better prices on the fixed line MSA.