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March 8, 2006 1:18 pm

Swisscom defies competition with higher earnings

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Swisscom said it could flourish in spite of the strategic corset imposed by the Swiss government as the telecommunications group defied cut-throat competition to report higher earnings for 2005.

Carsten Schloter, chief executive, said the group would continue to squeeze productivity, develop new business services and expand into complementary technologies to compensate for falling prices and fierce competition in its small home market.

Mr Schloter, former head of Swisscom mobile, replaced Jens Alder after the latter’s resignation this year in reaction to the Swiss government’s surprise decision to block big takeovers abroad. The move by the government, which owns 62.7 per cent of Swisscom, caused immense embarrassment, coming just as the company was poised to bid for Eircom of Ireland and other potential telecoms assets.

Mr Schloter predicted that initiatives, such as providing television pictures down conventional phone lines and offering outsourcing services to big companies, would restore sales growth by 2009. With takeovers of foreign companies with statutory telecoms obligations barred, such strategies remain Swisscom’s only option to counter otherwise chronic pressure on sales.

Anton Scherrer, Swisscom’s chairman designate, declined to comment in detail on the government’s initiative to fully privatise the company – the second part of December’s bombshell. However, Mr Scherrer, former head of the Migros co-operative retailing group, pleaded for clarity in any privatisation law and argued against separating network infrastructure from telecoms services.

Swisscom’s full privatisation is highly controversial and by no means a foregone conclusion under Switzerland’s unique direct democracy, with the possibility of a referendum next year. Trade unions and the centre left Social Democrats have opposed any sale for fear of risk to public services.

The group said it would boost its payout policy – in response to another new government requirement . The dividend will be raised by more than 14 per cent to SFr16 a share, while the annual share buyback is being boosted to about SFr2.25bn compared with SFr2bn last year.

While group operating profits were broadly stable, net earnings in 2005 after minority interests climbed by almost 27 per cent to SFr2.02bn on the back of lower depreciation and the write back of some provisions. Sales fell by 3.2 per cent to SFr9.73bn.

For the current year, Mr Schloter predicted a further erosion in sales to SFr9.5bn and fall in operating profits to about SFr4bn from SFr4.17bn in 2005.

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