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Q1 2019 Financial Results
16 May 2019
Q3 2019 Financial Results
13 November 2019
2
Agenda
Summary
Operational Update
Financials
Conclusion
Q&A
3
Summary+2.0% adj EBITDA growth with cont. strong commercial momentum
Olaf SwanteeCEO
• Adj. EBITDA up +2.0%; B2B transition on-track with GP
and EBITDA in growth territory
• 2019 guidance reiterated
• Sunrise terminated SPA with Liberty Global and is fully
focused on creating value with a standalone strategy
• Financials in this presentation include effects of IFRS 15
and exclude IFRS 16
• Customer growth and market share gains in key focus
areas continued
• Mobile postpaid (+10% YoY), internet (+9%), TV
(+14%)
• Supported by B2B commercial momentum: won ‘GF
Machining Solutions’ and ‘ewl’ as customers in Q3
• Solid ‘yallo’ performance via e-commerce
• Revenue up +1.0% driven by +2.0% service revenue
growth, with strong customer momentum more than
offsetting lower ARPUs
• Gross profit growth of +1.9% YoY
Summary
4
5
Operational UpdateMarket share gains continued in Q3
Olaf SwanteeCEO
• Prepaid with ongoing pre- to postpaid migration, leading
to 591k total subscriptions; prepaid accounts for ̴ 4% of
total revenue
• Q3 positively impacted by seasonality
• Focus on valuable customer in-take maintained
• Postpaid with +10% subscription growth YoY, leading to
1.85m total subscriptions
• Driven by B2B (+23% YoY) and yallo, strong network
quality (5G in 309 cities/villages by beginning of Oct),
broad product offering with attractive price performance
ratio, and diversified distribution channels
Postpaid customer base up 10% YoY
Postpaid mobile net adds (‘000) Prepaid mobile net adds (‘000)
2328 31
26 30
8
14 1215
11
40
Q3’19Q3’18
41
Q4’18
Secondary
(data)
Q1’19 Q2’19
Primary
31
4342
-10
-50
-30
-6-1
Q2’19Q4’18Q3’18 Q1’19 Q3’19
6
• TV with solid growth: Sunrise now has 269k TV
subscriptions
• Supported by strong Sunrise TV offering including
attractive content
• ~54% of Q3 internet net adds on fiber
• Internet continues to grow customer base despite
lower seasonality during summer months: Sunrise now
has 490k internet subscriptions
• Driven by 2-4P bundle offers, supporting 14% YoY
increase in 4P billed customer base
• Launch of 5G MBB in Q3, primarily in selected areas
without FTTH
• Good end-to-end services support NPS and improving
PTC
Continued internet and TV customer growth
Internet net adds (‘000) TV net adds (‘000)
79
10
12
6
Q3’19Q3’18 Q1’19Q4’18 Q2’19
15
6
8
68
5
3
1
Q1’19Q3’18
OTT (since Q2)
Q4’18
Classic
Q2’19 Q3’19
9
11
6
7
Base
redefinitionBase
redefinition
8
ARPU trends continuing
8
Blended mobile ARPU
Landline voice ARPU
Internet & TV ARPU
• Blended mobile ARPU relatively stable YoY, as increasing
postpaid subscriptions have higher ARPU than decreasing
prepaid subscriptions
• Postpaid decreased CHF -2.2 YoY due to 2nd SIM dilution,
roaming, MTR 1) and value mix (incl. promotional intensity and
share of B2B / yallo); value measures have been put in place
in Q3 and will be monitored
• Prepaid down CHF -1.3 YoY as a result of MTR, high value
prepaid customers migrating to postpaid and shift to OTT 1)
• Landline voice down CHF -2.1 YoY due to
migration to flat rate packages and fixed to
mobile/OTT migration resulting in reduced
voice usage
• Internet & TV: impacted by annualizing ‘more for more’
move of Aug 18, promotions, mix effects (e.g. TV OTT
dilution), and Q1’19 redefinition of customer base 2)
-1.6
22.4 22.5 21.6 21.0 20.4
Q3’18 Q3’19
YoY
36.4 36.5 36.0 35.8 35.5
-1.1 -1.1 -2.1
-0.6
Blended mobile ARPU (CHF):
+0.5 +0.1 +0.5
YoY
+0.2-1.6 -1.1 -1.1 -2.1
32.9 31.7 31.1 31.8 32.3
Q3’18 Q3’19
YoY
-0.1
-2.7
+0.9
Internet ARPU:
26.2 25.7 25.0 25.2 24.8
Q3’18 Q3’19
-0.3
TV ARPU:
+0.1
-2.5
+0.9
-0.6
+0.6
-2.2
+0.3
-1.3
-0.5
-1.9
+0.0
-0.8
1) MTR: Mobile termination rates; OTT: Over-the-top content; 2) Q1 internet / TV / landline voice net adds impacted by +4.7k/+2.7k/+4.7k from redefinition of customer base, with no effect on revenue
-0.6
-2.1
-0.8
-1.5
Becoming the best Swiss telco in the
eyes of our customers
9
B2B marketing campaign with
customer references
Again strong in 2019 BILANZ
telecom ranking
Residential marketing campaign with real
customer feedback on customer service
Exzellenter Service braucht sich nicht zu verstecken
Kundenfeedbackim Oktober
Sunrise, an important partner for
• B2B: Sunrise was rated best universal
provider for telco services
• Residential: Sunrise again strong and
ahead of large competitors in mobile
and TV
• Customer survey based test with 13k
participants
10
Confirms investments into 3 strategic priorities
• 5G in 309 cities / villages by start Oct;
strong 5G spectrum position
• Opened first European 5G joint innovation
center in Oct
• Sunrise 5G network used for smart
manufacturing and smart farming
• Sunrise is globally 1st provider with cloud
gaming service with 4K resolution over 5G
• Landline access via FTTH, xDSL, and MBB
• Improving NPS and propensity to call
supported by good end-to-end services
and fiber having lower case rate than
copper
• Awarded with ‘Great Place to Work’
certification in Q3
• Digital transformation on-track with
increasing online distribution channel
share and strong focus on convergence
• Launch of 5G MBB in Q3, primarily in selected
areas without FTTH
• Apple collaborations: Apple Music, ‘smartphone
recycling’, ‘lifestyle packs’, and Apple retail
concept; solid iPhone launch
• B2B with refreshed online Business Portal;
about to launch 5G indoor coverage as a
service; started implementation of first full
managed service mobile contract; won GF
Machining Solutions and ewl as new customers
1 of the world’s best mobile networks 1) Leading customer interface Drive convergence
Network quality Customer interface Innovative converged products
1) Source: P3 as per end of January 2019; 2) NPS (net promoter score) based on touchpoints (e.g. shops, call centers, cases, insurance, complaints)
430
398
391
Sunrise
Swisscom
Salt
Connect shop test 2019
80
100
120
140
160
180
Q3’19Q2’13
NPS rebased to 100 2)Smart Manufacturing
Smart Farming
11
Q3 Financials+2% growth in service revenue and adj EBITDA
André KrauseCFO
12
Financial Overview Q3 excl. IFRS 16 1)
Revenue (CHFm)
GP & adj. Opex
Adj. EBITDA
• Revenue up 1.0% driven by service revenue, partly
offset by lower revenues from mobile hardware and
hubbing (both low margin)
• Service revenue up +2.0% driven by customer
growth, offsetting lower ARPUs; sequential
softening (Q2: +3.1% YoY) due to project driven
‘Integration’ business
• Gross profit growth of +1.9% driven by service
revenue, with service GM impacted by promos and
roaming
• Adj. Opex up +1.7% mainly due to variable growth
expenses supporting momentum
• Adj. EBITDA up +2.0% driven by gross
profit
1) Incl. IFRS 16: Q3 GP +1.9%, adj EBITDA +9.4%; 2) Service revenue is total revenue excluding hubbing and mobile hardware revenue, which are low-margin
469
Q3’19Q3’18
474
+1.0%
Q3’18 Q3’19
161158
+2.0%
155
Q3’18 Q3’19
152
+1.7%
Q3’18
316
Q3’19
310
+1.9%
Gross profit: Adj. Opex:
Total revenue:
Q3’18 Q3’19
393385
+2.0%
Service revenue 2):
Adj. EBITDA:
• Mobile hardware: depends on handset innovation, launches,
pricing and attachment rate; variations across quarters lead to
revenue volatility
• Hubbing: increased focus on profitability led to lower revenue
while GP remained roughly stable
• Postpaid: strong customer growth driven by investments into
quality, offsetting lower ARPU
• Prepaid: pre- to postpaid migration and shift to OTT; prepaid
accounting for ̴ 4% of total revenue
• Landline voice: fixed to mobile substitution, migration to flat rates,
and OTT; landline voice accounting for ̴ 6% of total revenue
• Internet/TV: strong customer growth
• Other: includes volatile lower-margin areas such as project driven
‘Integration’ business
Service revenue growth driven by
postpaid and internet/TV
469
466
474
8
5
-2
Q3’19 Revenue
Q3’18 Revenue
Δ mobile postpaid
-1Δ mobile hw
(low-margin)
Δ hubbing
(low-margin)
-1
-6
Δ other
Service Revenue
Δ mobile prepaid
1
Δ landline voice
Δ internet/TV
-1%
+2%
Revenue bridge (CHFm)
13
• Gross profit +1.9%, driven by service revenue growth
• Service gross margin slightly down due to promotions and
higher roaming usage (all incl. tariffs), partly
compensated by positive impacts of MTR and landline
access deals
• Expect gross profit growth reacceleration in Q4
• Adj. Opex up to CHF 155m
• Driven by variable expenses into operational momentum,
customer onboarding and continued frontline investments
(e.g. shops, B2B staff and support center)
GP growth partly reinvested into
operational momentum
Gross profit Adjusted Opex
1) Service gross margin is calculated as total gross profit divided by service revenue (i.e. revenue excluding low-margin hardware and hubbing revenue); 2) 2018 YoY growth rates exclude IFRS 15 effects as IFRS 15 not available
for 2017 base
1.4%
3.7%4.2%
2.6%1.9%
Q3’19Q3’18
Q3’18
155152
Q3’19
+2,7310
Q3’18 Q3’19
316
5,9
Service GM 1)80.4%80.5%
Growth YoY 2)
In CHFm
1.5%
4.9%
3.4%
1.8% 1.7%
Q3’18 Q3’19
Growth YoY excl. tower 2)
In CHFm
14
15
eFCF impacted by spectrum and landline access
Q3 LTM equity FCF (CHFm) 1)
148
256
108
Capex
(36)Interest
8
Reported
EBITDA
Δ NWC
(415)
(45)
eFCF
normalised
Tax
(33)
Other fin.
activities & lease
repayments
eFCF
Normalisation
670
2)
3)
Capex (CHFm)
Q3’18 FY’18 Q3’19
excl.
IFRS 16
Q3’19
incl.
IFRS 16
pro forma 4)
2,08 1,99 2,102,35
+0,02
Leverage ratio
Net debt / adj. EBITDA
• YoY +0.02 due to
spectrum
• Up since YE due to
spectrum, dividend, and
Swisscom landline
access payment
1) LTM numbers are based on IFRS 16 for 2019 and are without IFRS 16 for 2018; 2) ‘‘Other financing activities’ generally include access deal installments and IRUs; lease repayments include 2019 repayments of lease liability
related to IFRS 16; 3) Includes normalization for NWC, Capex (assuming linearized spectrum and linearized landline access fee payments to Swisscom and utilities), and EBITDA (reduction of asset retirement obligation (ARO;
Q4’18); gain on sale of 133 towers in Q1’19; UPC advisory fees YTD; IAS 19 pension plan adjustment in Q3’19); 4) Based on IFRS 16 net debt and pro forma adj. EBITDA annualizing the 9m’19 IFRS 16 effect 5) whereof CHF 89m
spectrum price and CHF 2m consultancy fees
Q2:
1
(426)
(34)
(44)
(30)
118
116
234
• EBITDA supported by underlying growth
in Q3
• NWC positively impacted by lower device
plan account receivables in 2019
• Capex impacted by spectrum (CHF 91m 5)
in Q2’19), landline access payments to
Swisscom (CHF 61m in Q1’19) and to
utilities (mainly Q4’18); different Capex
seasonality YoY
• IFRS 16 neutral on LTM eFCF, as positive
effect on EBITDA was compensated by
lease repayments and by NWC and
interest impacts
• Dividend paid in 2019: CHF 189m
650
152 134
50 53
98 99
91 91
36
Q2’19 LTM
38
Q3’19 LTM
426 415
Spectrum
Landline Access
Infrastructure & change in NWC
Customer growth
Innovation & Development
Dividend guidance not impacted by
SPA cancelation
16
SPA cancelation Deal related one-off costs
50
(27)
70-75
Termination fee
Integration costs;
advisory & legal fees
120-125Total deal costs
Booked until Sep’19
93-98Outstanding
deal costs
CHFm
• Share purchase agreement with Liberty Global
terminated on Nov 12th, 2019
• Termination triggers penalty payment of CHF 50m
• Total one-off costs of CHF 120-125m expected:
Includes penalty, underwriting fees (CHF 19m), advisory
and legal fees, as well as already incurred integration
costs (CHF 24m)
• Dividend guidance 2019 (paid in 2020) not impacted as
sufficient cash on balance sheet 1) due to lower than
expected 5G spectrum license costs in H1’19
1) Overfunding of CHF 200m during 2018 refinancing for the then anticipated 5G spectrum auction
17
Conclusion
Solid growth confirms strategic focus on quality
Olaf SwanteeCEO
Proven standalone quality track record to be cont.
• Continuous WW and Swiss leadership awards
• 2019: 4G outstanding & 5G leadership
• Continuous market share gains in postpaid,
internet, and TV since 2015 IPO
• Outperforming peers since ~5 quarters on
adj. EBITDA growth
• Setting new benchmarks in telco quality
Sunrise defining market pace
18
Brand
Innovation
B&B
E-commerce
Network
quality
Service
quality
• Developed a B2B growth machine
• Yallo sub brand e-commerce growth platform
• Secured real customer service differentiation
• Total transformation of the store footprint
• Strong Sunrise RF brand differentiation
• Innovation through convergence and partnerships
Str
ate
gic
in
itia
tives
Q3 conclusion
1) IFRS 16 is expected to impact adj. EBITDA positively by CHF40-45m in FY’19
• Strong subscriber growth in postpaid, internet and
TV – supported by investments into quality
• 5G coverage in 309 cities /villages by start Oct
• Revenue CHF 1,860 - 1,900m
• Adj. EBITDA CHF 618 – 628m
• Capex CHF 420– 460mSpectrum CHF 91m
Landline access CHF 77m
Base Capex CHF 252-292m
Guidance is excl. IFRS 16 impact 1)
FY’19 guidance confirmed
19
Cash Flow
Profitability
Customers
Revenue
• Adj. EBITDA up +2.0% with GP growth partly
reinvested into operational momentum; expect Q4
GP growth acceleration
• Continued service revenue growth driven by
customer momentum
• Ongoing service revenue diversification in terms of
product category and customer segments
• Equity FCF as expected; reduced leverage after
tower disposal gives flexibility for strategic
investments
20
Q & A
? & !
21
Appendix
• EBITDA: CHF +40m to CHF +45m positive impact is
expected in FY’19
• Net debt: CHF 257m impact as per Sep 2019 (total lease
liability incl. former finance lease: CHF 259m)
• Leverage: Net debt/adj. EBITDA ratio with +0.25 impact
due to IFRS 16 in Q3’19
• Sunrise does not restate 2018; in order to provide YoY
comparability, Sunrise is disclosing 2019 trends also under
IAS 17
• Introduced as per Jan 2019, replacing previous
standards (e.g. IAS 17); impact on:
• P&L lease recognition: reallocation from COGS
(immaterial) and Opex to depreciation and interest
expenses; results in increase of EBITDA
• BS lease recognition: increase of assets (‘right of
use assets’) and liabilities (‘lease liability’); results in
increase of net debt
• CFS: No impact on total Cash Flow, but
reallocations within Cash Flow Statement
IFRS 16 update
IFRS 16 accounting standard Impact on Sunrise
22
Adj. EBITDA
Gross profit310 316
+1,9%
158 161
Q3 YoY
+2,0%
310 316
+1,9%
158 173
Q3 YoY
with Q3’19
incl. IFRS 16
+9,4%
Incl. IFRS 16Excl. IFRS 16
Bridge adjusted to reported EBITDA
Q3 EBITDA bridge (excl. IFRS 16)
• Share-based payment provisions for multi-year
compensation plans
• Non-recurring / non-operating events mainly represent costs
for one-time events, e.g. advisory fees related to the
acquisition of UPC Switzerland (CHF -10m), offset by a one-
time pension plan adjustment, which led to a CHF 13m
decrease in pension fund costs.Non-recurring /
non-operating events
Adj. EBITDA Q3’19
(1)
Prior year events
Share based payment
expenses
Reported EBITDA Q3’19
2
161
163
0
23
24
Again strong in BILANZ telecom ranking 2019
3
5
Quality
Innovation
PriceFlexibility
Support
Sunrise Swisscom Salt UPC
1) Residential; source: BILANZ 09 2019; Rated were quality, innovation, price, flexibility and support on a scale from 1-lowest and 6-highest
Mobile experience 1)
:
17
23
Mobile
Internet
TV
Landlinevoice
Sunrise Swisscom Salt UPC
Full service experience (4P) 1)
:
• B2B: Sunrise was rated best
universal provider for telco services
• Residential: Sunrise again strong
(see charts)
• Results confirm quality strategy
• Independent customer survey based
test with 13k participants
Income Statement
25
CHF million
July 1 - September 30
Q3 2 0 19
with
IFRS 16
Q3 2 0 19
without
IFRS 16
Q3 2 0 18
without
IFRS 16
Cha nge
with
IFRS 16 (%)
Re ve nue
Mobile services 325 325 321 1.3
- Thereof mobile postpaid 215 215 208 3.8
- Thereof mobile prepaid 19 19 25 (22.9)
- Thereof mobile hardware 64 64 65 (1.8)
- Thereof other 27 27 24 12.9
Landline services 72 72 77 (5.7)
- Thereof landline voice 31 31 31 (1.9)
- Thereof hubbing 17 17 19 (10.6)
- Thereof other 25 25 27 (6.7)
Landline Internet and TV 76 76 72 6.8
Tota l re ve nue 4 7 4 4 7 4 4 6 9 1.0
Revenue excl. mobile hardware and hubbing 393 393 385 2.0
Gross profit 3 16 3 16 3 10 1.9
% margin 66.7% 66.7% 66.1%
% margin (excl. hubbing & hardware revenue) 80.4% 80.4% 80.5%
EBITDA 17 5 16 3 15 4 13 .0
EBITDA a djuste d 17 3 16 1 15 8 9 .4
% margin 36.4% 34.0% 33.6%
% margin (excl. hubbing & hardware revenue) 43.9% 41.0% 41.0%
Ne t inc ome 4 8 4 8 3 2 5 1.7
Cash Flow Statement
26
CHF million
July 1 - September 30
Q3 2 0 19
with
IFRS 16
Q3 2 0 19
without
IFRS 16
Q3 2 0 18
without
IFRS 16
Cha nge
with
IFRS 16 (%)
Ca sh flow
Reported EBITDA 175 163 154
Change in NWC 13 18 7
Net interest (9) (6) (6)
Tax (21) (21) (20)
CAPEX (65) (65) (76)
Repayments of lease liability (5) (1) 0
Other financing activities 0 0 (1)
Equity fre e c a sh flow 8 8 8 8 5 8 5 2 .0
Other (14) (14) (3) 379.5
Tota l c a sh flow 7 4 7 4 5 5 3 4 .9
Leverage ratio
1) Based on pro forma view for 2019 by annualizing the IFRS 16 adj. EBITDA effect; based on pro forma view for June 30 2018, taking into account annualized network service fees related to tower disposal
27
Net debt (CHFm)September 30,
2019
June 30,
2019
December 31,
2018
Senior Secured Notes issued February 2015 0 0 0
Term loan B 1’410 1’410 1’410
Senior Secured Notes issued June 2018 200 200 200
Total cash-pay borrowings 1’610 1’610 1’610
Operational lease 259 266 5
Total debt 1’869 1’876 1’615
Cash & Cash Equivalents (315) (240) (421)
Net debt 1’554 1’636 1’194
Net debt / pro forma adj. EBITDA 1) 2.4x 2.5x 2.0xexcl. IFRS 16 2.1x 2.2x
Have a sunny day
29
Contact InformationInvestor Relations
Stephan [email protected]
Contact
www.sunrise.ch/ir
+41 58 777 96 86
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Disclaimer
30
