Shareholders' Letter

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33 Financial risk management and supplementary disclosures regarding financial instruments Swisscom is exposed to a variety of financial risks resulting from its operating and financial activities. The most significant financial risks arise from changes of foreign exchange rates, interest rates as well as credit ratings and the ability of counterparties to meet their payment obligations. A further risk is the ability to ensure adequate liquidity. Swisscom’s financial risk management is conducted in accordance with established guidelines with the aim of limiting potential adverse effects on the financial situation of Swisscom. In particular, these guidelines contain risk limits for approved financial instruments and also specify risk monitoring processes. As a general principle, the guidelines prohibit the use of derivative financial instruments for purposes of speculation. Financial risk management, with the exception of credit-risk management from business operations, is handled by the central Treasury Department. It identifies, evaluates and hedges financial risks in close cooperation with the Group’s operating units. The implemented risk management process also requires routine reports on the development of financial risks. Market price risks Foreign exchange risks Swisscom is exposed to foreign exchange risks; these can impact the Group’s financial results and consolidated equity. Foreign exchange risks which have an impact on cash flows (transaction risks) are partially hedged by financial instruments and designated for hedge accounting. However, foreign exchange risks with an impact on equity (translation risks) are in principle not hedged. The aim of Swisscom’s foreign exchange risk management policy is to limit the volatility of planned cash flows. Forward currency contracts, currency options and currency swaps are employed to hedge transaction risks. Mainly affected are USD and EUR. As of 31 December 2010, Swisscom did not hedge foreign currency translation risks in connection with the translation of financial statements expressed in foreign currency (translation risk) using financial instruments. The following currency risks and hedging contracts for foreign currencies existed as of 31 December 2010: In CHF million EUR USD Other 31 December 2010 Cash and cash equivalents 20 3 1 Trade and other receivables 3 6 12 Other financial assets 12 343 – Financial liabilities (814) (369) – Trade and other payables (57) (34) (28) Gross exposure at carrying amounts (836) (51) (15) Gross forecasted cash flows exposure in the next 12 months (688) (337) – Total gross exposure (1,524) (388) (15) Forward currency contracts 306 155 – Currency options 38 – – Currency swaps – 6 – Currency swaps 781 37 – Hedges 1,125 198 – Net exposure (399) (190) (15)
The following currency risks and hedging contracts for foreign currencies existed as of 31 December 2009: In CHF million EUR USD Other 31 December 2009 Cash and cash equivalents 5 2 – Trade and other receivables 9 10 38 Other financial assets 2 389 – Financial liabilities (835) (408) – Trade and other payables (20) (21) (49) Gross exposure at carrying amounts (839) (28) (11) Gross forecasted cash flows exposure in the next 12 months (398) (319) – Total gross exposure (1,237) (347) (11) Forward currency contracts 163 32 – Currency swaps 742 48 – Hedges 905 80 – – Net exposure (332) (267) (11) Sensitivity analysis The following sensitivity analysis shows the impact on the income statement should the EUR/CHF and USD/CHF exchange rates change in line with their implicit volatility over the next twelve months. This analysis assumes that all other variables, in particular the interest rate level, remain constant. In CHF million 31.12.2010 31.12.2009 Income impact on balance sheet items EUR volatility of 11.99% (previous year: 5.25%) 100 44 USD volatility 12.68% (previous year: 12.85%) 6 4 Hedges for balance sheet items EUR volatility of 11.99% (previous year: 5.25%) (94) (39) USD volatility 12.68% (previous year: 12.85%) (5) (6) Planned cash flows EUR volatility of 11.99% (previous year: 5.25%) 82 21 USD volatility 12.68% (previous year: 12.85%) 43 41 Hedges for planned cash flows EUR volatility of 11.99% (previous year: 5.25%) (41) (9) USD volatility 12.68% (previous year: 12.85%) (20) (4) The volatility of the balance sheet positions and planned cash flows is partially offset by the volatility of the related hedging contracts. Interest rate risks Interest rate risks arise from fluctuations in interest rates which could have a negative impact on the financial position of Swisscom. Fluctuations in interest rates can result in changes in interest income and expense as well as the market value of certain financial assets, liabilities, and hedging instruments. Swisscom actively manages interest rate risks. The main aim of Swisscom’s interest rate risk management is to limit the volatility of planned cash flows. Swisscom employs interest rate swaps and options to hedge its interest rate risk. The structure of interest-bearing financial instruments is as follows: Consolidated financial statements 194 | 195 Notes to the consolidated financial statements
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2010 Annual Report
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Our promise We bring people togethe
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KPI’s of Swisscom Group In CHF mi
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Fastweb Fastweb is the third larges
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Swisscom share performance in 2010
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Changes to the Board of Directors T
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Management Commentary We combine th
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Environment, strategy and organisat
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See www.swisscom.ch/ networkcoverag
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Development of exchange rate CHF/EU
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Regulatory developments in Switzerl
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Market shares mobile subscribers in
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Market shares IT services in Switze
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Subsidiaries Associates 6 Board of
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Maximise Maximise our market positi
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Enterprise value In CHF million, ex
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Share performance 1998-2010 in CHF
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Employees Swisscom offers employees
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Full-time equivalent employees at e
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Staff development Swisscom makes ta
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Employee satisfaction In May 2010 S
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Staff recruitment Recruiting new st
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Financial review Group Development
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Share of operating segments in net
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Net financial result Net financial
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Operating segment results Developme
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Swisscom TV customer base increased
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Development of third-revenue in CHF
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Development of third-revenue in CHF
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Development of third-revenue in EUR
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Quarterly review 2009 and 2010 1. 2
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Quarterly review 2009 and 2010 1. 2
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Due to the early termination of cro
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Development of net debt in CHF mill
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Development of capital expenditure
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Risks Taking calculated risks - the
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Measures are in place for most risk
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Environmental and health risks Elec
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Ecology Leading role in business pr
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Objectives/Strategy Board of Direct
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See www.swisscomnature.ch/ CRblog P
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Materiality matrix Swisscom 2010 Ma
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See report page 100 See www.swissco
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Environmentally friendly products a
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See www.icnirp.org See www.swisscom
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Access for all See www.swisscom.ch
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See www.snowfriends.ch Internet for
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Energy-efficient infrastructure tio
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See www.cdproject.net/en-US the pas
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Innovation and development Swisscom
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GRI topics / KPI Objective Status /
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Corporate Governance and Remunerati
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See www.swisscom.ch/basicprinciples
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2 Capital structure 2.1 Capital At
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3 Board of Directors 3.1 Members of
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Hugo Gerber Michel Gobet Thorsten G
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Felix Rosenberg Richard Roy Othmar
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See report Page 128 3.6 Committees
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See report Page 69 3.9 Controlling
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4 Group Executive Board 4.1 Members
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Kathrin Amacker-Amann Eros Fregonas
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Urs Schaeppi Urs Schaeppi Swiss cit
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6.2 Statutory quorum requirements T
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8.4 Supplementary fees The suppleme
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Remuneration report See report Page
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Remuneration paid to the Board of D
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sizes domiciled in Switzerland and
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Clause on change of control The emp
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Financial Statements Swisscom’s b
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Consolidated income statement In CH
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Consolidated statement of cash flow
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Notes to the consolidated financial
Page 145 and 146: The exchange rates of significance
Page 147 and 148: 3.8 Business combinations and goodw
Page 149 and 150: on sale-and-leaseback transactions
Page 151 and 152: of radio services, multi-platform s
Page 153 and 154: 3.23 Income taxes Income taxes incl
Page 155 and 156: In CHF million Reported Adjustments
Page 157 and 158: Provisions for interconnection and
Page 159 and 160: The main reasons for the recognitio
Page 161 and 162: 6 Segment information Operating seg
Page 163 and 164: Other Group Swisscom operating Head
Page 165 and 166: 7 Net revenue In CHF million 2010 2
Page 167 and 168: Fastweb Employees of the Italian su
Page 169 and 170: The analysis of the comPlan’s pen
Page 171 and 172: 12 Other operating expense In CHF m
Page 173 and 174: 15 Income taxes In CHF million 2010
Page 175 and 176: Balance Recognised Change in Foreig
Page 177 and 178: Analysis of maturity and allowances
Page 179 and 180: acquisitions. Other derivative fina
Page 181 and 182: Land, Advances made buildings and a
Page 183 and 184: As of 31 December 2010, other intan
Page 185 and 186: The following table provides select
Page 187 and 188: Private placements Carrying amount
Page 189 and 190: The future payments of the liabilit
Page 191 and 192: Since 2000, several telecommunicati
Page 193 and 194: in the Federal Administrative Court
Page 195: Other reserves Cumulative foreign c
Page 199 and 200: tional Swaps and Derivatives Associ
Page 201 and 202: Asset/liability categories and fair
Page 203 and 204: Asset/liability categories and resu
Page 205 and 206: In 2009, Swisscom terminated intere
Page 207 and 208: The value-added tax receivables are
Page 209 and 210: Key management compensation In CHF
Page 211 and 212: 41 List of Group companies Register
Page 213 and 214: Registered Registered Shareholding
Page 215 and 216: Report on Other Legal Requirements
Page 217 and 218: Balance sheet In CHF million Note 3
Page 219 and 220: 6 Treasury shares Swisscom Ltd reco
Page 221 and 222: Base emoluments and functional allo
Page 223 and 224: influence. Parents, siblings and ch
Page 225 and 226: Report of the statutory auditor Rep
Page 227 and 228: Further Information Discovering new
Page 229 and 230: Glossary Technical terms ADSL (Asym
Page 231 and 232: LAN (Local Area Network) A LAN is a
Page 233 and 234: Networks Access network Swisscom’
Page 235 and 236: Financial terms Average minutes per
Page 237 and 238: Other terms Bit-stream access (BSA)
Page 239: Index of keywords Board of Director
Page 242: Publishing details Key dates > 17 F
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