Operator: Ladies and gentlemen, welcome to the Sunrise Third Quarter 2026 Financial Results Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. Page 2 of the presentation details the company's safe harbor statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning 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.
Operator: 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 is my pleasure to hand over to Alex Herrmann, Vice President Investor Relations, Corporate Finance, and Treasury. Please go ahead.
Alex Herrmann: Thank you, Matilda. Good morning, ladies and gentlemen, and welcome to our Third Quarter 2026 Financial Results Call. Thank you for joining us today. With me today are André Krause, our CEO, and for the first time, Andreas Tolpeit, who has taken over as CFO of Sunrise as of 1 September. André and Andreas will lead you through the presentation, which will be followed by a Q&A session. With that, I would like to directly hand it over to André. Please go ahead.
André Krause: Yeah, thanks, Alex, and good morning, everyone. Let me kick off by talking you through the summary of our today's presentation. Firstly, we have continued our focus on customer lifetime value, product innovation, and quality. We have been seeing a growing Sunrise Rewards and Device-as-a-Service adoption, supporting our main brand customer lifetime value. We have also just recently, yesterday, launched a new native flanker brand, AI native flanker brand, called five. I will talk about that in a minute. We have also launched in the quarter a Sunrise Business AI Assistant, and also a new SME SecureConnect solution. We are also using our partner PHOENIQS to do so. We will talk about that as well. We have all seen strong recognition as part of the Connect results that we received in the quarter for fixed network quality, customer services, and shops.
André Krause: Secondly, we have seen robust subscriber trends despite the fact that the summer quarter is seasonally usually somewhat softer, and we have been dealing with a price increase in the quarter as well. Our financial results have been in line with our expectations. We have seen that the price increase has benefited our moderating Q3 revenue and Adjusted EBITDA declines, as we expected. On the basis of that, we are fully confirming our 2026 guidance, including the growing dividend towards CHF 3.49 per share. We also, in the quarter, executed our debt repayment of approximately CHF 110 million, which now also pushes out all of the remaining maturities to 2031 and gives us quite some clear visibility on our debt structure. Thirdly, we have started a significant exercise to transform our operating models.
André Krause: This is going to be a multi-year exercise, and we have seen this year the front end of that, which has been two sets of employee reductions, which we have implemented while we are speaking. This transformation is set to prepare Sunrise for a future that is a lot more focused, a lot more streamlined, and also an AI-enabled business across. We expect the resulting cost savings of this transformation to be utilized to absorb the remaining fixed ARPU headwinds, cost step-ups, enable reinvestments, and support our commitment to growing free cash flow, further delevering, and also growing DPS. On that basis, we also are expecting to give you a broader update on how our business is going to look like in the future as part of our Q4 results, and we will talk about that a bit more later on.
André Krause: Now with that, let's talk about the commercial performance of the quarter, and I would like to start with some of the consumer main brand activities that have defined the success of the quarter. I spoke already about Sunrise Rewards, which was up for a strong start. We launched it, as you remember, in May. Since then, customers are benefiting automatically if they are a Sunrise subscriber from the program. So all of our customers have access to the program, and we have seen in the meantime more than 100,000 redemptions, which we think is a very strong indication of the effectiveness of the program, and that's working pretty well. You see some of the examples of offers that we make to our customers on the left-hand side of the page.
André Krause: I'd like to flesh out the one on the bottom, which was a large music concert from a very popular Swiss band called Hecht, which is happening only next year, but the ticket sales were happening just a few weeks ago. Sunrise customers had the opportunity to benefit in our Sunrise Rewards program of the ability to have a pre-sale that was sold out pretty quickly. This is just one example of how we try to come up with something that money can't buy, that is unique, and therefore sharpens the effectiveness of the Sunrise Rewards offer. Not only Sunrise Rewards, but also Q3 is always a quarter that is determined by new phone launches from Apple. This year, quite a particular launch.
André Krause: We have seen the Pro and Pro Max series happening in September, while the more volume drivers are only happening in Q1, and we have seen a new device, the iPhone Duo, coming in in October. Interestingly, we have seen very strong recognition of our Device-as-a-Service proposition. We meanwhile have seen that more of 75% of the iPhone sales are linked to our Device-as-a-Service offerings, which are Smart Upgrade and Flex Upgrade, so we think that's a very strong sign of the attractiveness of that program. We also relaunched the Iconic Bundle, which we already launched last year, but we sharpened the proposition in line with our premiumization strategy that we have on Sunrise, and have seen a very strong attach rate of the Duo, and we have seen a more than double-digit percentage take-up of iPhone sales with that Iconic Bundle proposition.
André Krause: As I said yesterday, we launched an exciting and innovative new flanker offer called five. The uniqueness of five is that this one is really the first, at least in the Swiss market, and we believe probably in a broader telco environment, the first AI-native proposition. What does this mean? This product has been developed and is run constantly on an AI platform, and also the user front end is quite different, because essentially, this is not a predefined tariff or product that the customer is buying, but it's an interface that allows the customer to actually define their own product by using AI. Meaning, this is a full customization, personalization of the offer that is actually working for the customer. This is not only a one-time customization, but the AI is then constantly helping the customer to optimize that product as he starts using it.
André Krause: This is not only just a mobile tariff, but it also comes with an AI assistant embedded, so it actually makes the necessity to have another AI subscription unnecessary, and it actually offers a variety of models underneath that can be used by the customer. This is actually enabled also through our PHOENIQS partnership on the back end, and I think it demonstrates the ability that this is not only a very flexible tool, but also a fully sovereign product that is hosted fully in Switzerland and is fully run in Switzerland. I think this product has a number of legs, and it's kind of a really new exercise that will give us lots of learning opportunities, understanding how hyper-personalization for customers can actually work.
André Krause: We have chosen to launch this as a new brand to actually take this as clean learnings, despite actually having it as an on-top layer, which may be a solution for other brands in the future to come. This is only just the front of that product, so if you are interested to learn more about it, you, on the bottom right, also find the link to the product page where you can explore the offering yourself. As I said, this was also built with a partnership that we have with PHOENIQS. That is not the only thing that we launched on the back of that. We also launched the Sunrise Business AI Assistant in September of this year. Again, this is a fully Swiss sovereign solution. No data is leaving Switzerland. All of the operating platform is fully owned by PHOENIQS, so no access to any third party.
André Krause: That is the uniqueness of the offering that we are having, which means that this AI assistant is actually making the use of AI for businesses worry-free. So, no necessity to worry about, "Where does my data go? Does anybody have to have, can have access to it?" and so on. So, it reduces the hurdle really for small and medium-sized businesses to AI adoption, and not only limited to that. Also for large enterprises, we think it is a very attractive proposition. We have also added our SME SecureConnect solution on top of that, meaning that not only the AI assistant is fully secure and sovereign, but also the connectivity as such is fully protected against any cyber risks. On the back of this launch, we have seen a very strong pipeline building up, and we are quite excited about what this could yield going forward.
André Krause: But of course, as we launched only at the second half of September, it is still very early days, and as you know, B2B business usually has some lead time to action. So, we see this as a future prospect to help support our B2B growth in the coming quarters. Clearly, this also is a next step in our journey to strengthen our ICT capabilities in the B2B segment, which is an important element of our strategy going forward. Not only on the commercial side, we have seen a lot of activity, but we have also worked on further cost efficiencies. This is not just further cost efficiencies, but we have done, or we have started to do a full review of our operating model, which will lead to a multi-year operating model transformation.
André Krause: As I said already, the front end of that is also significant headcount reduction, which in 2026 happened in two ways. As you remember, we had a first layoff that happened in Q1, and we have already executed the second tranche of that layoff in Q4, sorry, in Q3. So, you see the total impact of that is the terminations of roughly 500 employees, which is leading to a run rate saving of CHF 70 million, which we expect to be fully effective in 2028. Now, most of the terminations have already happened, hence there is going to be an upside to be expected in 2027. But of course, there is also restructuring costs against that, and we will talk about that later on in our presentation today.
André Krause: Now, the multi-year transformation is really focused on making sure that we become more focused, meaning working on a lower number of priorities that we really land towards a financial impact, which means reduction of projects that we are running. We are also changing our governance and how we work, making sure that we spend more time on execution and less time on analysis and decision-making, which is also already supported by the use of AI. Then in the implementation side of things, we will also increase technology usage in order to get faster and cheaper in everything that we do, not only internally, but also we are expecting a reduction of external costs, and we are also expecting a reduction of external resources required to actually run our business.
André Krause: As you can see from that, we are expecting a significant change to our operating model, and we are expecting that those savings will help us to absorb remaining fixed ARPU headwinds that we see. We are also expecting some cost step-ups that need to be offset, and we are fully committed to continue to deliver growing free cash flows, further delever our business, and provide a growing dividend for our shareholders. As you can see, this is a major change to our business, and we will provide a broader update on our business outlook as part of our Q4 results in February next year. We ask you to bear with us to give us the time to actually fully work through the numbers, but also make sure that we understand the landing of this year to give you then a good outlook going forward.
André Krause: Now with that, let me talk about the commercial performance of the quarter. As said, very much in line with our expectations. Talking about net adds, we have seen 19,000 net adds on the mobile postpaid side. That is pretty much in line with what we have seen in Q2, but also what we have seen in prior year. That is on the back of somewhat seasonally lower activity usually in summer, but also the price increase happening in August. Also on the internet side of things, you see that we are flattish for the quarter, which is somewhat softer than what we have seen in Q2, but again, we have also seen a bit of an increase of churn quarter on quarter. Nevertheless, we have seen significantly better performance than in Q3 last year, where we were declining.
André Krause: In comparison to last year, also our churn rate has improved, never mind the fact that we had somewhat more churn quarter on quarter because of the price increase. Our FMC quota continues to crawl up. We are now at 61.5%, and we are expecting that to further improve. Going on to ARPU, you see the mobile ARPU is nearly stable. It has been benefiting, of course, from the price increase in August, but it is also benefiting from the FMC allocation that is happening from an accounting perspective. That is what we can see on the mobile side. On the fixed side, we have also seen a softened decline, which is still driven largely by the difference between the front book intake and the back book pricing, but is also impacted by some mix effect that is coming from the different brands that we are selling.
André Krause: And of course, also some FMC discount allocation on this side of the equation. The price increase is partially offsetting that, and that is what we see here, and we are further expecting, as we have outlined before, that the revenue evolution in Q4 is further improving as expected. All right, that is pretty much my part of the presentation, and with that, the premiere of Andreas now. Andreas, over to you for the financials.
Andreas Tolpeit: Yeah. Thank you, André, and good morning, everyone. This is my first call as the new CFO of Sunrise, and I am truly delighted to be here. Since joining in August, I spent a lot of time getting to know the team, the business, and our operations. I also got the chance to meet many of the analysts that are on the call today and some of our investors through conferences and initial meetings, and I am looking forward to meeting many more in the future. in this context, I would also like to thank Yanni for a very structured handover in the course of August. I am joining at an inflection point for our industry. Technology, customer expectations, and the economics of connectivity are shifting, and that changes how we create value for our shareholders.
Andreas Tolpeit: Sunrise is a strong company with an outstanding team and attractive prospects to capitalize on the opportunities that lie ahead. Having worked across many different industries, I have used the last months to look at the business with fresh eyes, bringing a new perspective, always with a focus around how we can further improve our profitability and cash flow generation. There are some interesting opportunities ahead for Sunrise, and we will look to unlock them in the quarters ahead, starting with the operating model transformation André walked you through in the previous section. I look forward to shaping the next phase of Sunrise together with André and the entire team. Today, I will walk you through the quarter's financial performance, our cash flow, and net debt position, as well as our outlook before handing back to André for his closing remarks.
Andreas Tolpeit: In line with the outlook around the performance shape throughout 2026, the revenue decline narrowed to 1.2% in Q3 after a 2.6% decline in Q2. This underpins the U-shaped recovery Yanni was referring to in the call in August. So what is behind it? The fixed ARPU development is supported by the price increase in August, which landed really well across our brands. Secondly, we have seen strong hardware sales supported by our attractive Device-as-a-Service offerings, as well as continued B2B and wholesale growth. Continued cost and lease optimization has helped to contain the Adjusted EBITDAaL decline to about 2% for the quarter and -1.2% for the year-to-date period. CapEx is down 17% year over year, benefiting from past network investments, a more focused IT development roadmap, as well as some phasing.
Andreas Tolpeit: This is driving Adjusted EBITDA less P&E Additions of +7.7% for the quarter and +8.3% on a year-to-date basis. Free cash flow for Q3 is slightly down versus last year by CHF 4 million, which, however, is entirely driven by phasing, and we will unpack a little later in the presentation. Looking at the year-to-date period, we are very pleased with our free cash flow development as we are CHF 52 million Swissies ahead of last year, as we remain focused on flattening the cash flow generation over the course of the financial year. Let's double-click on revenue on the next page. The top-line decline moderated, in fact, to 1.2% in Q3, which is a strong improvement versus Q2, and in line with the U-shaped performance trajectory we are observing in 2026.
Andreas Tolpeit: When it comes to residential subscription revenue, price increases are successfully softening the existing fixed ARPU pressure caused by the continuous narrowing of the front-to-backbook gap. The mobile subscription revenue, on the other hand, was basically stable, despite variable usage headwinds from roaming. Non-subscription and other revenue benefited from the Device-as-a-Service-driven hardware sales. This was partly offset by a tougher fee revenue comparison with Q3 last year, being exceptionally strong when it comes to those fees. We also continue to generate growth through our B2B and wholesale business, both on the subscription side as well as across other revenue streams. The underlying drivers are strong mobile volumes, support from selective price increases, as well as higher fees. Page 13.
Andreas Tolpeit: Adjusted EBITDA declined by about 2% in the quarter, reflecting lower residential fixed subscription revenue flowing through to gross profit, where the compensation from higher hardware sales is less effective. This was partly set off by gross profit growth in B2B and wholesale, as well as continued external cost optimization, including network and IT, and lower lease expenses from contract optimization and favorable phasing. After P&E Additions, we turned to strong year-on-year growth in Q3. CapEx was down by CHF 18 million, or 17% in the quarter, and that is driven by two material drivers. Firstly, on the network side, we see lower mobile capacity requirements following past investments, as well as lower coverage requirements after significant B2B spend in the prior year. Secondly, on the IT side, we pursue a more focused IT development roadmap and benefit from some project phasing as well.
Andreas Tolpeit: As a result, the Adjusted EBITDA, less P&E Additions, grew by 7.7% in the quarter, supporting our cash generation. Q3 adjusted free cash flow landed at CHF 33 million versus CHF 37 million last year. The small decline in absolute terms is driven by significant phasing effects and some exceptionals. Firstly, the interest payment increases year-on-year due to the refinancing transactions in early 2025, which triggered earlier interest payments last year and disturbs the year-on-year comparison in Q3. Secondly, there is an overseas cash tax inflow from the Netherlands, which crystallized in Q3. Finally, we face some higher lease payments on a cash basis associated with access costs, which are effectively some prepayments. On a year-to-date basis, on the right-hand side of the slide, you see that these phasing effects largely wash out.
Andreas Tolpeit: The upside on the CapEx and tax remains though, and results in very strong adjusted free cash flow of CHF 126 million on a year-to-date basis, which means an improvement of 71% year over year. Moving on to debt and leverage. This slide provides an overview of our net debt position as of end of September. I would like to highlight three points in this context. Firstly, we repaid about CHF 110 million of gross debt last Monday, including derivative terminations, which represent about CHF 12 million out of the CHF 110 million. This is consistent with our capital allocation policy of using excess cash to reduce our gross debt position. Secondly, after this repayment, which addressed the senior secured notes maturing in 2029, we have extended our third-party debt maturities to 2031 and beyond.
Andreas Tolpeit: Actually, if you look at the chart on the lower left-hand side of the page, three-quarters of our debt actually matures in 2032 and thereafter. Thirdly and finally, our debt stack is, A, fully swapped into Swiss francs, so no currency exposure, and B, fully hedged against interest rate risks where we have some, because we have largely fixed income instruments. Both of these result in an attractive weighted average cost of debt of 2.8%. As we are potentially entering a higher-for-longer interest rate environment, I want to particularly stress the latter point around the interest rate hedges. In summary, we remain committed to reducing our gross debt over time in line with our capital allocation policy and the leverage guidance provided, and we benefit from a sustainable, fully hedged, and long-term debt structure.
Andreas Tolpeit: As far as our guidance for 2026 is concerned, we are confirming the existing guidance provided. When it comes to Q4, we would like to highlight in particular the following. On the revenue side, Q4 will benefit on a full quarter basis from the price increase communicated in August. We are also expecting the improving subscriber momentum to continue into that next quarter. On the flip side, we also see some nuance from the unusual iPhone launch this year and the phased delivery dates, as well as some supply constraints we observed in Switzerland, but also globally. For example, we are having an order backlog on the iPhone Duo of about 5,000 positions. On the EBITDA and cash flow targets, we would like to flag the following. The continued cost discipline supports our adjusted EBITDA target of CHF 1 billion, despite some phasing reversals and expected commercial investments coming up.
Andreas Tolpeit: In terms of adjusted free cash flow, we also reconfirm the previously communicated range of CHF 380 million to CHF 400 million. This is despite a low single-digit million amount of net negative impact on 2026 free cash flow from our Q4 restructuring. When it comes to the guidance for 2027, we will provide that together with the Q4 results in February per the existing practice. Ahead of February, and as new incoming CFO, I would like to reiterate also from my side our commitment towards growing free cash flow generation, deleveraging, and a progressive dividend per share policy. As part of the Q4 results call, which is scheduled for 17 February 2027, we will also provide a broader business and strategy update, providing further detail on our operating model transformation and the associated financial outlook for the midterm. With that, back to you, André.
André Krause: Well, thanks a lot, Andreas, and let me summarize the key takeaways of today's presentation. Firstly, commercially, we stay very focused on our customer lifetime value focus, driving product innovations and quality. You have seen Sunrise Rewards and Device-as-a-Service are gaining traction, and you have also seen new AI propositions that we have launched in the quarter. Secondly, our results are fully in line with our expectations. We have seen robust subscriber trends in Q3. On that basis, we are fully reiterating our guidance for 2026. You have also seen our debt repayment that we completed in line with our capital allocation policy, and Andreas was alluding to the strength of our debt structure and the maturities and the attractive interest.
André Krause: Thirdly, we have also talked about the start of our multi-year operating model transformation that we have launched in order to drive further efficiencies, absorb headwinds, and enable reinvestments, and supporting our commitment to growing free cash flows, further delevering the business, and also growing DPS in the future. With that, I conclude the presentation and hand over for the Q&A now.
Operator: We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Polo Tang from UBS. Please go ahead.
Polo Tang: Hi. Thanks for taking the questions. I have two. The first one is just about competitive dynamics. Can you talk about how the Black Friday sales period is shaping up, and how does pricing compare to last year? The second question is just really around cost savings. You have outlined CHF 70 million of cost savings from FTE reductions. You have been clear the full benefit on free cash flow is only going to come in 2028 because you have got restructuring costs. But how should we think about the benefit on EBITDA in 2026 and 2027? I estimate around a third of the CHF 70 million of FTE savings is already in your stable EBITDA guidance for 2026, but potentially two-thirds of the CHF 70 million is new incremental savings that could potentially benefit EBITDA in 2027. Does this sound about right?
Polo Tang: And can I clarify that in terms of these cost-saving measures that you have announced and the further cost savings that are yet to come, do you need these cost savings to hit the consensus numbers of flat EBITDA and flat free cash flow midterm, or do you think these savings enable you to achieve growing EBITDA and growing free cash flow? Thanks.
André Krause: Well, thanks, Polo, for your questions. Let me start with the competitive dynamics, and then I will give Andreas the opportunity also to comment on the savings. Firstly, on the competitive dynamics in regards to the Black Friday, which has just launched a week ago, unfortunately, we have seen again a Black November and not just a Black Friday, and we have been reacting to competitors moving in. As I said, we believe that we would all be better off if this would be just a couple of days and not a full month. However, when the exercise takes place, you have to discipline it in order not to get hit harder. On the pricing levels that we are observing, I am not seeing any materially different price points to what we have seen a year ago.
André Krause: Of course, the different brands are still working in the different price bands, but essentially, the offerings are very much in line with what we have seen in the prior year. On our Sunrise main brand, we are also more focusing on benefits that are around hardware than necessarily price. So far, that has a good reaction, but again, it is early days. But no further deterioration of market pricing in the Black Friday period as we can analyze it by now. Before I hand over to Andreas for the cost savings, probably we will refrain today from giving any forward-looking statements or guidance. As we said, we are going to do that as part of our Q4 results, but of course, we can illuminate a bit the cost-saving structure that we are expecting.
Andreas Tolpeit: Yes, I will start exactly there. So, we are not giving guidance today. I think what you said, Polo, is largely correct. I would say 20% of the full envelope of CHF 70 million is kind of already included in the 2026 guidance. This is the lion's share of the first wave that we have executed in Q1.
Andreas Tolpeit: The second wave, which is effectively the vast majority of the CHF 70 million, about three-quarters, we just executed last week, so we are already in Q4 with that, and so the impact for 2026 is quite limited. As we look ahead for the next year, I would say that you have got to balance those effects with some also headwinds that continue on the back-to-front book side, on the fixed residential side. Leases are stepping up, but also some reinvestments that we are going to make to achieve this transformation going forward.
Andreas Tolpeit: I hope this addresses your point.
Polo Tang: Clear. Thanks.
Operator: The next question comes from the line of Robert Grindle from Deutsche Bank. Please go ahead.
Robert Grindle: Thank you, and welcome, Andreas. Following up on Polo's questions, you launched five yesterday, and that is in the Black Friday promotional period. Is that all a bit of a coincidence because the technology is available and that is the right thing to do, or are you effectively hitting the market with a new brand like you did last year to avail of liquidity? My second question is about your relationship with PHOENIQS. Obviously, five is very AI-heavy. Broadly, how does that work? Is that per customer-driven, token usage-driven? Do you have material upfront costs? A bit of color there would be helpful. Thank you.
André Krause: Yeah, thank you very much, Robert, for your questions. The launch timing of five, I think a bit of both, what you alluded to. On the one hand side, it was available right now, so we actually built it only in less than 6 weeks' time. It happened pretty quickly, which was a bit of a surprise to us that we could do it that quickly. Then we were considering also the moment of the Black Friday period, where it is just more liquidity in the market, as a good moment to launch. Now, to be clear, this is not a product that is very price aggressive. It is a product that is innovative, and from a price positioning, it is rather positioned between the flanker brand and the main brand, so it is between the B and the A segment. It is not bottom fishing.
André Krause: It is more focused on the innovativeness that actually sits in that proposition. To the economics and the relationship with PHOENIQS, essentially, we have built this product fully ourselves, excluding any support from the PHOENIQS colleagues. What we are doing is that the AI system that is connected is ultimately used on the PHOENIQS stack, and it pays through the tokens that are actually being used. That is the commercial proposition. But it is very attractive, and we do not think that there is any obstacle to the profitability of the product, which in itself is extremely lean, given the fact that it is fully AI-based and AI-native.
Robert Grindle: Got it. Thank you.
Operator: We now have a question from the line of Joshua Mills from BNP Paribas. Please go ahead.
Joshua Mills: Hi, guys. Thank you for taking the questions. A couple from my side. The first one was just around this update you are planning to give at the full-year results. I know that we will have to wait until then to get more explicit detail, but it sounds like one of the positive elements you will be discussing is the cost-cutting side. I think you have also lowered the CapEx-to-sales targets since we had the last CMD in 2024. Can I just ask if there is any new information or new view that we should be taking when it comes to things like cash taxes, which has been a debate recently on your free cash flow development? How are we looking at cash taxes going forward? Is there more pressure to offset those as part of these new initiatives? Secondly, if I could maybe ask about the leverage.
Joshua Mills: You made some comments there about your commitment to leverage ratios, the refinancing elements, the fact you turned up debt. We are looking at leverage now above the high end of the previous guidance range, and we have a spectrum auction coming up in Q2 of next year. How are you looking at different financing options? Are hybrids something you would consider? Is that something that you would consider to be outside your leverage target? Any early thoughts on that would be very helpful. Thank you.
André Krause: Yeah. Thanks for your questions, Joshua, and Andreas will support on some of the topics that you raised. On the update, let me just be explaining why we actually talk about that with the Q4 results in February. Number 1, while we are speaking, we are doing a lot of work still on how this operating transformation will go into the end and what the impact of that over time could look like. So there is still work being done to get you a better understanding of what this implies. Secondly, we definitely want to see the Q4 results to understand our run rate landing for 2027. That, of course, has an impact on the outlook for next year, and also the dynamics that we are expecting. So, we need that time really to actually work through those results.
André Krause: However, with what we can say and see, as we said, we are very much confirming our commitment to drive growing free cash flows to delever and also to drive DPS. Now, to your questions on cash tax, Andreas can elaborate further, but there is no material change to that. So that is not a driver of any offset that is required. In regards to leverage, obviously, that is to a certain extent linked to the outcome of the spectrum auctions. However, we are continuing to expect a rational outcome around the reserve prices that, in our case, is for the spectrum that we want to acquire, are around the CHF 246 million of the reserve prices. So that is not a massive impact on that number.
André Krause: Also provided that we are driving quite some free cash generation beyond the dividend that we are paying that can be used to delever within the year. I think those are probably my remarks to your questions, and I hand over for Andreas to any further detail.
Andreas Tolpeit: Yeah. Thank you, Joshua, for your questions, and let's double-click on the tax point. While you see that in our accounts, whether our net operating losses are coming to an end, so we are migrating or we're morphing into becoming a full taxpayer in start of 2027, but then it will kind of be fully effective 2028, 2029. That is certainly counterbalancing also some of the cash flow benefits from the restructuring that we are going to crystallize starting next year and then in 2028 in full effect, right? Next year, we expect a mid-double-digit Swissie million amount of cash taxes. On the leverage, I would say that in Q3, our leverage is artificially or is a bit higher than usual.
Andreas Tolpeit: If you triangulate the cash flow generation in Q4, based on the guidance as a target and where we stand on a year-to-date basis, you see that there is significant cash inflow in the fourth quarter, which will bring the leverage in line with our guidance range.
André Krause: I think there was one additional element that we haven't touched on, which was the question, is there any hybrid instrument or other things that we're thinking about? At this moment, Joshua, our focus is very much on ensuring organic delevering of the business. That's the first and foremost thing that we are working on. But we are also analyzing inorganic options, but we refrain from any speculation about any of those until we have taken a conclusion, and then, of course, we will update you accordingly.
Joshua Mills: Great. Thank you.
Operator: The next question comes from the line of Andrew Lee from Goldman Sachs. Please go ahead.
Andrew Lee: Good morning. I just wanted to follow up really on the leverage question. Arguably, your shares are held back by lack of growth combined with leverage, and obviously, you are working hard to try and unwind that, and particularly with the cost-cutting efforts you have made. Those cost-cutting efforts clearly have an impact, but in terms of where it leaves you with leverage, it is still a very high number versus what investors are clearly willing to accept, and arguably, undermining your ability to drive a re-rating in the shares.
Andrew Lee: I appreciate you are having a strategic update at Q4 results, but I wondered if you could just talk through whether cost efficiencies alone, either what you have announced or what you could do in the future, are enough, or if you are going to have to address capital allocation in a more meaningful way for your results to try and put yourself in a better balance sheet position that investors have greater confidence in. Thank you.
André Krause: Thank you very much for that question, Andrew. Firstly, I think, yes, absolutely right. We are using our operating model transformation and the related cost savings, obviously, also to absorb some of the headwinds that we are facing. If you look at those headwinds on the top line, then most of them are actually, well, the vast majority of it is actually coming from our fixed business. In the fixed business, we are not actually in an environment where market prices are deteriorating, but we have a narrowing between our back book prices and our front book prices. As a result of that, we naturally are expecting that there will be an inflection point where the top line will stabilize and will start to grow again. That is number 1, and I think that is important for the future outlook.
André Krause: Again, I refrain from any more detail at this moment in time, as we will flesh that out in more detail as part of our Q4 update. That will definitely lead to growing cash flows on the bottom line. As you can see, our cost consciousness is driving abilities to offset midterm and short-term headwinds that we are expecting. Beyond that, also, given the fact that we have invested largely and that we are not needing to invest into fiber, we are in a position that our CapEx intensity is on a sustainably relatively low level, and that is helping our ability to drive growing fresh free cash flows. On this capital allocation question, we are not expecting to change our capital allocation, also because the order of magnitude of change that it will drive would not significantly impact our ability to delever the business.
André Krause: From that perspective, as I said earlier, we remain very focused on driving an organically free cash flow acceleration that will help us to organically delever the business. In parallel, we are also obviously analyzing alternatives to eventually also inorganically delever the business. Again, we refrain from any speculations around what that is going to be.
Andrew Lee: Thank you.
Operator: We now have a question from the line of Max Findlay from Rothschild & Co. Please go ahead.
Max Findlay: Thank you for speaking to us this morning. Firstly, a follow-up on Robert's question on five. What is the customer base you are trying to target? Is this primarily trying to stop main brand customers dropping to segment B or even C? Secondly, there was a noticeable improvement in B2B mobile subscription revenues. You obviously get the full benefit in Q4, but I was wondering if Q3 benefited from softer comps. I think there was a drop in variable revenues last year. Just interested how sequential performance goes in Q4. Finally, alongside the Q4 redundancy program, you are also running a voluntary redundancy program. Just checking this is incremental to the 360 redundancies announced, and what is the expected take-up from this program? Thank you.
André Krause: All right, Max. Thanks for your questions. Firstly, starting off with your question on five. What is the segment that we are trying to address? This is probably a segment that is I do not know whether that is really A, B, or C. I think it is probably spread across. That is more the tech-affine younger generation that wants to have an easy-to-deal-with solution that is not necessarily the lowest price, but actually excels by the fact of the technology that it is using and the personalization it offers. I think that is probably a segment that goes a bit across. As we said, we do not think that this is a product that has to fish at the very bottom of the pricing range because of its innovative nature and the fact that it is very personalized. That is how we are positioning it.
André Krause: It is hard to say whether that is really addressing our main brand customers, our flanker brand customers, or our C brand customers. I would assume it probably goes across those three segments, but we probably can give you a bit more color on that after we have seen some first results on the product. Talking about the B2B upside that we have seen in Q3. We have seen throughout the year that our small and medium segment was doing quite well in terms of net additions and also in terms of overall commercial performance. That, I think, is the key driver of what we are seeing on the B2B side, and we probably are expecting also to continue benefiting from that. On the voluntary program, the voluntary program is fully baked into the 500 redundancies that we have been communicating.
André Krause: It was part of the layoff program, so it was used to identify individuals that were wanting to leave the business. This is essentially, therefore, fully baked and no incremental upside to be expected.
Max Findlay: Thank you.
Operator: As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question comes from the line of Ajay Soni from J.P. Morgan. Please go ahead.
Ajay Soni: Hi, guys. Thanks for taking the question. I have two. The first one was price rises. Just wanted to know how they landed. It does not seem like ARPU has materially improved quarter-on-quarter, so were these competed away? In mobile, you call out growth within the flanker and B2B segments. So what is happening on your main brand here, and are you seeing flanker brand penetration within your base still increasing? Thank you.
André Krause: All right. Firstly, as we said, from our perspective, the price rise landed pretty well. The net landing, so the net impact that it generates, is in line with our expectations. Of course, like always, when you do a price rise, there are some negative impact that you have to assume, but those have been in line with what we've expected, so that's perfectly fine. I think if we talk about the main brand, flanker brand shares, then we do see some more net growth in flanker brands. Yes, the flanker brand share is slightly growing, but we are not communicating further details on that overall. It's also true that in the overall results, there's a significant part that is also coming from the Sunrise main brand in terms of net additions that we are driving.
André Krause: It's not like that it's all just driven by flanker brand growth. It's a good and healthy mix from our perspective. But given the liquidity in the different segments, obviously, the flanker brands are benefiting from more liquidity in the B and C segments, and less liquidity is the truth that we do have in the A segment.
Ajay Soni: Great. Thank you.
Ajay Soni: Thank you.
Operator: Once again, to ask a question, please press star and 1 on your telephone. Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Alex Herrmann for any closing remarks.
Alex Herrmann: Thank you, Matilda. I think with that, we conclude the call for today. Thank you for listening in. If there are any further questions, as always, please feel free to reach out to the investor relations team. With that, thank you and have a good week ahead.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
