Sunrise Communications A

Good afternoon, ladies and gentlemen. Thank you for joining us today. Welcome to Sunrise's third quarter 2024 financial results call. This call follows the Liberty Global investor call as we are still reporting as part of Liberty Global. Please note that the financials presented in this call have been prepared in accordance with IFRS accounting standards. With me today are Audrey Krause, our CEO, and Yanni Frottier, our CFO. We will start the call with the presentation, which will be followed by a Q&A session. Let me now hand over to our CEO. André, please go ahead.

Thanks, Alex, and welcome everybody to our first quarterly results call for the third quarter of 24. Today, we want to talk you through three main topics and give you more color on the evolution of our business So firstly, I will talk about our commercial activities, campaigns and actions we have taken underpinning a strong netted result and trading momentum for the quarter. Secondly, we will also talk about our financial evolution in the quarter and also how that compares to our guidance given and Jani will do that. As well, Janni will also take you to the third topic, which is then about giving you an update on our spin-off and what are the steps in front of us. Also, of course, reflecting the shareholder vote that has happened last week and gave a 99% approval. And as such, the green light to go ahead will also give you some color on the recent refinancing that has happened on the back of the cash injection that we have received from Liberty. Now with that, let me straight move into the commercial momentum update that I want to give you. So starting off with our main brand activities in the third quarter, an important activity was the speed upgrade program that we initiated and launched in August, which essentially gives a two and a half gig speed to all existing one gig customers if they are on FTTH or if they are on HFC. So while we are speaking, we have upgraded 20% of our customer base, of our total customer base, hence all those customers that are sitting on or have been sitting on such 1G products to the 2.5G proposition, which is a free of charge upgrade. And we are also now in our front book go-to-market approach, are selling only 2.5G as an entry speed to all new customers, either on HFC or on FTTH. that has also underpinned a strong inflow of hfc customers again in the quarter in total we have seen 55 percent um share of hfc and the small portion of that is also on fixed wireless access but again we see good momentum on our hfc proposition hence we are also reconfirming our network strategy with the results of this quarter We have also underpinned this activity with a new marketing campaign, essentially a sequel of the campaign that we have done with Roger Federer and Marco Odermann back in Q1. Now, this campaign this time is again quite a funny one and also is having a tack-on which is talking about the boats getting an upgrade while they are in an airport lounge, of course, expecting that to be a flight upgrade, but essentially they are getting the two and a half speed upgrade. So that is also linked to the speed upgrade activity. Noteworthy is, I think, that we have gotten quite a strong publicity on the whole campaign, not only on this one, but also the first one back in Q1. And I think the likability and also the recall of customers of that campaign is standing out and is very strong. So I think it's, again, a good path also to underpin our premium brand positioning in the Swiss market. Thirdly, and also quite important element as we are all, of course, looking into what is the promotional intensity in the market, we have upgraded an important tariff, which was an online-only tariff. Hence, we have been selling that product only in our direct online channel. And it was priced quite aggressively and previously had a price point of around 35 Swiss francs. which has also caused action at our competitors to see what we are doing and to react to that. Now we have chosen in the third quarter to have a more for more pricing, have upgraded the price point to 39.90, and on the back of that have also included more roaming and more countries into the proposition. And I think the interesting component that we have observed afterwards is that also our competition has followed that pricing up activity, which I think is a good indication to us that we have the ability to impact the market pricing if we are taking actions. Beyond that, because I know everybody is keen to understand what is the promotional intensity in the market, we have seen that pretty stable. So we're not seeing further price aggressions on the promotional sides, but we see the environment pretty stable. And hence, I think the move that we have done here is also showing the ability to impact the environment with the things that we can do. Now with that, let me also talk about our Flex Upgrade program and the new Flex Bundle that we have implemented just with the iPhone launch this year. That is a proposition which is building on our device as a service strategy where we have in the past launched a Flex Upgrade program not only for the iPhone customer but also for Samsung customers. This product allows customers We have a flexible ownership and a monthly payment attached to that, which allows including insurances and including additional services to be very flexible in your exchange of a phone going to a new one. Now that we have now combined also with a mobile tariff so that you can buy a package, we've given here an example of 87 Swiss francs that gives you a mobile up L tariff, which is an EU unlimited flat rate, including an iPhone 16 Pro with 256 gigabits and including AppleCare and iCloud Plus. That is an unbeatable price point in the market with great flexibility on the product offering that we give. so that product we have seen is creating quite a good um i would say kpis and statistics for us so firstly the attach rate of the flex upgrade program to devices is 50 so it has a very high take rate we have also been able to push 20 um of the Flex Premium Bundle into any hardware sales that we have done so far in the quarter. So that is also working quite strong. And on the back of that, we have also been able to increase our iPhone orders and sales in the third quarter by 5% year on year. which is remarkable because our impression is rather that the iPhone evolution year on year has been rather stagnant or slightly declining. So we have a standout performance on the back of that product. Now, not only on our consumer main brand, but also on our Flanker brand, we have had strong commercial activity and results. On our Flanker brand, we have another, I would say, attractive milestone reach. We have now 1 million RGUs in the customer base of Yellow. That is obviously spread between our mobile products and our fixed products and also our TV products, but we see a continuously dynamic growth. And I think that is a testament of that positioning working very well. Also churn rate is improving year on year. I think, of course, important to note that on the fixed side, we have some increase in absolute churn because we have more customers coming out of contract as the customer base is still pretty young. But also the volume is very low so that that doesn't really make a meaningful impact on the total numbers. We have also worked on being more present with our yellow brand. We of course are very much focused on online, but we also have selective availability in our own shops. So we have brought up a new shop at the Zurich Main Station, which is a very high frequent location and very good for us to drive more customer inflow. And also we have started a unique campaign together with uber eats where you can actually have a proposition and a product and with yellow as part of that beyond that also we see nps continuously improving for yellow on a high level and we are also investing into modernizing the digital infrastructure and the customer journeys for that product to keep them lean and mean which is a very important part of the proposition And on the back of the activities, we have also seen decent performance in the third quarter again. talking about the b2b side of our business as well also here good new logos that we have been winning tesla is actually not a new logo but it's a contract prolongation that we have been able to do the attractiveness with tesla is obviously that the fleet is growing and our sim cards are in every tesla in switzerland and hence we are also growing on the back of the tesla growth so that's a very good relationship and partnership with Tesla. Let me also flash out Zauber, which has recently joined us, which is largely also looking at international roaming offers that they need to be present at the racing circuits across the globe. And we have been also able to prolong our extensive partnership with FC Basel, where we are not only providing mobile, but also fixed services and have a broad partnership here that is now going into a prolongation. Next to that, not only on the inflow side, but also on the quality side, we are continuing to invest and to make progress. We have done an ISO certification on ISO 22301, which is important also for our ability to convince and win particularly large customers. that require us to have this ability. And also I think with the logos that we have won on a variety of tests in the quarter, that's a good testament of our ability to provide high quality products and services to the B2B customers in Switzerland. lastly on the very right you see um the and you probably have seen the world championships in cycling which have been happening in the months of october in switzerland was a big event in zurich we have been the sole technology partner helping that event to happen have provided lots of technological infrastructure and connectivity. We have provided that free of charge and in return got also the opportunity to have a sponsoring presence, but also have some support to our Sunrise Moments program, giving customers the ability to have Money Can't Buy experiences on that event. So with that, let me summarize the commercial performance in the numbers that we have been reporting today. Very strong mobile postpaid net additions, 48,000 customers for the quarter. Also on the fixed side, 5,000 net additions for the quarter. So that's on the fourth quarter in a row where we are seeing positive net ads. And I think we can clearly see that we have stabilized and turned around the fixed net business across the different brands. um also our fmc quota has further increased so we are continuously also cross-selling um customers onto fmc propositions which is also over time of course helping the churn evolution and which we have been seeing improving um also important as you know we are migrating the former upc customers over to the sunrise product portfolio We have also seen now 120,000 migrations happening in the third quarter. And with that, we are fully on track to migrate all of the customers by end of the year with probably maybe some remaining customers in difficult circumstances, not in terms of pricing, but in terms of product setups. But the vast majority of that migration exercise will be ending by the end of this year. On APU, we are seeing continuous pressure on both on mobile, less and a bit more on fixed. The drivers for the third quarter are also, I would say, specific because we have the price increase in Q3 last year is no annualizing. Hence, we see less or zero impact from the price increase in the year-on-year evolution for the first time. secondly on the mobile side we had also a quarter with a third quarter that usually has a lot of roaming exposure because of vacations we see customers benefiting from richer tariff offerings having more included roaming offerings and as such the variable consumption of roaming is year on year reducing which is driving a remarkable impact impact on this quarter and lastly on the fixed side the impact is largely driven by the repricing of the customer base of um upc that while they are migrating over are getting then closer to front book prices um but also of course driving a significant churn reduction impact for us going forward so with all of that we are very much in line with our expectations i would say probably a bit stronger even in terms of growth momentum if we look at net additions. But overall, we see us very well on track towards our targets for this year. And with that, Jani, what does it mean financially?

Thank you, André. So if we go one slide further, yes, super. So on the left, you see the Q3 results, and then on the right, the year-to-date. If we zoom in first to Q3, we can see a slight revenue decline of 1.3%. which was partially driven by the roaming impact that andre spoke about before on top of that we have the continued right pricing and lastly this was the first quarter where we weren't benefiting anymore from the price increase that we executed last year that slight revenue decline translated into a slight ebit doll growth on the back of lower direct cost combined with a optimized opex spend When we then focus on CAPEX, you can see a significant decline in comparison to last year, which is in part the cost to capture that is phasing out. The other part is an overall phasing within the year. So that when we get to adjusted EBITDA minus P&E additions or OFCF, we can see a meaningful growth of around 16%. When we go to the right side of the graph and we focus on the year to date, you can see that the minus 1.3% revenue growth in the quarter has translated into a slight revenue decline for the year to date. However, on EBITDA, still a growth of 1.1%, as in H1, we were benefiting from the price increases. CapEx year to date, you can see a slightly less decline, and that is due to the phasing that I spoke about before a second ago. And then on adjusted EBITDA, you can see a still 5.3%, which is then a combination of the adjusted EBITDA plus the year-to-date lower capex, again, as we phase out the cost to capture. Down to adjusted FCF, you can see we have generated 190 million year-to-date, which is the decline versus prior year, however. that has mostly to do with the phasing of the network and capital movements, which I'll speak about slightly later on in the presentation. But all in all, these nine-month financials make us comfortable to hit our full year guidance, which I'll refer to a little bit later. So if we go to the next page, we break down the various drivers of the adjusted FCF. And for everyone to be aware, this is the way we're going to report our financials going forward, where on the slides we'll speak about the three main segments, consumer, B2B, and infrastructure and support. In the backup and in the fact sheets, we'll then also disclose the fixed and mobile breakdown in both subscription and non-subscription. And as such, I'll use some of those elements in the explanations of how we get to the year-over-year movements. So when we focus on revenue, we can see a minus 10 million decline year-over-year, which is predominantly driven by the decline that we see in consumer, which is effectively driven by two elements. On the one hand, the lower roaming usage that we typically see within the quarter, as André spoke about, as we include more of those roaming charges in the bundles, together with the right pricing that is a combination of in-year and annualization of last year right pricing. There is, of course, in-consumer partially offset by volume growth in both mobile and fixed of the Flanker brand, together with volume growth in B2B and slight growth in the infrastructure space, which is effectively the build to suit agreements that we have with Cellnex. When we then go to the right and we focus on adjusted EBITDA, It's important to note that between gross profit and OPEX, there is a year-to-date reclassification of leasings that has to do with the fact that we moved from US GAAP to IFRS, and as such, we had to make a number of corrections. But excluding or normalized for those corrections, what we see is a slight decline in gross profit on the back of the consumer decline that I spoke about before. offset by b2b and the infrastructure growth together with slightly lower opex year over year as we are continuing to drive an opex optimization program and the final phasings of course to capture that are falling out that drive then the 0.4 percent year over year Here, what we see on the left side is the adjusted EBITDA minus capex. And what you can see, especially if you focus on the quarter, that we are significantly reducing our capex asset that is in part because of the lower CPE. We send out lower CPEs within the quarter. On top of that, the IT transformation that is coming to an end is also driving lower capex and the cost to capture of the integration is also impacting that together with the phasing throughout the year, but partially offset by mobile capacity and 5G spent within the quarter. As I said, that normalizes out when we go to the right on a year-to-date basis where the difference is not as meaningful anymore. And what you can see then is that we get to around 119 million FCF for the first nine months. On the bottom of the slide, what we have tried to illustrate, given that, of course, we have guided for 360 to 370 million of free cash flow, how one gets from the 119 after nine months to 360 for the full year. And of course, this is illustrative, and as such, it's not always the same per quarter, but gives you a good sense of what typically happens in our free cash flow generation. So first of all, the adjusted EBITDA has some, but very limited seasonality throughout the quarters. CapEx typically does have a bit of seasonality where throughout the year, the CapEx ramps up on the P&E additions, but then another effect, and that's especially between Q4 and Q1, that is then offset in the networking capital as we recognize the CapEx spend through either vendor financing or our payment terms. And so therefore, you can see that Q4 is overly positive and Q1 is overly negative, normalizing out at adjusted EBITDA minus P&E additions. Then the last element, which is important to note, is that we have semi-annual interest payments that we do in Q1 and Q3. And so with that, I think it's important to note that the fact that we are only at 120 million after nine months is very normal and we're very comfortable to us. And again, once we get to Q4, I'll show you how that works and what the net movements are in all of the different categories that we classify here. So with that, let me quickly go back to the guidance. And Andre mentioned it earlier. We are reiterating the guidance that we gave during the Capital Markets Day. With revenue broadly stable, adjusted EBITDA stable to low single-digit growth, with capex at around 16 to 18% of revenue and the 360 to 370 free cash flow that I spoke about before. Important to note that this still includes that 10 million of spin-off costs, operational spin-off costs, if you will, that are included in that. For 2025, over the 2024 cash flow, the 240 million of dividend that we have continuously mentioned, and just for everyone to remember, we expect those dividends to be tax-free for Swiss residents for more than five years at least. All right, so let me now give you an update on where we are with the spin. So a lot of boxes here. Important to note that, as André said, last Friday we had the shareholder vote that significantly approved the spin as such. So that has been ticked off. Today and tomorrow, we're in the process of first of all, getting the capital injection from Liberty and then retiring a large chunk of the net debt reduction that we're expecting by year end. I'll show you in a second what that means. From there, there's a number of dates that are important. First of all, next Monday, where we'll have the distribution record date, meaning that is the date at which you need to hold a Liberty share to get a Sunrise share. But then the ADSs that are in relation to the new Sunrise shares will be distributed on the 12th. The first day of trading starting on the NASDAQ for those ADSs on the 13th. Then the day after with the ability to cancel those ADSs and receive the actual underlying Swiss Sunrise shares by the end of the day. so that on the 15th at market opening, there's actual Swiss liquidity in the system for the trading to then start. Lastly, we expect five trading days later to be included in the Swiss performance index or the SPI. Then when we go to the next slide, I think an update on where we are with our debt structure. So as we communicated during the CMD, we're expecting to get to a four and a half net leverage to EBITDA by the end of this year. That comes about from the 6.1 billion that you see in the table on the left as per the 30th of September to the pay down that we're currently executing today and tomorrow, plus the further cash to be generated that I spoke about before, which is approximately above 200 million. By tomorrow, we will be at 4.9 billion of outstanding debt, which is still slightly above four and a half. But with the free cash flow that we're going to be generating in the remainder of the year, we'll get to that four and a half. Now, what you can see in the table is that we have focused on retiring the senior credit of the loans effectively, which were the most expensive instruments. Secondly, what we focused on by doing so was focusing on around the 21, 29 and 31 maturities. And so by doing that, we have actually slightly extended the average tenure of our debt from 4.7 to 4.8 years. And by doing so, we have also further stabilized the weighted cost of debt to around 3%, which was slightly above 3% before. By doing so, what we have effectively achieved is that the amount of near-term maturities have gone down and effectively approximately 80% of those maturities are at 29 or further above. So with that, a very stable and predictable debt stack for the upcoming years as we go into the journey of paying dividend. And with that, I think I hand it back over to you, André.