Swisscom Lowers Full-Year Sales Forecast on Stronger Franc

Swisscom AG (SCMN), Switzerland’s biggest phone company, lowered its full-year sales forecast after a stronger franc weighs on revenue from Italy, while new offerings and subscribers offset domestic price competition.

Swisscom now sees revenue declining to 11.3 billion francs ($11.6 billion) this year compared with a February prediction of 11.4 billion francs because of the strength of the Swiss currency, Ueli Dietiker, Swisscom’s chief financial officer, said on a conference call. The stock declined 1.4 percent to 388.7 francs at 12:10 p.m. in Zurich.

“There is continuing price erosion in the Swiss mobile market, but we were almost capable to fully compensate this by the acquisition of new customers,” Swisscom Chief Executive officer Carsten Schloter said.

Swisscom bought Italian fixed-line operator Fastweb SpA in 2007 to compensate for slowing domestic growth. The Bern-based operator has suffered from competition in Italy and is the latest example of a Swiss company hampered by a declining euro that crimps sales converted into francs. Companies exporting to the 17-nation currency area, such as Holcim Ltd. (HOLN), Roche Holding AG (ROG) and Lonza Group AG (LONN) have seen revenue hit during Europe’s debt crisis, which has prompted the Swiss National Bank to defend an exchange rate ceiling.

Franc Ceiling

Switzerland’s central bank has pledged to enforce the franc ceiling of 1.20 per euro since September to fight deflation and help exporters. The franc has traded in a range of 1.20 to 1.24 since the cap was imposed, breaching it just once on April 5.

Second-quarter net income declined to 468 million francs from 485 million francs a year earlier, Swisscom said in a statement. Revenue fell 1.4 percent to 2.82 billion francs. Analysts surveyed by Bloomberg estimated net income of 464 million francs and sales of 2.83 billion francs.

Swisscom in June started flat-rate mobile and Internet plans and has launched offerings to counter competition and declining revenue from traditional calls. “Demand remains strong for bundled offerings such as Vivo Casa, which combines fixed-line access with telephony, Internet and TV, or Vivo Tutto, which also includes a mobile line,” the company said.

Dividend Forecast

Swisscom repeated a prediction of 2012 earnings before interest, taxes, depreciation and amortization of 4.4 billion francs. The operator said that if all 2012 targets are met, it plans to propose a dividend of 22 francs per share to be paid next year. Second-quarter Ebitda fell 1 percent to 1.13 billion francs, or 40.2 percent of sales, compared with 40 percent a year earlier.

“In principle I am very positive. Swisscom managed to increase the margin even though sales decreased,” said Michael Inauen, an analyst at Zuercher Kantonalbank in Zurich. “Considering that Swisscom rather disappointed in the past, the good results in the first half 2012 may have led shareholders,” to sell shares to realize profits.

The shares have gained 9.2 percent this year compared with a 0.9 percent drop of the 23-member Bloomberg Europe Telecommunications Services Index.

Swisscom’s domestic operations reported a 0.7 percent decline in revenue. Customer growth and new bundled offerings have been compensating for falling sales resulting from competition, pressure on prices and changes in the customer behavior. Users are increasingly switching from services such as phone calls and text messages to new IP-based applications and social media platforms, Swisscom has said.

“We expect 80,000 new customers in the bundled products segment with TV in the second semester,” Schloter said. “On the whole, we think that customer growth in Switzerland will considerably surpass the 80,000 in the next six months.”

The customer base at Fastweb grew by 78,000 users to 1.67 million in the first half of the year. Second-quarter net revenue at the business fell 2.3 percent to 430 million euros ($533 million).

To contact the reporter on this story: Joseph de Weck in Frankfurt at jdeweck@bloomberg.net

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

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