Shareholders' Letter

Net financial result
Net financial expense increased by CHF 16 million year-on-year to CHF 365 million, while net interest
expense declined by CHF 20 million. The foreign exchange result fell by CHF 72 million due to
the strong Swiss franc. In the third quarter of 2009 and 2010, hedging relationships were terminated
in connection with the early repayment of bank loans, resulting in an expense of CHF 34
million (prior year: CHF 96 million).
Associated companies
This position mainly comprises the share of results attributable to investments in Belgacom
International Carrier Services, Cinetrade and LTV Yellow Pages (formerly PubliDirect). The share of
results of associated companies fell year-on-year by CHF 15 million to CHF 28 million. Dividends
received, amounting to CHF 55 million (prior year: CHF 93 million), largely concern dividends paid
by LTV Yellow Pages, Cinetrade and Belgacom International Carrier Services.
Income tax expense
Income tax expense amounted to CHF 502 million (prior year: CHF 460 million), corresponding to
an effective income tax rate of 21.9% (prior year: 19.3%). The increase in the effective income tax
rate is mainly attributable to the fact that no positive tax effects were recognised on the provision
for the VAT proceedings against Fastweb in the first quarter of 2010. Excluding one-off items, a
long-term income tax rate of around 21% is expected in future. Income taxes paid were CHF 65
million higher than a year earlier at CHF 365 million.
Net income and earnings per share
Net income declined by 7.1% or CHF 137 million to CHF 1,786 million. This was primarily attributable
to the provision for the VAT proceedings against Fastweb, which was recognised in the first
quarter of 2010, as well as higher income tax expense. Earnings per share are calculated on the
basis of net income attributable to the equity holders of Swisscom Ltd and the average number
of shares outstanding. The share of net income attributable to equity holders of Swisscom Ltd
decreased year-on-year by 6.0% to CHF 1,811 million. Earnings per share fell accordingly from CHF
37.18 to CHF 34.96.
Management Commentary 46 | 47
Financial review Group