Sunrise Communications A

Good morning, ladies and gentlemen, and thank you for joining us today. I would like to welcome you to our second quarter 2025 results call. With me today are Andre Krause, our CEO, as well as Yanni Fortier, our CFO. As per usual, we'll start the call with a presentation that you also find online, also on the web, which will then be followed by a Q&A session. Let me now hand over to Andre. Please go ahead.

Thanks, Alex, and good morning, everyone. I'll kick off the presentation with a quick overview of the key takeaways of today's presentation. So firstly, operationally, we have switched off our 3G network and have become the first mobile operator that has switched off 2G and 3G and is moving to the most modern 4G and 5G as a technology on our entire network. We also have launched a number of new product offerings. We have refreshed and expanded our yellow portfolio, and we have completed the UPC customer base migration. Given the fact that we did a price increase in the second quarter, we have also reduced our commercial activity a bit. And hence, we have seen some softer net ads in the second quarter, while at the same time, the ARCO trends have been improving. Secondly, financially, we are seeing the Q2 revenue trend sequentially improving, and of course that is driven also by the price increase, continued momentum and growth on the B2B side, and a, I would say, temporary recovery on hardware sales, given the fact also that through the 3G switch-off, some customers needed to switch devices, and that gave a bit of an uptick on the hardware demand. EBITDA improved to 1.9% year-on-year growth, also helped by further cost optimizations that we could lend. And on the back of the financial trajectory, we are confirming our guidance today, also including a DPS growth of 2.7% for the year. Thirdly, also, we have been able to refinance an existing term loan and have brought in a new 550 million senior secured note. which is further optimizing our average cost of debt. And also, according to our plan, we have switched off our ADS listing on the NASDAQ on the 15th of August. And we are continuing to follow our path to stop the sponsored ADS program by mid of November this year. Now with that, let me move to a bit more detail on the commercial performance. And let me give one sentence before I jump onto that slide, because the slide is talking about the mobile market as such. On the fixed side, we are seeing on the competitive environment pretty stable evolution, so no real movements on promotional activities or on price points. And the established, I would say, market is carrying on as we have seen it in the previous quarters. On mobile, we wanted to show, because it's always an important question that you raise, what is the competitive environment and where are we going? I wanted to share what's our perspective on how we look at the mobile market at this moment in time. Generally, we see a three-tier market structure that has established itself. We see a premium segment that is the largest segment in the market, covering 50% or slightly above of the customer's has fully integrated high quality and offerings and individualized services so it has a very broad range of products and services that customers are receiving on those offers and in this market and the price points are somewhat higher usually and starting above 40 swiss francs and what we are seeing is a increasingly irrational behavior if it comes to promotion activities. Main brands active in this is, of course, our main brand, Sunrise, and we also see mainly Swisscom operating in here. We see liquidity in this segment slightly reducing, mainly on the back of the fact that customers have already benefited in the past years from substantial price improvements, and hence their personal motivation to go to a further improvement is limited, so they are more valuing the benefit of having the broad range of services and the quality of services instead of necessarily just a lower priced simple offer. On the smart shopper segment where we are operating with our brand Yellow and we see also our competitors mainly Sword and Wingo, price range is probably in the range of 20 to 40 Swiss francs. We are continuing to see a very promotional driven market, but in that pricing range. So we are not seeing the offerings in this range going lower than the 20 Swiss francs at this moment in time. And we see liquidity slightly moderating because we are also seeing a budget segment underneath this smart shopper segment, which has a size of roughly 40% of the market from our expectation. And we see a budget segment underneath that has established and is around at 10% today. Now, here we see price points that are ranging between 10 and 20 Swiss francs. for typical, I would say, Swiss flat rates, but also very reduced offerings in range, also compared to the smart shopper segment, where we do see a broader range of offers, also fixed and mobile offerings, whereas we do see in the budget segment simple tariffs that are only focused on mobile only, usually also only with an online presence and without any physical assistance to customers. no um why is this important number one because we overall are seeing that the market is having less liquidity and as i said we think this is driven by the fact that customers have enjoyed substantial price improvements over time let's not forget the average household income in switzerland is double the size of germany at around 9 000 swiss francs and hence the reality for for swiss households is that a price that is in the premium segment like 40 or above Swiss francs is already a pretty decent offering. So if customers are happy, the necessity to improve has substantially reduced over the last couple of years. So we are seeing in this segment liquidity reducing. We do see that the smart shopper segment is increasingly attacked because the smart shopper segment, of course, has more price sensitive customers. Hence, customers are rather moving from the smart shopper segment to the budget segment, while the smart shopper segment is a bit fueled by the premium segment. But that's kind of the evolution that we're seeing. Overall, as I said, liquidity reducing. Most liquidity in the market is probably sitting in the budget segment, where we also see a lot of activities going on. Now, we at Sunrise feel that we are very well positioned with our multi-brand strategy. And that allows us really to compete and tap into the liquidity that does exist across the segments. And hence, we think in this market structure and in the competitive environment that we are seeing, we will be able to compete well and also drive our top line going forward. Now with that, let me talk about some of the commercial launches that we had in the second quarter and we already talked about our new swiss connect portfolio that we launched at the beginning of q2 in our q1 results that of course is an important launch that we did which gave more roaming inclusions and to all of the mobile tariffs on the sunrise side We have added now in the quarter also our first insurance product, travel and cyber insurance. This is at this moment exclusively sold to our existing customers, so we are a bit, if you want, in soft launch mode still. We are not providing those insurances ourselves, but we have collaborations with expert insurance providers which are on the back end providing those services. At this moment, we had a good start, but I would say also the volumes, given the fact that it was kind of a soft launch to our own customers, have been limited at this moment in time. On the other side, we have not only refreshed, but also expanded our portfolio, our product portfolio. We have now more roaming plans that allows us to cover the segment needs of the smart shoppers quite a bit more. We have also increased our top speeds on the fixed side to two gig and also on the 5G side, customers have access to the 5G network. We also added a smartwatch option so that we feel that we are well positioned to cover all of the segments need on the smart shopper side. also on b2b as you know an important segment if it comes to growth for us we have improved our smooth portfolio with a number of packages that allow customers to have not only connectivity but also having access to ict services Like cybersecurity, we have brought in most modern technologies, also like cloud calling. So with that, I think we have a well-rounded offering now for the SME side, and that will allow us also to drive further growth in the B2B segment in the quarters to come. Now, I would also place a light on the already yesterday announced prolongation of our hockey rights. And I would say that was kind of the final step, if you want, on the strategic intent that we had when we launched MySports back in 2016, 2017. At that moment in time, the sports rights were largely exclusively hold by Swisscom and hence because of the exclusivity that Swisscom pursued gave them the opportunity to drive their broadband growth on the back of this exclusive sports rights. So the launch at that point in time was intended to break that exclusivity which ultimately has now come full circle because in the meantime we have seen also verdicts from the Swiss courts that prevent explosivity on the sports side, number one. Number two, with the sliver of sports rights that we have, the hockey, which is the second most important sport in Switzerland, allows us to actually well balance the situation that we have and hence we know are selling all of the sports rights through our channels, not only hockey, but also the blue packages that include all of the football rights, while we at the same time also selling MySports to Swisscom customers as well as to SOLID customers. So with that, I think the situation is now that the sports right are not preventing customers from choosing a Sunrise broadband connection, and that was the strategic intent. Now the prolongation in this context is important because it's allowed us to improve also the financial situation as the rights went somewhat cheaper and from the season 27-28 when this will become effective, this will allow us to make the MySports business a prospectively profitable business. which i think um hence this is not only a strategic exercise anymore but it's a real business that makes sense for us and hence we are happy that we can secure the rights up until 2035. now let me talk also about another very important strategic achievement um on our mobile infrastructure i said at the beginning already um with the 3g switch of which ultimately two days ago where we switched over the last region, we have an exclusively 4G and 5G SA-enabled network. Now, with that, we are able to also move frequency and spectrum to the 4G and 5G sites that we have. As we told you already in Q1, we have since Q1 already a fully 5G SA-enabled network in Switzerland. which is now, I would say, the broadest coverage in any given country in Europe if it comes to 5G as A, and it's the most modern network as it's not customers holding back on any 2G or 3G experience. The project was pretty brave because at the beginning of the year, we had around 120,000, 130,000 customers still using 3G devices, so there was a lot of activity necessary to enable the switch off, which has worked out very well. and i'm happy that we really conducted the exercise because we are now in a very strong position we already have 350 000 customers that have the devices and the right product enablement to give them access to 5gsa and we have seen real-time data on how the performance improvements are looking like what we are really seeing is 15 to 20 percent performance improvement on the customers that are using the the network so I have to say I'm really proud and I'm really happy for our network teams under the leadership of our CTO, Elmar Grasser. This was a milestone achievement and I think as one expert that looked at the evolution told us we are probably five to ten years ahead of many other operators in Europe with the state of mobile network that we have achieved right now. Now, of course, this is now an important enabler and we will fully commercialize the abilities of this network and also incremental innovative services in the quarters to come um with that let me also summarize what are the commercial results um where on the net sites as i said already we have seen some softer evolution as the prior year however we have seen a sequential improvement um quarter on quarter um and to 18 000 net ads on the mobile side zero net ads on the internet side which was largely driven by lower market liquidity but also price increase related incremental churn and some of the final phase out of the UPC customer migration that as I have said we have concluded at the second quarter of this year now given the fact that the market is giving lower liquidity at this moment in time we expect also that the net ads in the quarters in the final quarters of this year will probably be moderate um following the lower liquidity our fixed mobile convergence has further increased by 1.4 percent um to 58.5 and we expect that to further improve if we look at our pools then on the mobile apple side we have seen um a year-over-year decline of 1.6 percent but a sequential improvement on the back of the subscription revenues benefiting from the price rises. However, this trend is also continuing to be partially offset by revenue decline that is driven by reduced roaming usage as we are providing more of the roaming services included in the terrace. On the fixed APU side, we see also an upward trend as the full impact of the price increases is kicking in and also we see and sequentially declining impact from the right pricing effect of the UPC customer base migration. We, however, also see a continuous growth in the mix of our Flanker brand, which is to a certain extent also counteracting that trend. So that is my part of the presentation. And with that, I hand over to Yanni for the detailed financials.

Thank you, André, and also welcome from my side, everyone. Let me start with a quick overview as always. I will focus mostly on Q2 and make some comments around our H1 performance before then going in deeper into the individual elements of the P&L. We'll give you an update on our guidance that Andre referred to, and I'll talk a little bit about the ADS progress and the next steps. But before we go there, an overview with revenue down 0.8%. yet significantly stabilizing versus what we saw in Q1. That is on the back of the residential fixed and mobile P&Ls, which are sequentially improving on the back of the price increase, the temporary recovery of the hardware sales, Andre spoke about it in relation to the 3G, and also continued growth on the B2B service revenue. The overall revenue decline is largely and continues to be largely driven by the residential fixed, which is still impacted by the right pricing effect and the brand mix, which we expect to temper as we get to the end of this year. Gross profit at 0.4, again, significantly improving versus what we posted in Q1, as the revenue decline is partially compensated by a different phasing of our network-related expenses that sit in our direct cost. Adjusted EBITDA up 1.9% for the quarter as a result of OPEX efficiencies together with declining lease costs. We'll talk a little bit later about the moving parts on OPEX because it is in part the continuation of our savings programs, but also helped by a number of incidentals. CAPEX reduction for the quarter, 12% down, sorry, 8% down, apologies. But you can see in H1, we're more or less flat, pointing to the different phasing between Q1 and Q2, and we're on track for the full year CAPEX guidance that we have given. That reduced CAPEX gets us to a 12% growth on adjusted EBITDA for the quarter, and turning down to free cash flow of around 150 million in the quarter, which was slightly lower than prior year, which mostly has to do with networking capital, but I'll talk you through that in a second. If we then zoom into revenue, the picture that you can see is the 13 million decline in subscription residential fixed. That is significantly tempered from what we saw in Q1. Again, on the back of the price increases and less impact of the right pricing. But as André said, the brand mix does impact this. The other revenue growth that you see in residential is in part the switch off of the 3G and the higher device sales that we did, plus a number of adjustments on fees that we made. B2B, you see growth on both fixed and mobile, yet slightly lower than what we saw in Q1, because mainly of two reasons. On the one hand, the large customer deal that we spoke about in 24 has been leapt, or still some growth, but the majority has been leapt. And also, although we're making great progress in SME, we have a slightly slower ramp up of the rollout of the portfolio as such. Then if we go to EBITDA, again you can see the gp on residential as part of the residential revenue of fixed revenue also going down to ebitda but all set by again b2b growth plus the in france support which is growing that is mostly phasing of course as i spoke about before and again it's not something to be expected for the full year opex down four million in part because of the switch off of the mobile core. So as part of all of the migrations, we are now also starting to switch off the IT systems and the mobile systems that were supported. And so that is driving cost upside together with lower maintenance costs across as we continue to focus on that part of our cost base, as well as a temporary impact from the employee share program that André will speak about later. Leasing slightly down on the year-over-year basis, in part because of phasing and in part because of optimization of those costs. Then when we get to adjusted EBITDA or less P&E additions and adjusted FCF. So as I said, you see the growth on adjusted EBITDA coming through with a different phasing of capex. I think nothing really to call out in terms of year-over-year reductions. purely phasing on the one hand because of cp so it has all to do with delivery and baseline what you're seeing here is the phasing out of our cost to capture or our integration spend if you will together with a slightly different baseline spend on the network rollouts but for h1 more or less flat and when you get to fcf you can see a decline versus prior year And the majority of that is in the working capital and other, which is predominantly driven by a different customer collection cycle and different phasing of our standalone costs. So all in all, in line with expectations and purely phasing between quarters because of working capital. If we then go to the guidance page. So in general, where we confirming all metrics, albeit we're expecting revenue to be at the lower end of the range. In part, for two reasons Andre mentioned them both. But the first one being a lower and longer replacement cycles for our hardware. Q2 was slightly better, but that was temporary because of 3G. I think in general, we're seeing a lower replacement trend. And so that is weighing on that lower end. And the other part is the softer liquidity that we're seeing in the market. But then when we get to adjusted EBITDA, we're fully able to offset that and confirming our guidance together with CapEx and adjusted free cash flow, which should then drive a 2.7% increase for the dividend over in Payland 26 for the full year 25. Then lastly, the ADS topic. So we did switch off the NASDAQ line last week. Friday was the last day of trading. There is now an OTC market still in the US that has proven liquid so far. We have 87% of the Class A ADSs that have been converted and 98% of Class B. And of course, the underlying Sunrise Class A shares continue to be listed on the 6th, and we're seeing good developments on that line. Now for next steps, as communicated previously, we are still holding to our planned switch on the 13th of November of the sponsorships. the class a and b ads holders will be accordingly informed by the depository bank and we're continuing to monitor the progress of conversions um if you will and as said there is at the moment an otc market which remains liquid and i think positive to see is that there is no discrepancy in both lines from a pricing perspective And, of course, on the back of us switching off then also the sponsorship of the ADS program, we are then, as soon as the SEC allows, intending to reduce our SEC reporting. But one should expect that only to happen end of 26, early 27. And with that, let me hand back to you, Andre, for the final remarks.