Urs Schaeppi - CEO Mario Rossi - CFO Bart Morselt - Head IR

Georgios Ierodiaconou - Citi Hannes Wittig - JPMorgan Vikram Karnany - UBS Usman Ghazi - Berenberg Bank Allan Nichols - Morningstar

Good morning ladies and gentlemen, and welcome to the Swisscom Half Year Results 2014, today with Urs Schaeppi, Mario Rossi and Bart Morselt. Bart, floor is yours.

Thank you. Good morning ladies and gentlemen, welcome from our side. As just mentioned with me are Urs Schaeppi, our CEO and Mario Rossi, the Group CFO. The agenda on Page 2 just briefly, we have titled Q2: second to none simply because Q2 was a very good and very strong quarter. We will start in the first chapter. Urs Schaeppi will start in the first chapter to show why the second quarter was so strong both financially and operationally. After that Mario Rossi will take over to discuss the Group results before we move to the Q&A which will then be handled by the operator directly. With that, I would like to hand over to Urs Schaeppi for presentation. Urs?

Good morning, ladies and gentlemen. As Bart mentioned, we had a good Q2, if you go to Slide 4, you will see the development of the profitability on EBITDA levels, but also on EBIT level we have a very strong quarter and we have EBITDA growth of 5% -- approximately 5% compared to 2013 and we are slightly above analyst expectations. If you go to Slide 5, you see the growth year-on-year and you can see that we have revenue growth compared to previous year a bit over hand mainly on the revenue side; on the EBITDA side we have growth of CHF 80 million and EBIT CHF 50 million. This higher growth in EBITDA – that the growth in EBITDA is high than the one on the revenue side, on the purchase percent level and the main reason behind this that we have a better composition of the revenue. We have low margin sales mainly handset sales CHF 38 million lower handset sales and these results in this over proportional increase of the EBITDA. The net income growth is slightly lower than – higher than previous year due to – or the lower increase is due to higher cost of interest and higher taxes compared to Q2 2013. But overall, solid figures on the growth side. On Page 6, you see the revenue – the growth – the revenue in the different components, you see that the – also the service revenue where we have a strong increase in the service revenue quarter-by-quarter CHF 28 million in Q1 and CHF 34 million in Q2. So as I mentioned before we have less low margin revenues these are mainly IT revenues and then this hardware revenues. But the strong margin revenues are increasing in a very good way. If you go on Slide 7, then you will see service revenue -- a bit more details of our service revenue and also how we increased on the bundle side and on the one play side. All bundles are growing and the main driver of our results in Q2 is the strong development of three play bundles and also the good performance on the mobile side. Let's have a look – bit deeper look to the bundles, triple play bundles. You see that we have two very successful quarters with triple play product. In Q1, we have an increase of CHF 46 million, in Q2 CHF 59 million and interesting, it's also to have a look to this CHF 59 million increase in Q2 on the triple play bundles, CHF 25 million of this CHF 59 million are coming from triple play products with components of TV, voice and broadband, CHF 21 million are coming from TV, mobiles and broadband bundles and CHF 13 million from voice, mobile and broadband bundles. That means that about 58% of our bundles include mobiles. And you can also see on the right side of the chart the growth of quadruple play bundles also there we have a strong growth above CHF 30 million in each quarter, and it shows that the main driver of our service revenues are triple play, quadruple play bundles, mobile and TV. If you go on Slide 8, there you see the development of the EBITDA, year-on-year EBITDA growth. In all segments, in all business units we have a nice increase of the EBITDA in Swisscom Switzerland, but also in Fastweb, in Fastweb we have a strong increase in Q2 on the EBITDA side and overall for Q2, we have CHF 50 million EBITDA growth which is 4.7% growth. Interesting is to go to Slide 9, there you see the development of the normalized EBITDA. On the upper side of this chart, you see the reported EBITDA this CHF 30 million, CHF 50 million and CHF 80 million and on the lower side of the chart you see the normalized EBITDA that means that the EBITDA without one-offs are exceptional. And you can see that this EBITDA in Q2 and Q1 stable CHF 27 million and CHF 26 million on a quarterly basis and CHF 53 million EBITDA growth and this is actually the industrial performance which is a good one. Going to Slide 10, there you have a bit more details to the normalized EBITDA growth. And you can see that we have a strong quarter for Fastweb and we have CHF 18 million growth for Fastweb, but also Swisscom Switzerland, you see we have CHF 8 million growth of the normalized EBITDA. But this despite we have CHF 13 million higher SACs or subscriber retention cost that means if you would have subscriber acquisition cost on a comparable levels, the result of Swisscom Switzerland would be CHF 13 million higher, so strong and good figures on the normalized EBITDA. If you go to Slide 11, then you will see the net tax, bit more data to the net tax. On the upper part of the Slide, the net tax in terms of product, you see that we were able to grow in 2014 in the first half year by 61,000 and 66,000 subscriber revenue regenerating units and in Q2 that means that we have 8% growth when compared to 2013 Q2. The main driver behind this growth on the terms of products are lower fixed voice losses on the one side, on the other side a stronger growth of broadband and TV. So good results on the revenue generating units and on the lower part, you see the net tax Q2 the revenue generating unit in terms of packages, you see the strong growth of triple play and quadruple play products, 91,000 revenue generating units on triple play bundle. So good performance for quadruple play and triple play products. If you go to Slide 12, you see the ARPU development also strong operational performance on the ARPU level. On the left side of the chart, you see the single play product, stable ARPU despite we have the price changes in Switzerland and in Switzerland CHF 160 million price decreases also on the roaming side and we were able to keep our ARPU on single play product stable. Interesting its but then to look on the right side of the chart there you see the ARPU development of the bundles. And if you take triple play products you see that we were able to increase our ARPU by 4% good performance and the blended ARPU with the lower product portfolio of Swisscom is stable – of Swisscom Switzerland is stable its CHF 45. Let's go to Slide 13, there you see some details about Fastweb also good operational performance of Fastweb despite the higher competition which we have in Italy. If you take the broadband net adds, you see that we were able to grow with 50,000 subscribers' broadband connection in the first half year, this is 43% of the net market shares and if we compare with the market so we are the leader and we have the good net add performance in the first half year. Important for Fastweb is also the business segment, the enterprise segment and you see that we have a strong performance in the enterprise segment. We were able to increase our order book in Q2 by 21% we have an order book in the first half year of [€151] (ph) million order in take. And interesting is also to have a deeper look to our successful bid rates, it is 71% on high level success rate in the bid. So that means we were able to increase our market share in the corporate business. The financial for Fastweb, you can see on Slide 14, stable revenue – revenue or slightly increasing revenue if we take -- if we compensate that hubbing -- the low margin hubbing revenues, strong performance, strong trends on the EBITDA level, 12% increase of EBITDA year-on-year and we have €236 million EBITDA in the first half year. And if we take out the net of the positive effect of the lower unbundling prices LLU (sic) ULL prices even then we have a good increase and strong increase of our EBITDA by over 5%. The CapEx that are mainly increasing due to the fiber-to-the-street rollout and if you have a look to the free cash flow, we see also a positive trend if we take out the FTTS investment we see that we have a positive free cash flow of €40 million and a positive trend in overall development of the free cash flow. Let's go to Slide 15, on Slide 15, you see our guidance, because of the good performance in the first half year we increased our guidance for EBITDA from CHF 4.35 billion to almost CHF 4.4 billion EBITDA. And the explanation for it you can see also on the chart in the first half year, we have EBITDA growth of CHF 80 million. From this CHF 80 million, CHF 27 million are coming from one-off so that means CHF 53 million are really clean let's say a clean EBITDA increase. In the second half year, we will have also growth; we estimate a growth of CHF 40 million to CHF 60 million and about 50% of the CHF 40 million to CHF 60 million are one-off. So we have a slightly lower increase in Q2 also because of a very strong second half in 2013, but overall, we'll also have a growth in the second half year 2014. Unchanged will be the revenue guidance with CHF 11.5 billion and also the CapEx unchanged CHF 2.4 billion. Let me give you some information about our public takeover bid for PubliGroupe. Our primary aim of the acquisition of PubliGroupe is to have the full control over the directory business local.ch. This business we want to develop and therefore, we offered a price per share of CHF 214 and we are optimistic that we will have a successful takeover. Today we have a share amount of a bit over 90%; we are now in the extended offer period until the 25th of August. And what we also needed for doing this deal is – the approval of the competition commission, it is still pending but we are optimistic that we will get it. The closing is expected in the beginning of September and shortly afterwards we will have a cash-out for the payment of PubliGroupe of CHF 475 million. The impact on EBITDA will be then CHF 20 million. If we acquire PubliGroupe, we also get some other companies and some of them we will sell them certainly all the minorities in the media companies we will sell them and this will give us some additional cash in Q4 and the non-strategic shareholdings we will assess them carefully in Q4 and then decide if we keep them or sell them. Let me give you some information also on the outlook. After the takeover of PubliGroupe, we will watch local.ch and search.ch, search.ch is the directory business of Tamedia, a competitor of Swisscom in Switzerland, and we will merge them to a joint subsidiary where Swisscom owns 69% and Tamedia owns 31%. The whole impact after the PMI of these companies that means in two to three years will be CHF 90 million overall at a sum and this means an increase to the -- by CHF 22 million to CHF 30 million addition EBITDA contribution to this joint subsidiary. Now, I would like to hand over to Mario, which will give us some information about the Group results.

Good morning also from my side, a few words from the financials. I will start on Slide 18. So net revenue for the Group went up by around CHF 100 million or 1.9% to CHF 5.7 billion. Without exceptional items our top line increased by 1.2% or CHF 65 million driven by the following three elements, CHF 20 million come from Swisscom Switzerland, there the key message is that the decrease in single play revenues of CHF 131 million was over compensated by the increase in bundle revenue – which is the increase is slightly over CHF 180 million. 7 million revenue increase comes from Fastweb; the consumer segment was able to increase the revenue and the price segment at a decline of 1.6% in the first half which doesn't concern us because the recurring margin remains stable. In the segment above Swisscom IT service report an operational increase on third party revenues of CHF 20 million. On the Group results, breakdown by segments, the residential segment in Switzerland grew by CHF 56 million, service revenue, here the ARPU mobile increased by 3% then we had a positive impact from the migrate to infinity and year-over-year we were able to increase the revenue generating units by 335,000. SME delivered CHF 9 million service revenue there we had slight decrease on the ARPU 1.7% but also there we were able to increase our revenue generating units by 40,000. The corporate segment reports CHF 15 million global service revenue there is still some price pressure especially in the mobile market in the corporate segment. Lower hardware sales were explained earlier by Urs. Now, I go directly to Slide number 21, there you have the EBITDA breakdown by segments. Without models Swisscom Switzerland increased EBITDA by CHF 27 million; CHF 23 million come from direct handset segments that's the fourth quarter in a row where handset was able to grow the EBITDA, CHF 6 million come from SME, here we have a stable development at the very high level, this is third quarter in a row where we can grow the EBITDA. And corporate below CHF 6 million EBITDA contribution, I would say this development, we were able to stabilize this development if you look at Q3 and Q4 in the prior year, there we lost CHF 8 million and CHF 11 million of total. Fastweb's EBITDA contribution increased by CHF 31 million, CHF 17 million come from the lower tariff for the purchase of ULL, a big stream services and CHF 14 million come from margin improvement due to cost reduction. On Slide 22, the break from EBITDA to net income, deprecation and amortization increased by CHF 30 million and that's mainly because of the high CapEx level in both Italy and Switzerland. Net interest was CHF 12 million better than in the previous year reflecting the decrease of very low interest rates. Other financial results had a negative impact of CHF 34 million that compared to the prior year, the decline reflects as in Q1 a negative result of a fair value adjustment of an interest rate attach in the prior year we had a positive impact to CHF 22 million, this year we have a negative impact of CHF 19 million. Higher interest rate, an increase in interest would lead to a positive impact on this slide. Income tax expense of CHF 219 million let to an effective tax rate of 20.8%, on the long-term, you can calculate with 21%. Compared to the last year, I would say we can show basically a stable bottom line compared to the last year. On CapEx, CapEx went out by approximately CHF 100 million to CHF 1.2 billion in the first half, CHF 33 million come from Swisscom Switzerland, result of the higher investment in the FTH – FTTS. Both FTH and FTTS at mid-year, we can deliver to 1 million households (indiscernible) broadband in Switzerland and we have an LT coverage of 94% from Tamedia. CapEx of Fastweb represented increase of CHF 31 million that's due to the ongoing rollout of our fiber-to-the-street projects. And the other CapEx increased by CHF [21.6] (ph) million mainly driven by higher investments of 8% and cloud services. The operating cash free flow on Page 24, CHF 830 million, which is CHF 30 million below previous year and it's the main reason for that is – are the higher CapEx in the first half. With that, I conclude the presentation and handover to the operator to start the Q&A.

Thank you very much. (Operator Instructions) The first question is coming from Mr. Georgios Ierodiaconou from Citi. Thank you. Georgios Ierodiaconou - Citi: Yes. Good morning and thank you for taking the question. I had two questions more or less on the same topic around FTTH, FTTS uptick so far and any news on the optical cloud TV in the first three months since the launch. Could you update us whether you are seeing any changes in the pace at which you are arriving fiber cost over as I believe for the last month you increased that traceable market around 1 million homes from 750 previously whether you have seen during the course of any improvement in the run rate. And then secondly on cloud TV, I'm quite surprised that you didn't see an acceleration in [PVNET.] (ph) this quarter versus last year given you have a new product available. Can you give us any indication as to why that's the case and maybe why things could change in the coming quarter? Thanks.

Good. First on cloud TV, we launched our new cloud TV product in beginning of April and without really big commercial because it's a very complex new project and therefore we made a silent launch. And we are actually very satisfied with the development of the NET. We have after three months 77,000 customers on this new TV project, today we are above 100,000 so the development is really as we estimated it. And we have also good satisfaction with this product that we have a high NPS; this NPS is still in the higher level than with our old TV product. So we are happy in this. With the fiber-to-the-home and fiber-to-the-street, Mario please?

On the fiber-to-the-home, we have currently slightly above 100,000 fiber customers, we do not see an acceleration, but we see ongoing continuing growth in this FTTH sales and then FTTS it's too early to comment on new customers because we really felt that these FTTS rollout inflates in Q2. Georgios Ierodiaconou - Citi: Thank you.

The next question is coming from Mr. Hannes Wittig from JPMorgan. Please go ahead sir. Hannes Wittig - JPMorgan: Yes. Good morning. I have a question related to Italy there was a bit of a slowdown in your broadband growth in Fastweb. In the second quarter of course, the first half performance was fine but of course, sequentially there was a bit of a slowdown, so how do you look at that, is there any intention to accelerate the growth again into the second half and take any measures towards that goal or are you happy with sort of the current run rate? And secondly, also on Italy just remembering that you had at some point being talking about becoming full MVNO in the country where a better – a more deeper MVNO in the country, is there any progress that you could talk about?

But to the net adds in Q2, did I say they were lower than in Q1, the main reason is very promotion driven market in Italy in the second quarter. And I would say that the run on rates for the next month will be a bit above the Q2. But, we will have a strong competition in Italy also in the second half year which is very promotion driven but what I see is actually it is slowing a bit down. So that could mean that Q3 and Q4 could be a bit better than Q2. On the full MVNO, yes, we have plans to do it. And then we are working on it. Hannes Wittig - JPMorgan: Okay. Thank you very much.

Thank you. The next question is coming from Vikram Karnany from UBS. Thank you. Vikram Karnany - UBS: Yes. Hi. Thanks. I have got couple of questions. Firstly, please can you update us on the development in the corporate segment? I see the ARPU here is still under pressure down 10%, are you seeing signs of stabilization or is there still competitive pressure continuing in the segment. And secondly, on the mobile market and domestic segment you flagged few updates at the time of last quarterly results, Sunrise launching their Freedom tariffs and UPC also coming in mobile. I just want to get an update from you guys say in terms of have you seen any impact of these changes on your overall mobile business, or is it too early to comment to see them back? Thanks.

ARPU, to the ARPU development in the enterprise or corporate segment, what we see is it's a – lower decrease in our ARPU in the mobile segment. So it's stabilizing so we have quite a hard time in the last year, second half of last year because very competitive pricing in the mobile market. So we see a slightly recovering of the EBITDA decrease. So and also Mario mentioned it in his presentation that we are improving in the enterprise segment on the ARPU side. On the mobile, the new products of Sunrise is SIM only products. If I take only the let's say the net tax, I think Sunrise has done quite well in Q2, they get some additional customers but not on the back of Swisscom. If I look to our importing rates we are still very good importing – net importing rates we are in a good shape got a very low and extremely low churn rate and therefore, we are happy with the development in our mobile business. And it will be interesting to follow up the market what will happen with this SIM only product, but I think they mainly acquire low ARPU customers. And UPC, yes UPC we don't really see a big change – with the UPC offering still very quite in Swiss market. Vikram Karnany - UBS: Okay. That's good. Thank you.

(Operator Instructions) Thank you. Yes. The next question is coming from Mr. Usman Ghazi from Berenberg Bank. Thank you. Usman Ghazi - Berenberg Bank: Hello, gentlemen thank you for taking my question. I just wanted to – I have two questions. The first one was just on the action that was done I think just at the beginning of Q2 to give more speeds away in some of the infinity packages. I was just wondering what the rationale for that was given and the desires to monetize the desire for high-speed so why did you give more speeds away for free? And then the second question was just on the SAC, the reason for it being higher in the second quarter given that device sales were down would be much appreciated. Thank you.

I will take the infinity and Mario will go on the SAC. Infinity speed we increased it to have a positive trend in our product portfolio that means that we get more upselling dynamic in infinity that's was the main reason. And it was a successful action. Usman Ghazi - Berenberg Bank: Sorry. Can I just clarify but you are giving more speeds for free for the same price point. How is that helping upselling?

Yes. Because you have also our competitors, they don't have the differentiation on speed. And if it is a bit more speed then we will also have better net adds and we will get more customers on infinity.

Excuse me, we have not done that for each of the five tariff plans, just two tariff plans we have an upgrade. And it is also another tool to prevent people from down rating the plan because they have been very good with the speed. So that they stay at the current plan and continue to generate the same ARPU, so it's just a defensive measure. In the context of effect that we launched two years ago infinity rates, the first customers now have the right to migrate from the 24-month contract into a new contract since the retention to the same plan. Usman Ghazi - Berenberg Bank: Right. Okay. Thank you.

Then on the Fastweb, three reasons for the IS up in the first half, first, we have more retained customers than in 2013 approximately 5% then in these retained customers, we had a higher smartphone sales, it was over 90% last year it was 86% that means the subsidy for handset goes up, then the third reason is indeed high subsidies of about 3% because we have to react to the SIM only offer of Sunrise, we had the slight increase of the – the (inaudible) per handset. Usman Ghazi - Berenberg Bank: Okay. Thank you very much.

The next question is coming from Mr. Allan Nichols from Morningstar. Thank you. Allan Nichols - Morningstar: Hi. Thanks for taking my question. You mentioned that you hadn't seen any real impact from UPC on the mobile side. I was wondering about impacts elsewhere Liberty Global reported that they had 6% revenue growth in Switzerland which was their best result there in years. So I was just wondering how that's affecting you elsewhere. Thank you.

So UPC had a good first half is right. If you look a bit deep to the results, you see that it is driven on the one side by net adds in the broadband, Internet connection, there they made quite a good job. They lost customer on the TV side. And the main impact of this increase is coming from high prices. They are quite skillful in increasing their prices in the product portfolio. Allan Nichols - Morningstar: Okay. That's helpful. Thank you.

(Operator Instructions) Thank you. We have no further questions at the moment.

Okay. In that case if you allow me to thank all of you for your attention. We look forward to speaking to you soon again. If there are any open questions please feel free to contact Louis Schmid or myself. All right, thank you. Have a nice day. Bye.