Swisscom 3Q Net Profit Jumps, Sales Fall"

BERN -(Dow Jones)- Swiss incumbent telephone operator Swisscom AG (SCM) Thursday reported a jump in third-quarter net profit thanks to lower costs and following a charge the previous year but said sales continued to decline.

The company also said it would reduce costs further by cutting its headcount by 260 in 2006.

Swisscom's sales have been hit as technology and increased competition erode Swisscom's traditional business, a trend which new broadband connections couldn't offset.

The company Wednesday confirmed it is in talks to buy Irish telecoms company Eircom Group PLC (EIR.DB) in an effort to boost growth.

The Bern-based former monopoly, still the largest operator in both fixed-line and mobile telephony in Switzerland, said third-quarter net profit attributable to Swisscom shareholders was CHF534 million, up 39% from the previous year.

In the third quarter of 2004, Swisscom took a CHF150 million impairment charge to adjust the value of its fixed line network.

Sales were down 5.5% to CHF2.39 billion. This was driven by a decline in the number of fixed lines, to 3.84 million from 3.95 million, which couldn't be offset by a rise in ADSL lines to 1.01 million from 717,000.

And although the company signed up more than 200,000 new mobile phone users - both subscriptions and prepaid - revenue from this business was down too, as price cuts and aggressive tariffs weighed on the figure.

From the start of June this year, Swisscom Mobile reduced the price for termination on its network by 40% and launched a new product, NATEL Swiss Liberty, with a flat-rate charge of CHF0.50 per call of up to one hour.

The closely watched earnings before interest, taxation, depreciation and amortization was down in the quarter by 6.4% at CHF1.07 billion from CHF1.15 billion, as sales fell at a faster rate than operating costs.

But Swisscom's third-quarter numbers were ahead of expectations. A poll of 11 analysts by Dow Jones Newswires had pointed to net profit of CHF477 million and EBITDA of CHF1.03 million. Sales were just shy of expectations of CHF2.40 billion.

"EBITDA was ahead of my estimates, but that's entirely due to fantastic cost management at the fixed line business," said Can Elbi, an analyst at Cheuvreux.

"But you have to question how long they can keep that up, especially since revenues there are declining. Bottom-line, it's still an 'underperform' stock," he said.

In pre-market trading, Swisscom shares look set to open CHF0.50 higher at CHF421.50. For the year to date, shares are down 6% making it one of the laggards compared to other Swiss blue chips. The SMI is up 27% in the same period.

Company Web Site: http://www.swisscom.com

-By Hans Schoemaker, Dow Jones Newswires; +41-43-4438045; hans.schoemaker@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 10th November 2005