Good morning, ladies and gentlemen, and thank you for joining the Swisscom 2021 Half Year Results Conference Call presented by Urszappi, Eigenstermez and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, also from our side, and welcome to Swiss Q2 twenty twenty one results presentation. My name is Louis Schmidt, Head of Investor Relations, and with me are our CEO, Urs Scheppi and Eugen Schaermitz, our Chief Financial The first part of today's analyst and investor presentation hosted by our CEO consists of 2 chapters. Chapter 1, A quick overview with some highlights of the operational performance and financial results of Q2. Chapter 2, an update on our network Fost Schappi, P2C and P2B operations and financial results in Switzerland and Fastweb's Q2 results operationally and financially. In the second part of today's presentation, runs you through Chapter 3, the Q2 financial results and the new EBITDA guidance for the full year 2021.
With that, I would like to hand over to Urs to start his part.
Urs? Good morning, ladies and gentlemen, and I would like to start with some highlights. If you go on Slide 4, you see some highlights in Q2. So we proved once more that we are the leading operator in Switzerland. We won Numerous test wins on mobile, but also on the customer service side.
So as an example, the speed award of Okla or the service tests of PC Tips. So This shows that we are executing on our strategy. Also in the B2B market, We were able to improve our project portfolio or our value proposition to have a more differentiated value proposition. In Italy, 1 more quarter with growth, solid momentum. Then on sustainability, ESG, we are committed to it, and we have a track record.
And we have also the awareness in the whole world that we have that we are a sustainable company. And then on guidance, we slightly increased our EBITDA guidance because of a better momentum on the operational side, but also one offs on a noncash one offs. If you go on Slide 5, our Q2 performance, market performance. So if you look it from a wide side, you see that we are stable In the wireline business, so TV broadband is approximately stable. I will come later to it also better churn figures.
If you look to mobile, you see that we have Slightly increasing net adds on mobile in Switzerland. What is important to mention is that there were some effects, I mean, in Q1, Special effects of phase out of a product on wild line of CARSA, CARSA product, which
leads to
a bit weak performance in Q1 and also to 2 gs switch off of mobile. But you see that Q2 is better from market performance than Q1. Fastweb, Good momentum, so slightly positive figures on broadband on Q2 and also a good growth momentum on mobile. On the bottom of the chart, you see our market Also important to mention is the converged part of market share, so 60 46% of our broadband connections are in a converged offers and 42% of the mobile offers, sorry, in converged offers. And in Italy, converged offers is at 36%.
I mentioned this because that this converged Part of the product portfolio has a higher loyalty ability, normally better ARPU and lower charge. If we go on Slide 6, you see our financial performance. So growth On EBITDA growth on also on the revenue and also on the net income And as a result also on the operating free cash flow proxy. You see on the right side of the chart The EBITDA development Q2 compared to previous year. So Swisscom Switzerland was able to increase the EBITDA by 31,000,000 Fastweb has a growth of €10,000,000 And so overall, we have an Increasing EBITDA, so good operational performance.
And on the bottom of the chart, you see also that the operating free cash flow went up by 24%. And on an absolute basis, it's €574,000,000 operating free cash flow proxy. So Good and strong financial figures. If you go on Slide 8, Here you can see our business priorities. They are unchanged.
We are Delivering what we actually announced. So we are continuously investing in our infrastructure to improve the network quality, to improve the coverage or extend the Coverage of our offers on mobile, but also on fiber to the home or ultra broadband. 2nd pillar or 2nd priority is delivering on our leading market position in Switzerland. I will come later to it. So the market performance shows that we are able to deliver what we promised.
Then operational excellence, we are committed to operational excellence. So we are on the way to deliver The ambition of over €100,000,000 cost savings this year and also Fastweb. Fastweb is growing in the Italian very competitive market. If we go on Slide 9, Some remarks to our investments. So you see that we are continuously investing in our network.
It's SEK 2,200,000,000 to SEK 2,300,000,000 in CapEx, which we have. And it shows that we deliver and that we are improving. So we won several net steps On mobile, you see here the results. You see also that we are clearly ahead on this topic on the coverage side, but also on the speed side. So our network Certainly, the leading mobile networks in Switzerland.
On Internet, you see also that we are performing. And then impressive is to have also a look to the right side of this chart. There you see the coverage on mobile on these different technologies. So on LTE, we have a population coverage, which is 99% plus. We have a 5 gs coverage Schappi.
Of the base version with Dynamics section sharing, where we have 98%, so increase of the footprint of 2% points on a year on year basis. And on this 5 gs faster 5 gs plus as we call it, that's The technique where we use also the 3.5 gigahertz spectrum, we have now a coverage of 27%, and we increased the footprint by 7% points on a year on year basis. On the bottom of the chart, you see the coverage on our ultra broadband. So 86% Have more than 80 megabits, 86% of the households have more than 80 percent 80 megabit per second at speed, 68% has more than 200 megabit And 33% on fiber to the home, they have speed from 1 giga to 10 giga. And these footprints, you see it also, they are increasing steadily and will continue So that we can achieve our goal to have 60% 5 to the home coverage in 2025.
On Page 20 on Page 10, sorry, some Remarks to our products portfolio in the B2C market. So we made several Development or several improvements. So we improved our Broadband offer, we refreshed our in one off, that's the hero product, the main product. We refreshed it. We gave more speed.
So we put more speed in it. Also on F and C, We improved a bit our benefit for our fixed mobile converged offer. On customer satisfaction, we had some small innovations, but which are important. As an example, a mobile so that you get less fans. And then also with our attacker brand, Wingo, the 2nd brand, we have a good momentum.
If you go on Slide 11, Some remarks to our operational results in the B2C market. So we have robust KPIs And the wireline you see on the top the wireline KPIs, so approximately stable RGUs on broadband and TV. Important to mention is that our second and third brand share in wireline is at 5%. And the in-one penetration is 80%. The churn figures are lower than in Q1.
This has also a bit of seasonality in it, but some special effect, phase out effect from Q1, As I explained it, so we are back at ordinary levels. We have a churn in broadband of 9%. ARPU, you see that our ARPU figures are stable On a wireline blended, but also wireline bundle, so stable market shares. On wireless, also The archer, they are slightly growing. The 2nd and third brand share is at 20%, slightly growing.
The churn figures are lower than in Q1 at on the SMC part at 7.2% on a low level on postpaid at 8%. And the ARPU postpaid, You see it's at CHF 54, the ARPU. It's on a year on year base, CHF 2,000,000 lower. The main reason here is the actual mix, the dilution of more second and third brands. But overall, Q1 to Q2, a stable ARPU.
So overall, robust operational figures. If you go on Page 12 to our B2B market and our market positioning. Here, just two examples, What we are doing to further differentiate us in the B2B market, where we have already, By far, the most differentiated product portfolio. As an example, in the SME market, on the right side of this chart, You see that we are continuously improving our security portfolio. Swisscom is the most advanced operator.
This gives you also external reports on the security proposition, which we have. And we extend now also the proposition security And that's why we are investing in such a broader value proposition in the SME market. We have a portfolio of managed security services, managed backup services. We are doing security assessments, and we will further enlarge our product portfolio with other Security Services for Athenex and Profession. If we go on Slide 13, the B2B results.
So overall, A slight result of the service revenue due to price pressure. And then on the other side, a growing solution business or growing IT business. So UDC, Service revenue development, we had $21,000,000 lower service revenue in Q2. Price driven. Oeykin will come to it later what are the major factors behind it, but it's strongly driven by mobile.
Solutions business, a slightly growth in the solution business. On the top, you see in which Schappi. In which areas, so cloud is developing well, security is developing well, some growth on workplace and on SAP. So overall, a good performance in the B2B market. If you go on Slide 14, our cost initiatives, You see that we are on track to achieve our cost target 2021.
We have savings in the first half year of €67,000,000 So our ambition for savings above €100,000,000 There we are on track. On Slide 15, Financial results of SWISS from Switzerland. So overall, Slightly increased net revenue with different dynamics. So solution revenues, hardware revenues, wholesale Revenues went up and then the pressure on the service revenue, which is driven by price, So this minus €89,000,000 price driven reduction, service revenue. EBITDA went up by approximately 1% at SEK1.8 billion.
And also you see the operating free cash flow proxy. From the first half year, it's at 9.20 €7,000,000 So overall, Hubert's financial results in Swisscom Switzerland. On Fastweb, on Page 16, our network and commercial update. So on the product side, we launched the new TV and the new Internet box, Which is a high performing box with a good usability with nice feature in it. An example, Alexa.
So that's a differentiated Internet box, which will keep our customers more loyal. Then on the sustainability side, You can also see that Fastweb is investing in sustainability and is recognized as really a sustainable a company. So as an example, Financial Time ranked fastest as climate leader. On 5 gs and fixed wireless access, our ambition to roll out this network to increase with mobile with 5 gs mobile in the second half of this year. On Page 17, the consumer performance of Fastest, so solid performance.
Important to mention is the share of our or the penetration of our ultra broadband customers. So they went up by 16%. That's important because ultra broadband customers are more loyal And have also higher ARPU. On mobile, you can see that we have also a nice growth, 20% subscriber growth. Our churn went down by 12% and data usage is increasing.
On the converged area on the right side of the chart, you see that there is an uplift. If we get customers on a converged offer, we have an uplift of 26% on ARPU. And the churn benefit of which where we have much lower churn figures. The penetration of converged offer is at 36%. On Page 18, Fastweb on the Enterprise and Wholesale market segments, so continuous growth.
So revenue went up by 9% on enterprise and on wholesale by 21%. In wholesale, it's mainly driven by year over year revenue. Then on Page 19, Fastweb financial results are Fastweb. They are in line with our guidance. So the revenue net revenue went up by 7%, EBITDA went up by 5% And operating free cash flow is at EUR 56,000,000.
So Good financial performance in Italy. Now I would like to hand over to Oeygen for the financial results.
Many thanks, Urs, and good morning, everybody, also from my side. I move on to Page 21, Starting with an overview over group revenue development. Group revenue in the first half of the year Is up by €140,000,000 underlying performance out of this is +107,000,000 Contributing both Swisscom Switzerland and Fastweb. Switzerland up by €19,000,000 and Fastweb up by €81,000,000 As Urs already mentioned, the revenue growth at Fast Track of €81,000,000 had contributions from all 3 segments, consumer segment, enterprise segment and Wholesale, obviously, percentage wise, enterprise and wholesale with much strong growth and the consumer segment, which still grew, but grew with 2% in the first half of the year. Over to Swisscom Switzerland, contributions to revenue growth from the B2C segment.
It's the Usual mix of on the one hand, service revenue decline on the other hand, the decoupling effect we're going to talk about In a second and strong hardware sales, particularly in the Q1. If we look at quarter over quarter numbers, €25,000,000 in Q2, €10,000,000 in Q1. The difference is mainly the service revenue decline easing in the second quarter. We'll talk about service revenue on the next page. B2B, euros 20,000,000 down.
Revenue, Mix of service revenue decline and solutions increased with a net impact of minus 20. And on Wholesale and the Segment Infrastructure and Support Functions, not much news in the second Quota. I'll move on to Page 22, and I'd like to spend some time on this one, it's important to understand this page in order to understand what is going on and in order also to look forward what might come in the next couple of Quotas. I'll start on the left hand page with the drivers behind First half of the year, revenue in Switzerland. You know the major components.
I'll run you quickly through them for the first half of the year. So there is service revenue decline of €89,000,000 with B2C and B2D contributing in absolute numbers, Higher in percentage terms as already in the past, B2B with a stronger decline of minus 4.4 percent. Overall, Swisscom minus 3.1 percent service revenue decline. Compensating for that, to some extent, plus €50,000,000 is the famous device decoupling effect in IFRS 15 reconciliation line that I know most of you know well. That's an effect that we had over the last 2 years or so.
Important to note, this effect is about to run out. So this will be the last quarter where you have any significant effect out of this, and this is also an important information Looking ahead, because this compensating factor that we had over the last 2 years or so will not be around starting from the third There might always be a small number here and there, resulting from dynamics in promotions and resulting in IFRS 15 reconciliation. But the big effect of our subsidized subscriptions mobile subscriptions from 2 years ago has run its Next line, solutions up. That's nice and expected. On hardware sale, Wholesale and Others.
There is not much news compared to the Q1. Most of what you see here was already here in the Q1, so I'm not going to comment in detail. I'd now like to move on to the right bottom side of the page, where we show you, as usual, the main drivers behind the service revenue decline of the 2nd quarter. So in the 2nd quarter, service revenue decline was only €38,000,000 And I'll walk you through the drivers of those minus €30,000,000 Beginning at the bottom left, wireline B2C fixed voice lines minus €5,000,000 that's the usual suspect that has been around for a while and will be around for a while. It's a mix of single voice lines running out, but also and ever more importantly, Opt out of voice lines out of bundles.
That's a pretty stable number, fixed voice line losses. Next one, B2C wireline change in ARCHEUMIX, EUR 3,000,000 up. That's very nice that this This is up if you compare it also to the Q2 of last year when it was minus 12%, so that is good news. We've talked about the stable ARPU or even increasing ARPU in B2C wireline. We had some heavy promotions out there in the first half of last year, and we found that once the promotions run out, Many customers do not down freight to a lower ARPU, Which is very good news because it means that the customers take the benefit of the promotion, but once they get used to the product and its quality, they are also willing to pay up Great.
So that's certainly good news. On to the next column, B2B price pressure. There, I would say, we are kind of back to normal. Those of you who remember in the Q1, This was in minus €3,000,000 only, and now we are at minus €12,000,000 That effectively means that the COVID tailwinds of traffic revenues that we talked about in the Q1, which has been with us for something like Q2 of last year to Q1 of this year, This effect has run its course, and we are back to a more normal figure of B2B wireline service revenue But it gave us a bit of a lift in the Q1 and maybe 1st month of Q2, but now this effect seems to be over for the moment at least. Moving on to wireless, starting with B2C, change in ARPU mix.
That's the usual suspect. Urs mentioned it. It's the usual mix of, in particular, brand shift, customers moving from the Swisscom brand on 2nd and third brands, promotions, prepaid losses, so this whole mix of ARPU pressure on the P2C wireless side. The Q1 number was a bit bigger for a couple of reasons, none of them particularly structural. So the truth Going forward, it's probably between this number of €12,000,000 and the minus €23,000,000 of the first quarter.
Next line, also well known, fixed mobile convergence, Minus €5,000,000 That effect has come down over time as the curve of Convergence adoption flattens out over time. Just to remember, last year, this number was around minus €900,000,000 minus €10,000,000 Now it's more around minus 5. So that is an effect that has come down over time. Then an interesting one on to roaming. We talked about roaming effects for last couple of quarters due to COVID.
We are now comparing for the first time in the whole COVID saga a full COVID quarter to a full COVID quarter in the previous year. And so there is not much of a roaming effect anymore. Actually, the roaming effect has turned slightly positive, but it's plusminus0 in the Q2 of this year. And as you remember, this was a significant negative effect over the last couple of quarters Because we still compare with pre COVID quarters, and that effect has gone now and has an influence on the dynamics I'll talk about In a second. B2B price pressure, unfortunately, as usual in the wireless segment, so no much not much news on that one.
So these are the major components. I'll move up to the top right part of the page where we show service revenue dynamics over the last six quarters. And I'd like to spend a word on this one. At first sight, you might be tempted to see an upward moving trend and Somewhat Royal Iron from the minus 85% in the Q2 of last year, up to the minus 38% in the Q2 of this year and then maybe further ahead. I would caution you not to do so.
We did a little analysis and stripped out the roaming effects out of That number, and this is the small line that you have below the chart. And if you look at this line, you see that service revenue decline in the last couple of quarters was actually, Net of the roaming effect, a pretty stable number, around EUR 40,000,000, maybe EUR 50,000,000 in the Q3 of last year, but around EUR 40,000,000 in the last three quarters or so. So net of roaming, we're in a pretty stable situation and certainly not in one where service revenue decline would further Yes. Quite to the contrary, looking ahead, we do expect an acceleration Of service revenue decline, starting from the minus €38,000,000 level that we saw in the second quarter. And I'll walk you through our reasoning.
First of all, there are things that will not change. So fixed mobile conversions, not going to change Voice line loss not going to change. Roaming, whatever the COVID situation will be in detail, roaming probably no impact on service revenue dynamics in the upcoming quarters. However, we do expect increased The service revenue pressure on the wireline B2C side, we'll see what UPC Sunrise is going to do in the second half of the year. You saw that the there is certainly no major positive impact coming from net adds to service revenue In that regard, so we'll also have some promotions out there.
And so we do expect service revenue pressure, B2C. And also on the B2B wireless side, we have obviously some visibility on large accounts, and we do expect Increased pressure on the P2P wireless side. So we would caution you not to Simply take the €38,000,000 and assume it will stay the same. In our view and in our best estimate, service revenue decline will increase or get worse, to be precise, in the second half of the year. Okay.
So much on service revenue dynamics, and I'll move on a bit faster, but it was important to spend some time on this one. I'll go to Page 20 Free group EBITDA. EBITDA is up in the group by €109,000,000 Important to note, €49,000,000 out of those €109,000,000 in the first half of the year are exceptional effects. The most important one It's an exceptional effect coming out of a change in our pension plan, and that change in our pension plan had a positive impact of €60,000,000 noncash that we booked in the Q2 of this year, and obviously, we show it It's an exceptional item. There is FX adjustments that we talked about already in the Q3.
And on the negative side, we had an increased provision for regulatory topics, and we noted also that effect under exceptionals. So net of exceptionals and underlying increase of EBITDA of €60,000,000 €20,000,000 out of which Fastweb's €20,000,000 EBITDA increase in line with expectations and communication plus 5 Percent in the first half of the year, but also Swisscom Switzerland up by €38,000,000 Underlying performance in EBITDA. If you look at the segments, the EBITDA development also quarter over quarter basically follows or mirrors the revenue development that we talked about Before, in the infrastructure and support function column, The plus €25,000,000 you see reflects the cost savings we had in the first half of the year, and I'll talk about those also. On the next page, quarter over quarter, you have a certain seasonality in personnel expenses due to vacation accruals, etcetera. But I wouldn't worry too much about quarter to quarter numbers.
The important thing is, and we'll come to that on the next page, that we are on track to our €100,000,000 cost saving targets for the full year. So I'll move on to Page 24, where we explain the Swisscom Switzerland Underlying EBITDA performance, not by segment, but by P and L line item. We talked about revenue Plus €19,000,000 direct costs minus €48,000,000 driven by SARC SRT, outpayments and COGS. Not much news on SAKES and our payments if you look at quarter over quarter numbers. On COGS, there is a certain variation between the Q3 and the Q2.
It's simply driven by different hardware sales Dynamics in P2C and P2P in the 1st and second quarter. The most important topic on this page is obviously the indirect cost column, We are up or rather down with indirect costs with a positive effect on EBITDA of plus 67 €17,000,000 out of which personnel expense workforce and €50,000,000 of other OpEx. Some seasonality in the personnel expense, which I mentioned before, vacation accruals quarter over quarter. We had very low Vacations in the Q1 because nobody wanted to take vacations during lockdown. So that has Adjusted itself to a more normal level now, and we are well on track to our cost savings target of €100,000,000 for the full year.
Moving on to Page 25. CapEx. CapEx is broadly in line With guidance maybe a bit below the expected run rate in Switzerland, but we expect this to catch up for the remainder of the year. Another note, there is no impact yet of the Thor deal. For those of you who asked the question, The $40,000,000 will not impact our numbers anytime before end of Q3 with the major impact coming in Q4, So no impact from their side.
And finally, the 3rd node, CapEx Sorry, fiber rollout CapEx is as it was and as expected at about onethree of our total CapEx, maybe slightly behind expectations, but as I said, expected to catch up in the second half of the year. Moving on to Page 26, free cash flow. I'll start from operating free cash flow proxy, where we are €100,000,000 ahead of last year. If you look at the rightmost column, free cash flow, we are €100 €50,000,000 down over last year. So what happens in between?
There are 2 main effects to talk about. One is the pension adjustment that I mentioned before. So we have this extraordinary non cash benefit of €60,000,000 in EBITDA in our pension Expense, that's an accrual item. Our pension contributions in cash are still the same. They are €138,000,000 in the first half of the year.
You have all the details on Page 34, but our noncash Pension expense came down from €160,000,000 to €100,000,000 That's a one off exceptional item. But so contrary to The normal situation, our cash pension payments are higher than our accrual pension costs, And that gives us a negative impact in the free cash flow statement of minus 36. In the last year, it was the normal situation. The other way around, the positive impact of plus 29,000,000, so the minus 65,000,000 is a year over year effect out of this change, nothing operating in there. The second effect that contributes to the change between operating free cash flow books and free cash flow is out of income taxes.
We paid more income taxes in the first half of the year than in the first half of last year. That's cash tax paid, has nothing to do with the tax expense. And the simple reason for that is that last year, we kind of delayed some of the payments in around March, April last year, when nobody knew how the whole COVID situation would develop on the capital markets. And so we are back to normal here, and that gives negative impact of minus SEK 73,000,000 Net working capital, nothing out of the ordinary. And as I mentioned, certainly no sort effect Yes, as you might remember, starting next year already in second half of this year, we will have a structural net working capital effect negative out of the Bridge, starting with EBIT.
EBIT is €106,000,000 up compared to last year. Net income is €300,000,000 up compared to last year. So what's happening in between? We talked about it in the Q1, and it Mainly a takeout of the Q1. We saw the participation in Bergelcom International Carrier Service in the Q3, And we swapped our FreshFiber participation in Italy into a fiber corp into a stake in fiber corp, And that led to an extraordinary effect in the financial result of about €220,000,000 overall, the M and A effect.
So that's the main driver. Compensating for that to some extent is that we have higher tax expense for the simple reason that we do have a higher Earnings before tax. The tax rate of 16.1% is not indicative of what you should expect in the normal course of events, which is closer to 19%. Moving on to Page 20 8, a quick look at the financial structure. We issued a CHF 100,000,000 bond in the second Claude, it was our 1st green Swiss franc bond.
We had a green bond issuance of €500,000,000 on the euro bond market last year, which was very well received. And also this first green bond in Switzerland was extremely well received. You see the financial terms we could achieve with 25 basis points of interest rate for a 12 year bond. That's Exceptional even compared to our own very good yield curve. So it was very nice to see that our long term efforts In the area of sustainability and in particular, in the area of the environmental part of sustainability, We're very well received by the capital markets once more.
Our overall debt maturity profile on the right hand Very healthy and interest rates average interest rate of 93 Basis points certainly very attractive. Finally, I come to Page 29, outlook guidance. So guidance on revenue, first of all, guidance on revenue is unchanged and guidance on CapEx is unchanged. We do change our EBITDA guidance from €4,300,000,000 to €4,400,000,000 that we had so far, up to €4,400,000,000 to €4,500,000,000 The only reason is from Swisscom Switzerland, and the main items For this upgrade in the guidance are as follows. Number 1, exceptionals.
You saw the exceptional figures that we reported. So we'll have about €38,000,000 of exceptionals. We don't account for the currency effect in here because we mentioned the currency effect already in the Q1 guidance, so without currency effects, €38,000,000 exceptionals, point number 1. Point number 2, Some of you might have spotted that the decoupling effect that we have already guided for already in February came in a bit stronger than expected, About €10,000,000 more than we guided, so that's the second effect. And the remainder comes from the overperformance in the Q2 in service revenue, €20,000,000 to €30,000,000 So these three factors combined lead For upgrades in the guidance, why it's still the range?
Why it's because there is still some significant uncertainty around some of the I can see here we talked about service revenue development in the second half of the year and competitive dynamics in Switzerland, which is still a bit of An unknown also the implementation of the sort agreement needs to be done. So that's why we that's why we give you Arrange. Now even if it takes a minute, I would like to walk you through step by step the guidance Starting from EBITDA last year, as we did in February, just for those of you who want to make the bridge from EBITDA last year to this new guidance. It's a couple of steps, but I think it's worthwhile. So compared to EBITDA last year, the major effects leading to the new guidance are €100,000,000 already in, as you saw indirect cost savings in excess of €100,000,000 MVNO loads from UPC Sunrise that we guided already for in February, minus €20,000,000 compensating for that Positive effects out of the Solt deal, plus €20,000,000 So that's the main effects on the Swisscom Saip.
Fastweb, as before, plus €50,000,000 in CHF 3 EBITDA impact. So this gives you Swisscom overall a zero impact compared to last year, plus and that's now the important part, plus the exceptionals, €38,000,000 I mentioned, €20,000,000 of FX, and this gives you the total bridge from EBITDA last year to the new guidance. Final word on the guidance. For those of you who make the quick calculation from EBITDA first half of the year to EBITDA of the full year, Please be aware of the following effects. Number 1, service revenue dynamics in the second half of the year that I discussed.
Number 2, end of decoupling effect, Some seasonality in indirect costs that might change a little bit the dynamics between first half and second half of the year. No change to Fastweb guidance, no change to dividend guidance. With that, I hand over back to the operator.
Thank you, First question coming from Ulrich Rathe, Jefferies.
Yes, thanks. I have two questions, please. The first one is on the other sayers In residential, so that was plus CHF 21,000,000 versus minus CHF 9,000,000 last year. Can you just confirm that, that is mainly the Decoupling effect. And then if you take the decoupling effect out of that, do you consider the other sales level in the second quarter, representative of that line item.
So is that sort of a good guide for what is to come? Or are there other effects in the Q2 that might just be a bit unusual? That will be our first question. The second question is, you mentioned competition stepping up potentially a little bit from UPC Sunrise, we see this just looking at the rates and the offers. How do you currently see that developing into the second half and how you see that unfolding.
I think they haven't really operated in a sort of proper consolidated And so presumably, they have held back commercial investments in their end a little bit because they don't really have a single brand. So I was just wondering how you sort of accommodate that and what do you expect in the second half from that source?
Thank you. I will take the compensation question and again, we should start with the other sales.
Okay. So yes, your observation is correct. The B2C Revenue increase is indeed a mix of service revenue decline and the decoupling effect. As I said in the Q1, we also had in hardware sales. And yes, there is one more factor in the second quarter.
We do have a Cinema Chain that had no revenues basically whatsoever in the Q2 of last year, and revenues are picking up again in the second So I can confirm your observation.
Good then to competition. Actually, you are right. We the whole promotion activity is quite stable. So we don't see Much more aggressive promotions there. There are and there were already aggressive.
But normally, Q2, the second half of the year is more, let's say, promotion driven each year. So that's a bit One of the explanation of Oeygen, I think we will have more event where promotions strong promotions will be in place. But overall, yes, the situation competitive situation in Switzerland is approximately stable.
Sorry. Would you think that if they if Sunrise and VFPC start to operate as 1, That they would step up the overall competitive intensity? Or do you think what you see now is what you put into your business plan going Because you're talking about where it is at the moment, but I'm sort of more thinking about what your expectations post merger are for them.
Yes. I think that's quite obvious. If they have a single brand, if they have a new product portfolio. They will certainly be louder to position the new brand, to position their new story. I think that will be the case.
The question is, and that's hard to judge, what will be the commercial officers at the end. And they will certainly try to leverage the different customer base they have, the mobile customer base, the more MogoSensei customer base from Sunrise and wireline customer base from UPC, who try to do cross and upselling. And but I don't have visibility more visibility on it. But if I would be CEO, on this side, you would position the new brand. That's clear.
That's helpful. Thank you very much.
Next question, Georgios from Citi.
Yes, good morning and thank you for taking my questions. The first one is on the service revenue trajectory for the second half. And I just have one question. I mean, earlier you went through the drivers of what could get worse and Maybe roaming being the only thing that gives you a bit of an improvement. I was curious to understand how the device decoupling Worked in the past on service revenue.
I was under the impression that obviously you generated more hardware revenues because they were treated differently, But it had a negative effect on service revenue. So if I'm not mistaken, the second half should have a lower negative effect from device decoupling and service revenues on the first half. Just wanted to maybe correct me if I'm wrong with that assumption. The second one is to get an understanding of B2B, you mentioned the wireless segment in B2B being particularly competitive and you have visibility on the contracts that are coming in. Is this something that has to do with the comparisons of last year?
Or is it something that we should worry about 2020 2 that the market may be getting a bit more competitive. And then my final question is around Fastweb. And thank you for providing the details around the business the access business of Fastweb, the wholesale lines. Is it possible to give us an idea roughly of what the economics of that business are? Like Is the VULA rate that the incumbents are earning a good proxy for the revenues you generate?
And if you could perhaps talk a bit about the margin?
Good. I will start with the B2B Question and then Eugen will take the device coupling question. And on wholesale, Did you get the question on wholesale?
Yes, but the rule is a reasonable proxy for the price range.
You will take the rule. Good. On the mobile The mobile dynamic. So we have strong competition. We have high market We have high price competition.
This price competition, if you look forward, I think it will stay in the same region as it was in the last month or quarter. So no fundamental change and no really acceleration on competition on wireline. The message of Oeygen was more that we think that on some specific We will have a bit more pressure in Q2 in the second half of this year. That was his message, but that's a special effect. Overall, I would judge that the competition wide line will stay as it is as it was in the past.
Okay. I'll take the first question on device decoupling. So first of all, and sorry if I Created the wrong impression. So first of all, obviously, the IFRS fifteen line is aligned separate from service revenue. So if there is an impact and there was an impact of the domestic half in line and the IFRS 15 line, it's separate.
It has an impact on our revenue dynamics, but not on our service revenue dynamics. So if I mixed it up before, sorry for that. Now the genesis of this effect is if you sell a Discounted mobile phone together with the subscription, IFRS 15 requires you to defer the discount on the mobile phone over the life of the contract. And we had many such contracts outstanding when IFRS 15 was introduced, but stopped basically selling this type of contracts and went to CEMA only about 2 years ago. So we had a huge stock of contracts with this negative revenue line going forward for the next 25 months.
And with that stock of contracts going down, that negative revenue line went down and gave us a positive effect year over year. I'm sorry, it's a bit complicated, but that's what it was. And now with the stock of contracts gone, with the 24 months gone on the last contract that was sold this way 24 months ago, This effect will not show up anymore in our revenue bridge, but yes, service revenue purely service revenue is unaffected by this Schappi. I hope I answered the question. If not, please come back again.
I wasn't sure I got it precisely. Then On the wholesale lines we sell in Italy, obviously, we cannot disclose any commercial terms. But yes, Telecom Italia is the biggest seller of wholesale lines in Italy, and so the ruler price they charge is a certain point of Obvious reference for any other deals of this sort done in the Italian market.
Thank you. If I could quickly follow-up on the device decoupling, maybe that I misunderstand the way The accounting works. I was under the impression that if I opt for a SIM only contract, I end up paying a bit lower. So the last 2 years, you had a lot of customers who have the decoupled the device. It had a negative 1st time as service revenue because everything was together including the subsidy into one expensive contract before.
Am I confusing something or was that something that Change the mix between handsets devices, let's say, and service revenues as you have customers migrating over?
Our device decoupling line is actually tied to the bundled products. And the bundled products have run out. So without the bundled products, Simply speaking, there is always without bundled products, no IFRS 15 reconciliation line. And I'll talk about the exception. If we do hardware promotions, then we get this IFRS 15 reconciliation again, Not in the amount and not in the dimension that we had when we principally sold bundled products.
So device decoupling is really tied to the bundled products And not to the price difference between a bundled product and a sema only product.
Okay. Thank you.
Next question, Steve Malcolm, Redburn.
Yes. Good morning, guys. Thanks for taking the questions. Just a couple. One on Switzerland.
Obviously, you reported a big drop in your personnel expenses in Q2. Can you just help us understand what the underlying move in personnel expenses was adjusted for the pension credit And adjusted for the vacation accruals you talked about, clearly, it was a big accrual in Q2 by the looks of it, but You reported like a 10% reduction despite the workforce is actually growing in B2B. So just help us understand the underlying
Yes, hi, Steve. I'll be happy to take the question. So on the first of all, the pension effect It's separate. Yes, you will not find it in the indirect cost line. It's in a separate segment altogether.
So you don't see it on Page 24 at all. So what you see in the indirect cost column and in the workforce column It's really the expense related to the workforce. Then the vacation accrual was a Change quarter over quarter between Q1 and Q2. So the first half of the year compared to last year, there much of an effect. So it's really a quarter over quarter thing.
So we can look at the first half of the year numbers as numbers By and large, unaffected by these vacation accruals. So the plus €17,000,000 is the effect to look at. Then on personnel expense, FTEs and the effect we show here. Now it's important to note that we report personnel expense and capitalized expense internally as separate lines, We counted as separate lines, and obviously, personnel expense is tied to the number of FTEs we have, but capitalized expense but the overall workforce And has to be netted for capitalized expense because they go, as the name says, into CapEx. So what you look here at the plus 17,000,000 It's a combination of a gross personnel expense reduction, which is smaller, €7,000,000 if I have the numbers correctly, and capitalized expense line of plus €10,000,000 And that has to do with the fact, among others, that While our FTE numbers in Switzerland seem overall stable, it's not necessarily the same people here within these FTE numbers.
And we do in source a number, for example, in our software developers who do different work from the people who were in the ASP number before, who get CapEx by capitalized expense and end up in CapEx. So the number you look at here, plus €70,000,000 is a gross personnel expense change and a capitalized expense change. And the total is the relevant number for OpEx coming down Half year over half year last year.
Okay. That's great. Just on Fastweb. Clearly, a lot of the growth came from wholesale. So two questions.
I mean, at what point do you think you can improve consumer growth in the current sort of relatively low two And how long do you think you can maintain wholesale growth in the sort of high teens because that's clearly the biggest driver of the growth we're And it's notoriously difficult to predict just how enduring growth in wholesale tends to be.
On wholesale, we think that we can Further, half a growth because there are a lot of elements with which Fusch actually the wholesale business. On the one side, we have these networks, 5 gs networks, which are rolling out Second one, there are new players on the market, which actually get wholesale Products from Fastweb Retail Players. So that's the second element. And I would say these two elements will continue. So that's why we are confident that the wholesale business will continue to grow.
Okay. And on that reselling lines, I mean, should we presume that most of the lines you're reselling, you are effectively reselling TI lines Onto other operators and making relatively low margin on those. I mean, how many of the REITs to wholesale loans are actually Fastweb owned end to end lines.
No, we have a good owned footprint. So it's Not only reselling of parts, it's actually using our whole own pipe to the home footprint On ultra broadband footprint, that's the only reselling. Yes.
But I'm
under the impression that Fastweb sort of total fiber inventory was only about 1,000,000 lines. So owned inventory as opposed to resold by TR?
No, we have our own networks In the bigger cities, we have everywhere our own network. So we have to put coverage on our network.
Okay. Maybe take that offline. Okay. Thanks a lot. Thank you.
Next is Polo Tang, UBS.
I just have two questions. The first one is a follow-up in terms of competitive dynamics in Switzerland. So can you maybe talk about what you're seeing from salt currently. Also is there any indication that your FTTH footprint expansion is helping your broadband Net adds. And my second question is really just about 5 gs.
So can you remind us how the 5 gs rollout is impacting your CapEx So is it leading to any incremental CapEx or is it more evolutionary in nature? Thanks.
First, on the competitive dynamic in Switzerland, Certainly out of the perspective of SALT. So this partnership with SALT It's just in the starting phase. So actually, the footprint extension through Viper to the home It's still on the low level, but the bigger rollout will be in 20 '22 on to 'twenty 25. And then we have 2 separate impacts. We That's the impact that Thor will competing in the fiber to the home turf too.
On the other side, we are also we have also a stronger value proposition to compete against cable operators. And so these are these two elements. Overall, 5 to the home will We'll sanction the competitive footprint of Swisscom. What will happening on the pricing side, that's another question. So we will certainly have further Aggressive promotions, that's for sure.
Can you follow-up though on that specific You've obviously been expanding your footprint since the beginning of 2020. So have you so what have you seen in the areas where you have expanded with FTTH? Are there any signs that you are kind of gaining market share, for example?
In areas where we it depends region by region on the local competition. It's very fragmented. We have regions where we gain market share in the fiber to the home area, And we have other regions where we have mainly ARPU pressure. It's really a very fragmented picture. But overall, we are more competitive against cable operators if we have 5 to go.
5 gs question? Yes, 5 gs question, sorry. The rollout of 5 gs, Or you can show the CapEx mix. Actually, you shouldn't assume that we will now have a peak on CapEx because of 5 gs. Because what we are doing is actually replacing investments in 4 gs through 5 gs.
So overall, the CapEx for the 5 gs rollout It's in a level where we were in the past with our mobile CapEx. And you should also assume that We made a lot of investments in the networks already today. So all our base station have Fiber backhauling, a lot of operators in the world, they have to do this. So that's why we don't get this big
Thanks.
Thank you. Next question, Jacob Bluestone from Credit Suisse.
Hi, thanks for taking the question. I just had a question on the SALT payments. Can you maybe just share with us What is your expectations about how they will ramp up over the next few years just to help us with the modeling? Thank you.
So I'll refer you to and I'll explain it briefly. I'll just refer you For reference to the slide we showed in the Q1 presentation where we detailed all the individual effects, I'll quickly repeat this. The most important piece to understand, and I'm talking about the full year impact of Solsys. I'm not talking about 2021, okay, that's important to know. I'm talking about a theoretically full year effect of the total on our financials.
The most important thing to understand is that There will be a positive impact on free cash flow long term in the mid double digit million numbers. So that's the baseline. That's the most important thing to understand, a long term mid double digit free cash flow positive impact. Then there is a whole series of effects on the P and L due to IFRS 16 accounting. So we will book wholesale revenues.
We will book OpEx, so we will have a positive impact on EBITDA. We'll have a positive impact on CapEx, So we'll net out some of the CapEx that is being spent to build what we sell to What we said to Thor. So there will be a positive operating free cash flow proxy impact, but that will be much higher than the real free cash flow impact me show. So there will also be a structural net working capital effect. So it's a bit of a complicated mix.
If you take a look at I don't have the slide number. I think it was Slide 29 in the Q1 presentation, We figured it all out, but the most important thing is the bottom line that I mentioned.
Great. Thank you.
Next question, Francesca Stiel from Exane. Francesca. Francesca, can you hear?
Hello. Sorry, I think I was Can you hear me now? Thank you.
Yes, we hear
you. Great. Thank you for the question. So just digging a little bit deeper there on the partnership with Salt. Specifically, I think the slide you're referencing, the split between feeder and drop from last quarter.
So it's a multipart question, but it would be great to know, Firstly, how many feeders you're going to have to build under the agreement with Salt? Secondly, how much does it cost you to build each feeder and how much for each drop? And finally, how many drops are you building per feeder? Thank you.
Yes. So thank you for the question, but you Certainly understand that I can't answer these questions. We have a commercial contract result, and We don't disclose the details.
Okay. Thank you.
The one thing that we can say is that the deal covers of households in Switzerland, up to 60%. That's 1,500,000 households. But as we said, the rest is commercial and confidential.
100%. Thank you.
Thank you, Francesca. This was actually the last question, so let me hand back to Louis for the closing.
Thank you, operator. And with that, I would like to conclude today's conference call. If you should have any further questions, please do not hesitate to contact us from the IR team. Speak to you soon. Have a nice day.
Bye bye.