Sunrise Communications AG (SNNRF) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Sunrise Publication of Q3 2025 Results Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. Page 2 of the presentation details the company's safe harbor statements regarding forward-looking statements. Today's presentation may include forward-looking statements within the beginning of the Private Securities Litigation Reform Act of 1995, including Sunrise's expectations with respect to its outlook and future growth prospects and other information and statements that are not historical fact. These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Sunrise's filings with the Securities and Exchange Commission, including its most recently filed 20-F. Sunrise disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. At this time, it's my pleasure to hand over to Alex Herrmann, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. Thank you for joining us today. I would like to welcome you to our third quarter 2025 results call. As per usual, with me today are André Krause, our CEO; as well as Jany Fruytier, our CFO. We'll 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 André. Please go ahead.

Yes. 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 adds, we have seen a decline of 7,000, which was impacted by the softer 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 softer 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 DPS growth of 2.7% for year-on-year growth. Secondly, 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 fast follower strategy on the Black Friday and Q4 activities. And as such, we have also launched our own C segment brand called CHmobile 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 experienced 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 3 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 3 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 a 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 super search functionality, which allows consumers to simply with one single search engine, search all of the content, 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 new product launch this time focusing on 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 adopting a fast follower strategy. So we didn't want 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 CHmobile. This is a quite simple mobile-only offering that is only available online, and that is a very attractive 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. The proposition is based on an always low price, Swiss service and the Sunrise network quality. As a Swiss, I would say, key propositions that this is bringing to market. As I said, this is a fast follower strategy. So we are not actually adapting price points that are not existing in the market. 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 our -- 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 adds 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 were seen some higher churn and as a result we have been turning out 7,000 negative net adds. 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 onetime impact driven by those 2 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. Now we have to observe that the previously expecting stabilization is actually slower than expected. This is driven by -- really by 4 factors. Number one is the inflow, which we have seen turning out slower and softer than what we had anticipated. Through part, this 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 impact. 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 repricing, which is largely driven by the fact that previously, we have been very much driving new customer inflow with time-limited discounts. Now as the time-limited discounts come to turn, 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 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 ARPU, but it will not really drive a substantial value change on the fixed ARPU. 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 helped 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 ARPU, we are seeing an increase in mobile ARPU 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. Then on the fixed side, you see the already alluded to fixed evolution. We see -- 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 Jany for some more detail on our financial results.

Good morning, everyone. Welcome also from my side, and thank you, Andre. 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 U.S. 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 have 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 9-months period. The revenue decline was mainly as a continuation of the fixed subscription revenue decline that Andre spoke about and furthermore, with a slightly softer Q3 non-subscription revenues, particularly in 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 nonsubscription 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 gross profit and OpEx, as you'll see later on in the slide. 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 where also in full year, we expect that trend to continue. Then CapEx, CHF 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 CHF 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 CHF 8 million. You can see that in residential, the main drag comes from the fixed business, CHF 60 million. Andre spoke about it, which was, of course, a combination of slightly softer in-quarter net adds 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 where 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 in 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, another adjustment to our non-subscription pricing. Then when we zoom into EBITDAaL, the gross profit down, as I spoke about before, -- of the total decline, there is around a CHF 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. Infra and 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, CHF 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 had higher costs in 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 ESPP 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, CHF 2 million down year-over-year or an improvement to EBITDAal, which is in line with the full year expectations that we have. Then when we go to first, adjusted EBITDAaL less P&E additions. So some growth coming from EBITDAaL, further supported by a reduction of CapEx. A 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 stand-alone rollout and 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 CHF 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 CHF 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 cost, 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 underlying 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 we -- when we guide, we talk about rebased financials. We spoke about it before, a lot of items that have happened in relation to becoming a stand-alone company. And as such, the especially EBITDAal guidance that we're giving is in comparison to a rebased 2024 number, which includes the stand-alone cost of approximately CHF 30 million. Then CapEx to sales ratio of 15% to 16%. Also important to note here is that in Q3, we signed the extension with the Hockey League to get the rights for an incremental 8 years. As such, we had to report in our capital expenditures in our financial statements, 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 CHF 370 million to CHF 390 million adjusted free cash flow guidance, which then in turn will be able to provide us -- or to provide to you a CHF 3.42 dividend for our Class A or CHF 0.34 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 CHF 1,000 -- CHF 1 billion, CHF 385 million, add-on to our senior secured notes, 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 CHF 180 million of debt in Q4, of which CHF 70 million is in the process of being executed and the remainder to be done later this year. And then before I hand back to Andre, 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 the termination is that the depository bank or JPM will be selling the Class A underlying shares on the market as defined by the Class A deposit agreement, and we at, Sunrise, are not a party in that. And then lastly, on the Class B shares, there 99% has been converted, and we will be further terminating that 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.

Thank you, Jany, and let me summarize the key takeaways one more time. So firstly, as we have explained, we think we are very well positioned for a high liquidity fourth quarter. We have completed our segment coverage with the launch of CHmobile, and we have added a number of new growth avenues with the recent product launches. And on the basis of the performance that we are anticipating and what we have seen up until Q3, we are fully reiterating our 2025 financial guidance, including the 2.7% DPS growth. Secondly, while we are observing a slower-than-expected stabilization of the fixed business, all countermeasures have been taken into place. So we are now anticipating that the stabilization of the fixed business is going to be delayed, but should appear during the course of '26 and in the meantime, we are also seeing that the cost and CapEx efficiencies are reaffirming our midterm outlook of increasing free cash flows. Lastly, Jany talked about the termination of our Class A ADS program. So let me reiterate the message of that the terminations are still -- sorry, the cancellations are still possible until the 13th of November and that the program will end thereafter, and hence, we are reiterating the message to all of our shareholders that are still in possession of any Class A ADS shares. With that, operator, we are opening up for Q&A.

[Operator Instructions] The first question comes from the line of Robert Grindle from Deutsche Bank.

André, your upbeat last quarter on both the quality and efficiency benefits of stand-alone 5G. Are you still seeing -- are you seeing B2B interest follow through in these new services after the largely completion of the network? And then related to the network, there seems to be new noise in the EU about the risk and the need to replace high-risk vendors. Is there any new vibe on this issue from the Swiss authorities, perhaps that's still a nonissue where you are?

Thanks, Robert, for your question. So firstly, B2B slow moving on to 5G SA. So, so far, I think we haven't seen really a large inflow of new demands or specific projects utilizing the benefits that are sitting in 5G SA. Also true that on the other hand side, we are now just ramping up our sales activities on these new products, like, for example, the ability to provide a specific security solutions for certain customers. So that is stuff we think is very interesting to B2B customers, but we see slow evolution only on that one. So no major inflow in terms of sales on B2B on 5G SA side. On [indiscernible], I mean, we have observed the increased conversation [indiscernible], but not really in Switzerland. So from our perspective, it's an unchanged situation no imminent need to react here from our perspective. But of course, we are observing the activities also in Switzerland.

The next question comes from the line of Tang Polo from UBS.

It's Polo Tang at UBS. I just have 2 questions. The first one is just in terms of Black Friday sales. I'm just interested in terms of hearing your thoughts in terms of how the Black Friday sales period this year is shaping up and how it differs to what you saw kind of last year? And are there any notable promotions from any of your competitors to call out? Second question is really just for more commentary in terms of the fixed ARPU weakness. You referenced that several times in terms of your presentation and how the improvement here was being delayed. But do you think that these pressures in terms of fixed ARPU can stabilize? What's going to help it improve? And if you just look at bigger picture in terms of your revenue trajectory for 2026 and beyond or even your EBITDA trajectory, can weakness and fixed ARPU be offset by other areas, for example, B2B growth, mobile growth or cost savings? What are the puts and takes?

Yes. Thanks, Polo, for your questions. So let me start with the Black Friday question. I mean, honestly, we are at the early start of this Black Friday period. I think what was interesting to see is that while we have, I think, been pretty vocal about that we didn't see Black Friday as a very value-driving activities for all of the market. We nevertheless had to observe that all of our competitors choose to go very early i.e., at the very beginning of November. So we followed with our activities only thereafter. If I look at the aggression level on the promotions, we don't really see a change compared to the prior year. We do observe that the -- in the different segments, the different brands are staying in their swimming lanes if you want, right? So we do see that the price bands of the segments are maintained pretty much the same. And we haven't seen yet any further aggression beyond those swimming lanes. So I think it feels like a usual Black Friday activity. I mean, you would have hoped for a smaller activity by our competitors in terms of length of the period. But we are where we are, and we are responding. So from that perspective, I think we did the right moves by following the competitors and, of course, are now trying to be as successful as possible, and I'm pretty comfortable with the launch of CHmobile that we have to drive good volume in combination with our other segments. On the fixed ARPU, I mean, at this point, we are not giving concrete guidance for 2026. We'll do that with the Q4 results, where we understand really how we are exiting the year. But as you can -- as I've alluded to in the presentation, we clearly see that there is a delay in the stabilization driven by the inflow component softer than what we had anticipated, a couple of levers for us to improve there, which we are executing on -- then also looking at churn. We think that we are still at an elevated churn level. Now, of course, it was partially driven by the tail end of the migration, but we have also taken additional actions to improve that. And then also, we have this post-promotional repricing that have been a burden, which I think we have to really change the model, which we are about to do while we are speaking. So many actions are taken to impact the stabilization going forward. And hence, it's not happening. It's just delayed. And as I indicated in my final remarks, we are anticipating that we will stabilize that trajectory during the course of '26.

Sorry, continue. I have a follow-up.

Yes. I just wanted to add to the fixed business evolution, that we clearly see that there is OpEx and CapEx opportunities that will enable us to continue our free cash flow growth trajectory that we have indicated in the Capital Markets Day and further detail, we will then provide when we come to our 2026 guidance at the end of Q4.

Can I just come back to the first point about promotional activity. You said promotions have started with other brands. My impression is that this was in the smart shopper and budget segments. But can you talk about what's happening in terms of the premium segment, which is still obviously the bulk of the market?

Yes. I think in the premium segment, we probably haven't seen the launch yet. So at least ourselves, we haven't really started our activities and I will not really deal, of course, in the call what we're going to do. But as I indicated, expect that we are not leaving the swimming lane of pricing from prior periods. And I think we also haven't seen really Swisscoms move yet. But what we have seen is what Salt is doing, which is pretty much in line with what they have done in prior years. So again, also not deteriorating the pricing ranges that we would have anticipated from prior actions.

We now have a question from the line of Joshua Mills from BNP Paribas.

I got 2. First one on the mobile sub brand launch that you announced. And then the second one on the fixed line trends that you're discussing in today's call. I'm a little bit confused about the brand strategy you have in mobile going forward. If I go back a year ago, you laid out your Capital Markets Day, you had a multi-brand strategy, which was already fully fledged with Sunrise, Yallo, Swype, and Lebara across all of the different brand segments. And then also TalkTalk, Aldi, Galaxus in the MVNO branded reseller segment. So to launch a new sub-brand now, given some of your price increases and commentary earlier in the year about encouraging price rationality seems a bit strange. My question is why are you doing this? And is it a sign that we're seeing more and more customers in Switzerland move to the lower end of the market. That's what's changed? Or you think that your competitors have taken a more aggressive approach to pricing? And that's the first question, whether it's structural or response to competitor activity. The second question on fixed line. I think in the slide where you discussed the fixed line turnaround, you highlight that you'll continue to focus on fiber rollout areas. What does this mean exactly? Are you going to be marketing more in these areas? Are you trying to proactively migrate customers off of coax and on to fiber. And perhaps if you could give a bit more color about how your customer inflow is split between fiber and cable at the moment, that would also be great.