Sunrise Communications A

Good morning, ladies and gentlemen. Thank you for joining us today. I'd like to welcome you to our third quarter 2025 results call. As per usual, with me today are Andre Krause, our CEO, as well as Yanni Fortier, our CFO. We will start the call with a presentation, which will be followed by a Q&A session. And with that, I'd like to hand it directly over to Andre. Please go ahead.

Yeah, thank you, Alex, and good morning, everybody. Let me just jump right in into our presentation and start off with a summary of our Q3 results. So firstly, we have seen a solid mobile momentum delivering 20,000 postpaid net additions in the quarter, supported also by B2B acceleration in growth. On the internet, net ads, we have seen a decline of 7,000, which was impacted by the software trading in the quarter and also some long tail impact from the UPC migrations. Financially, we have delivered an EBITDA growth of 2.4%, which was driven by further OPEX improvements in the quarter, which has been fully compensating software revenues declining year on year by 1.1%. And the key driver for the revenue decline was again the fixed subscription revenue decline that we have observed in the quarter. Based on these financial results and also the trading that we are expecting in the fourth quarter, we are fully reconfirming our guidance for 2025, including also the DTS growth of 2.7% for year-on-year growth. secondly um in the quarter we have launched a variety of new services which will open up new growth avenues for our business going forward and we'll talk about home security and other launches that we did on the consumer and b2b side in the presentation later on also we are executing on our past follower strategy on the black friday and q4 activities And as such, we have also launched our own C segment brand called CH Mobile just a week ago. And we'll also talk a bit more in detail about that launch in the presentation. While we have seen the tail end of the UPC migration impact behind us, we are still experiencing some slower stabilization of the fixed consumer business, which is largely driven by softer inflows, some post promotional repricings and slower churn improvement. And we also talk a bit more in detail about that later on. Thirdly, if we're looking at all of the moving parts at this moment in time, we are observing a high but unchanged competitive intensity. And as such, we are continuing our strategy across our three growth engines, our main brand, our flanker brands, and also within B2B. The better OPEX evolution that we have experienced and also we are anticipating further OPEX and CAPEX efficiencies ahead of us, we are very much set to compensate the slower than expected stabilization of the fixed consumer business throughout this year and also the year of 26. Overall, we are reaffirming our capital markets midterm outlook of increasing free cash flows, underpinning attractive and progressive shareholder returns. Now, with this overview, let me jump into the commercial performance overview for the third quarter. And essentially, I would like to start with our main brand new product launches in the quarter, where we have launched three new products and services, starting off with the home security launch, which is a unique offering that is bringing together, on the one hand side, affordable devices, but also combined with a high level of service surveillance services, but also insurance services that can be combined. With that, it's really unique new offering that in the market is not existing at this moment in time except our offering. Secondly, we launched what we call the Iconic Bundle, which is a high-end bundle of hardware devices at the same time combined with very attractive global tariffs. and on top of that, relevant services for the high-end consumer. And also on this side of the market, we have been the first one launching a bundle like this. Lastly, looking at content, where a lot of content is available for consumers, but the difficulty is in finding the right content at any given moment in time, we have introduced our SuperSearch functionality, which allows consumers to simply with one single search engine search all of the contents not only in our own libraries but also looking at all the libraries of all of our ott partners and with such service we are also the first in market allowing a new level of content search on our tv platform not only on the consumer side but also on the b2b side we had a relevant a new product launch this time focusing on and smaller retail shops where we have a solution that is combining the cashless payment solution, which is coming from our partner Nexi. And we are combining that with high speed internet connectivity, but also security solutions for those smaller shops. And we believe that is a very attractive bundle offer that we can do, which is a real attractive solution for all types of smaller retail shops. to provide a combination of services. Now, we are in the middle of November and November is always a high liquidity moment in time where Black Friday plays a big role. And I talked about Black Friday activities in recent calls and previous calls quite oftenly. And we were always talking about that we are adapting a fast follower strategy. So we didn't want it to start first. We didn't want to actually put oil to the fire, but we were recognizing the fact that all of our competitors were starting early at the beginning of November. And also we had a gap in our multi-brand strategy, not having an own solution on the budget segment or the C-segment, how we call it. And hence we launched beginning of last week, our own C-segment brand called CH Mobile. This is a quite simple mobile only offering that is only available online and that is a very effective budget proposition that comes with a launch promo during the Black Friday period and will adopt the regular prices then at the beginning of December. proposition is based on an always low price swiss service and the sunrise network quality as the three i would say key propositions that this is bringing to market um as i said this is a fast follower strategy so we are not actually adapting price points that are not existing in the markets we see a variety of offers at similar price point at this moment in time out in the market And hence, we are just actually swimming in this segment with our own proposition. And I think what is important to us is, given the fact that it's our own, we are also fully in control of the activities that this brand is actually executing. So with that, we think that we have really brought our multi-brand strategy to full coverage of all of the segments existing in the Swiss market. And hence we think we are very well prepared to tap into the liquidity of the fourth quarter successfully and drive a good outcome out of this quarter. Now, I would also like to give you today an update on our recent fixed business dynamics on the next page. And essentially there's a number of things that I would like to highlight here. Firstly, we have seen a drop to a negative net ads in the third quarter. Now, this is, in our view, driven by the tail end of the UPC migrations combined with a lower liquidity quarter where we were not seeing the normal inflow volumes, but we're seeing some higher churn. And as a result, we have been turning out 7,000 negative MEDEX. Now, this, in our view, was a single instance and should not reoccur in the coming quarters. And as such, we think this is really just a one-time impact driven by those two circumstances coming together. However, we were also expecting that post the UPC migration that we could see a stabilization of the fixed business in the second half of this year. observe that the previously expecting stabilization is actually slower than expected. This is driven really by four factors. Number one is the inflow, which we have seen turning out slower and softer than what we had anticipated. Two part, it is driven by our own move towards less aggressive promotions, but we are also not fully yet at the point where we want to be in terms of driving differentiation. And secondly, also, we believe that there is more opportunity for us to focus more on new FTTH rollout areas where we think we probably have not been exactly on the ball as we should have been. Looking at outflow, I talked about the third quarter impacts. If we look at the general evolution of churn, we see some improvement of churn. Nevertheless, churn is still on a level that we are seeing as too high. and we think we can do better by actually stepping up our loyalty initiatives and also improving our operational execution. Thirdly, we are observing post-promotional repricings, which is largely driven by the fact that previously we have been very much driving new customer inflow with time-limited discounts. Now, as these time-limited discounts come to term, We have created, of course, a retention engine that was helping us to retain those customers. But this retention engine has also become a bit of a repricing engine, which we have to adjust. And we will take a number of counteractions already in Q4, but more to come also next year to rearrange that engine into a more reasonable repricing activity. lastly and this is more i would say an accounting impact than a real real substantial impact on the value that we are seeing in this business but in fact with the introduction of the new mobile portfolio there's also some discounts which are now shifting in the direction of fixed hence mobile is benefiting and fixed is actually being impacted now there will be a gradual increase of that impact over the quarters to come But again, this will technically impact the financial fixed APU, but it will not really drive a substantial value change on the fixed APU. Nevertheless, it's exaggerating a bit the impact that we are seeing on the fixed business. So with that, let me conclude the commercial overview by looking at the results one more time. So firstly, we have seen 20,000 postpaid net additions As I said, we believe a solid result and the best turnout of the year so far. The result was also held by an acceleration in our B2B segment. Talked about the internet decline. As we said, we think a single instance driven by the lower inflow combined with the tail end of the UPC migrations. Our FMC share continues to climb up. So we are, again, 0.5 percentage points up compared to the second quarter, now at 59%. and looking at mobile apu we are seeing an increase in mobile apu and that is a bit of a stabilization benefiting from the price increase and also from our strategy particularly on the main brand which is driving a better inflow value as such And then on the fixed side, you see the already alluded to fixed evolution. We saw a turn after the Q2 price increase, which was stabilizing the ARPU again back to a declining fixed net ARPU driven by the factors that I was explaining already, but also then exaggerated by the fact of the splitting between fixed and mobile distribution after the introduction of the new mobile portfolio. Now with that, I hand over for Yanni for some more detail on our financial results.

Good morning, everyone. Welcome also from my side, and thank you, André. Before we dive into the financials, I think as a quick remembrance, last year in Q3 was when we made all of our final adjustments to switch from US GAAP back to IFRS in preparation of our spin-off from Liberty Global. And as such, the Q3 results are impacted by the rebasing that has happened to get us ready for that IPO. The positive of that is that this is therefore the last quarter that we will be impacted by that. And as such, from Q4 onwards, it is an easier like for like comparison. But we still have to deal with that in this quarter. So I'll talk about where that impacts and how it impacts, but let me try to focus on the underlying commercial results and how they have translated into our financials. So revenue down 1.1%, translating into a growth of around 2.4%, which in both items was an acceleration versus what we see in the nine months period. The revenue decline. was mainly as a continuation of the fixed subscription revenue decline that André spoke about. And furthermore, with a slightly softer Q3 non-subscription revenues, particularly mobile. As Q3, we still saw the slower handset renewal cycle in the residential sector. But that was, of course, with only a couple of weeks of the iPhone 17 into that. On the positive side, we saw a partial offset of that decline coming in the B2B fixed non-subscription business. Then gross profit down 3.6%, but this was distorted by the prior year's IFRS adjustments that I spoke about, and furthermore was impacted by a hard B2B comparative because last year we had a big switch on of a B2B customer that actually impacted both cross-profit and OPEX, as you'll see later on in the slides. Excluding those effects, the underlying residential and B2B business actually are continuing on their trends, with especially the fixed business coming back slower than what we had anticipated. Positively for us, however, OPEX is continuing to drive growth for us, and we believe that there's further potential on that line as we look into the future. Lastly, the result was partially impacted by a reduction of leasing costs. We're also in full year. We expect that trend to continue. 5 million down year over year, which actually is very much in line with the continued reduction that we guided for from 24 to 25. On free cash flow, we generated close to 14 million of free cash flow, which is lower than what we saw in Q2 or what we will see in Q4. And that is because we typically pay our interest payments in Q1 and Q3. But that is why that is impacted. Then when we zoom into revenue in a bit more detail, 1.1% down, as we said, or 8 million, you can see that in residential, the main drag comes from the fixed business, 16 million. André spoke about it, which was, of course, a combination of slightly softer in-quarter net ads combined with the continued pressure on ARPU, which was in part impacted by the discount allocation. but also very much by the continued promotional intensity that we see there. Mobile was growing at 1 million, which was on the back of volume growth, as well as an improving ARPU. However, in Q3, that is typically when most of the roaming usage is recorded. And as we are switching from usage to included roaming in our bundles, Q3 typically is impacted. mostly in the year with other quarters benefiting from the included roaming part. On B2B, you can see subscription down, which is, again, in relation to a hard comparative on the back of the customer switch on that we did last year. However, the non-subscription parts grew significantly this quarter in B2B, which was in part because of integration revenue as well as our roaming. then on the infra and support that is in part driven by different volumes of by different phasing of some of our sales and increased fees and other adjustment to our non-subscription pricing then when we zoom into a bit dull um the gross profit down as i spoke about before Of the total decline, there is around a 5 million reclassification between gross profit and OPEX, and so therefore you can see OPEX also in part being helped by that. The residential decline is mostly due to the fixed subscription business. B2B we spoke about in line with the subscription revenue comparative that is tough, as well as slightly higher integration costs because of the higher integration revenue that you saw on the previous slide. In France support, that's where that reclassification between OPEX and direct cost happens. And so therefore on an underlying basis, broadly stable. And then on OPEX, 25 million or approximately 10% down year over year, which is predominantly driven by a continued cost focus. And so therefore significant savings, which are recurrent in part due to the mobile core switch off that we had. also the annualization of the B2B project that we spoke about before that has higher costs than prior year, and those costs are now not there anymore, as well as some phasing between Q3 and Q4, mostly on marketing, so in relation to when we execute our campaigns. And then lastly, the result was helped by the fact that our ESTP program, that was the program where employees are able to save some of their salary in order to acquire shares at a discounted price was mostly seen. Leasing, as I said, before 2 million down year over year or an improvement to EBITDA, which is in line with the full year expectations that we have. Then when we go to first adjusted EBITDA or less P&E additions, so some growth coming from EBITDA, further supported by a reduction of capex, couple of things to point out here so again coverage lower in relation to that same b2b customer then capacity lower as we have now completed our 5g standalone rollout and the the 3g switch off and so therefore coverage is expected to come down with the baseline slightly higher because of some transport network investment but broadly stable across the years Then when we go to the right and we look at the adjusted free cash flow, you can see a significant growth of 31 million, where actually the main benefit comes from lower interest costs. We pay our interest in Q3, as I already stated before, yet in Q3 last year, we hadn't repaid our 1.5 billion debt reduction that was part of the spin-off of Liberty. And so, therefore, in Q3 last year, we were still paying the higher interest costs, whereas only at the end of October, we then repaid that debt. Lastly, working capital has to do with some higher vendor financing repayments, but underlay nothing to highlight. Then when we get to the guidance, Andre referred to it already before, so a reconfirmation of all the guidance metrics I continue to like to focus on the fact that when we guide, we talk about rebase financials. We spoke about it before, a lot of items that have happened in relation to becoming a standalone company. And as such, especially the EBITDA guidance that we're giving is in comparison to a rebase 2024 number, which includes the standalone cost of approximately 30 million. then capex to sales ratio of 15 to 16 percent also important to note here is that in q3 we signed the extension with the hockey league hockey league to get the rights for an incremental eight years as such we had to report in our capital expenditures uh in our financial statements um the inc the total incremental cost of the hockey rights on a discounted basis, but as per definition, we're excluding those from our P&E additions. So therefore there is a mismatch, if you will, between the P&E additions that we use for our guidance and the way we look at our business and the capital expenditures as reported in our financial statements because of the hockey rights accounting that has to happen. Then lastly, we are continuing to reaffirming our 370 to 319 just free cash flow guidance, which then in turn will be able to provide us or to provide to you a 3.42 Swiss franc dividend for our class A or 34 Rappen dividend on our class B, which is a 2.7% increase on a year over year basis. Then on the debt, also a couple of important points to highlight, which we were able to execute in Q3. So we approximately refinanced around 1,000 of a billion of Swiss francs, 385 million add-on to our senior secured note. And we also increased our term loan AAA with around $650 million. by doing so we now have 84 of our debt coming due after 31 and 60 only coming due in 32. we were able to do these extensions at approximately flat cost of capital and furthermore we have our debt continue to be fully hedged and swapped into swiss francs and so no exposure from that perspective Lastly, as we have guided from the beginning, we are committed to gradually repaying our debt. And as such, we are in the process of repaying 118 million of debt in Q4, of which 70 million is in the process of being executed and the remainder to be done later this year. And then beforehand back to André, let me give you an update on the ADS. As you are aware, we communicated somewhere in August the final termination of the sponsorship of the program, which will take effect this Thursday on the 13th of November. Since that communication, we are now at 93% of the class ADS shares that have been converted, i.e. 7% left. which translates into approximately 5 million of shares. Clearly what we have been seeing is that that conversion has accelerated over the last couple of weeks and as such we expect a further reduction until the 13th. Then what will happen subsequently to that is that the following determination is that the depository bank or JPM will be selling the Class A underlaying shares on the market as defined by the Class A deposit agreement, and we as Sunrise are not a party in that. And then lastly, on the Class B shares, they are 99% has been converted, and we will be further terminating it at a later stage. But given that that is not a publicly traded instrument, we are taking our time to further cancel that as well. And with that, André, let me hand it back to you.