Provisions for dismantling and restoration, disclosure of discount rate and sensitivity, policy, judgements

Swisscom Ltd – Annual report – 31 December 2018

Industry: telecoms

3.5 Provisions, contingent liabilities and contingent assets (extract 1)


Provisions for dismantling and restoration costs
The provisions are computed by reference to estimates of future anticipated dismantling costs and are discounted using an average interest rate of 1.16% (prior year: 1.19%). The effect of using different interest rates amounted to CHF 3 million (prior year: CHF 1 million). The cost index used for computing the dismantling costs was amended in the prior year resulting in an impact of CHF 55 million. In 2018, as a result of reassessments, adjustments totalling CHF 3 million (prior year: CHF 53 million) were recorded under property, plant and equipment, with no impact on the income statement, and an expense of CHF 1 million (prior year: income of CHF 1 million) which was recognised in the income statement. The non-current portion of the provisions is expected to be settled after 2020. An increase of estimated costs by 10% would result in an increase of CHF 58 million in the amount of the provision. A delay in the timing of dismantling by a further ten years would lead to a reduction in the provision by CHF 39 million.

3.5 Provisions, contingent liabilities and contingent assets (extract 2)
Significant judgements or estimates
The provisions for dismantling and restoration costs relate to the dismantling of telecommunication installations and transmitter stations as well as the restoration to its original state of land held by third party owners. The level of the provisions is determined to a significant degree by the estimation of future dismantling and restoration costs as well as the timing of dismantlement. Provisions for pending litigation are measured on the basis of information available and an estimate of probable expected cash outflows. Depending on the outcome of these proceedings, claims may be made against the Group which are possibly not or not fully covered by provisions or existing insurance. The provisions so established constitute the best possible estimate of the liability. Possible liabilities whose occurrence as of the balance-sheet date cannot be assessed, or liabilities, the level of which cannot be reliably estimated, are disclosed as contingent liabilities.

Accounting policies (extract)
Provisions are recognised whenever a legal or constructive obligation arising from past events, the outflow of resources to settle the liability is probable and the amount of the liability can be estimated reliably. Provisions are discounted if the effect is material.

Provisions for dismantling and restoration costs
Swisscom is legally obligated to dismantle transmitter stations and telecommunication installations located on land belonging to third parties following decommissioning and to restore to its original state the property owned by third parties in the locations where these installations are erected. The costs of dismantling are capitalised as part of the acquisition costs of the installations and are amortised over their useful lives. The provisions are measured at the present value of the aggregate future costs and are reported under non-current provisions. Whenever the provision is re-measured, the present value of the changes in the liability is either added to or deducted from the cost of the related capitalised item of property, plant and equipment. The amount deducted from the cost of the related asset may not exceed its carrying amount. Any excess is taken directly to income.