425: Liberty Global Announces Sunrise Spin-off and Capital Markets Day, Updates Free Cash Flow Guidance

Liberty Global is proceeding with the spin-off of Sunrise, holding a Capital Markets Day to outline Sunrise's strategy as a standalone company, and updating Sunrise's full-year Adjusted Free Cash Flow guidance to CHF 360-370 million due to spin-off related costs.

Summary

• Liberty Global announced the proposed distribution of 100% of Sunrise GmbH to its shareholders through a spin-off transaction.
• Sunrise held a Capital Markets Day to present its operating strategy and financial outlook to investors and analysts.
• Sunrise updated its full-year Adjusted Free Cash Flow guidance to CHF 360-370 million, reflecting one-time costs related to the spin-off.
• The spin-off is expected to be completed in Q4 2024, subject to customary conditions including shareholder and regulatory approvals.
• Sunrise will operate as a standalone listed company with a focus on growth and cash flow generation.
• Sunrise reconfirms its previously communicated US GAAP 2024 revenue, Adjusted EBIDTAaL and capex guidance.
• Sunrise expects to have a long-term, low-cost debt profile, with a year-end leverage of approximately 4.5x net debt / Adjusted EBITDAaL and a targeted range of 3.5x 4.5x in the mid-term.
• Sunrise is targeting a 2025 dividend of CHF 240m for FY2024 and a progressive dividend per share policy with a payout of up to 70% of Adjusted Free Cash Flow.

Sentiment

Score: 7

Explanation: The sentiment is positive, driven by the spin-off creating a pure-play Swiss telco, reconfirmation of guidance, and a focus on future growth and shareholder returns. However, the tightened Adjusted Free Cash Flow guidance due to spin-off costs tempers the overall sentiment slightly.

Positives

• Sunrise is well-positioned for growth as the leading premium and scaled challenger in Switzerland.
• Sunrise benefits from a strong balance sheet with a fully hedged debt stack until 2029, supporting a weighted average cost of debt of approximately 3%.
• Sunrise has a strong cash flow generation profile, allowing it to return cash to shareholders following the spin-off.
• Sunrise will continue to benefit from its partnership with Liberty Global via arms-length service agreements that ensure its continued access to technology, financial and other services.

Negatives

• Adjusted Free Cash Flow guidance for 2024 has been tightened to CHF 360-370 million due to one-off costs related to the spin-off.

Risks

• The spin-off is subject to customary conditions, including shareholder and regulatory approvals.
• There are risks and uncertainties that could cause actual results to differ materially from forward-looking statements, including the ability to realize expected benefits from the transaction and Sunrises ability to operate successfully as an independent company.

Future Outlook

Sunrise aims to leverage its gigabit fixed and mobile networks to drive expansion by returning the Sunrise brand to growth by, among other things, customer loyalty initiatives, continuing the yallo flanker brands momentum and growing its B2B market share. Sunrise is targeting a 2025 dividend of CHF 240m for FY2024 and a progressive dividend per share policy with a payout of up to 70% of Adjusted Free Cash Flow.

Management Comments

• Andr Krause, CEO of Sunrise, stated that the company has the necessary capabilities to succeed as a standalone company and represents a compelling investment opportunity.
• Jany Fruytier, CFO of Sunrise, highlighted the company's strong balance sheet, hedged debt stack, and growing cash flow generation profile.

Industry Context

The spin-off aims to establish a fully-distributed valuation for Liberty Global investors, providing direct exposure to a pure-play Swiss-listed telco in an attractive telecom market.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards beyond noting Sunrise's No. 2 market share positions in mobile, broadband, and TV in Switzerland.
• It highlights Sunrise's hybrid network infrastructure strategy, leveraging its fully-owned access and last mile HFC network capabilities whenever possible and relying on supplemental network access where necessary, which is a common approach among European telecom operators to optimize costs and coverage.
• The document mentions Sunrise being the only Swiss telecommunications company capable of supporting broadband services across all available fixed infrastructure technologies (DSL, HFC, fibre and FWA) and providing broadband services at the fastest download speed available across the country.

Related Party Transactions

• Sunrise will continue to benefit from its partnership with Liberty Global via arms-length service agreements that ensure its continued access to technology, financial and other services.

Stakeholder Impact

• Liberty Global shareholders will receive shares in Sunrise, providing direct exposure to the Swiss telecom market.
• Sunrise customers can expect continued investment in network infrastructure and service quality.
• Sunrise employees will be part of a standalone company with a focus on growth and innovation.

Next Steps

• Liberty Global shareholders need to approve the spin-off transaction.
• Sunrise shares need to be approved for listing on the SIX Swiss Exchange.
• Liberty Global will mail a definitive proxy statement/prospectus to shareholders.

Key Dates