20-F: Sunrise Communications AG Files 20-F Annual Report for Fiscal Year 2024

Sunrise Communications AG has filed its 20-F annual report, detailing the company's financial performance and key activities for the fiscal year ended December 31, 2024.

Summary

• Sunrise Communications AG filed its 20-F annual report for the fiscal year ended December 31, 2024.
• The report includes audited consolidated financial statements prepared in accordance with IFRS.
• Key topics covered in the report include the company's business overview, risk factors, operating and financial review, corporate governance, and executive compensation.
• The company's reporting currency is the Swiss franc (CHF), with an exchange rate of USD 1.101625 per CHF 1.0 as of December 31, 2024.
• The report details the number of outstanding shares as 69,759,702 Class A Common Shares and 25,977,316 Class B Shares with Privileged Voting Rights.
• The company is committed to utilizing free cash flows to support attractive shareholder distributions in a disciplined manner and aims to begin paying dividends in 2025.
• The company plans to cease reporting under the Exchange Act as soon as practicable in accordance with applicable rules and regulations.

Sentiment

Score: 7

Explanation: The document presents a balanced view, highlighting both positive achievements and potential risks. The company's commitment to shareholder returns and strategic growth is positive, but the presence of significant debt and competitive pressures tempers the overall sentiment.

Positives

• The company aims to begin paying dividends in 2025 and plans to distribute a substantial portion of its free cash flow as dividends.
• The company is committed to utilizing free cash flows to support attractive shareholder distributions in a disciplined manner.
• The company is implementing a remote work policy, implementing additional public health protocols in the context of maintaining and operating its networks and closing certain of its retail stores, resulting in business disruptions.

Negatives

• The company has substantial indebtedness that may have a material adverse effect on its ability to execute its business strategy.
• The company will require a significant amount of cash to meet its obligations under its indebtedness and fund other liquidity needs, which it may not be able to generate or raise on acceptable terms or at all.
• The expenditures required to renew the portion of the company's spectrum expiring in 2028 are uncertain but may be significant.
• A decline in ARPU in the company's mobile and fixed networks may adversely affect its business, revenues, earnings and cash flows if the company fails to expand its subscriber base to offset ARPU declines.
• The company depends on its agreement with Swiss Towers AG for access to the majority of its mobile antenna sites and passive mobile infrastructure.
• The company does not own all of its network infrastructure and equipment or the land on which it is constructed.
• The telecommunications industry is significantly affected by technological changes, and the company may not be able to effectively anticipate or react to these changes.
• The company's brands are subject to reputational risks and impairment.
• The company's network infrastructure and IT systems are vulnerable to damage and disruptions.
• The company's business may be adversely affected by opposition to construction or installation of passive and active mobile infrastructure.
• If the company is unable to successfully manage its customer churn, its revenues and cash flows may be reduced.
• The legal relationships between the company and its customers are generally based on standard contracts and forms; any errors in the documentation could therefore affect a large number of customer relationships.
• If the company fails to maintain or improve its customer service channels, the company's ability to maintain and grow its subscriber base could be materially adversely affected.
• Failure to perform on major or high-value contracts could adversely affect the company.
• The company relies on third-party suppliers for certain of its products and services and outsources certain of its operations.
• If the company fails to maintain or expand its distribution channels, the company's ability to maintain and grow its subscription base could be materially adversely affected.
• The loss of key personnel or employees may have an adverse impact on the company.
• If Huawei is ever prohibited from operating in Switzerland, or Huawei's equipment is prohibited from being used in Switzerland, the company would be required to incur substantial additional expenses.
• The company is subject to the risk of fraudulent or otherwise improper behavior by its customers, distribution partners, suppliers, employees and others, which the company's risk management and internal controls may not prevent or detect.
• The company is subject to extensive regulation and has been, and may in the future be, adversely affected by changes in laws, regulations or policy.
• The company requires spectrum allocations as well as other licenses and permits, to deliver services to its subscribers.
• The company may be subject to financial risks related to tax compliance.
• The company may be subject to intellectual property infringement claims by others and may be unable to adequately protect its own intellectual property rights.
• The company's and third-party IT systems are vulnerable to security breaches and cyberattacks.
• Sensitive personal data could be subject to misappropriation, misuse, leakage, falsification or accidental release or loss of information, and the company may fail to comply with data protection legislation or appropriate practices.
• Unfavorable conditions in and outside Switzerland may materially adversely impact the company's business, revenues, earnings and cash flows.
• Adverse public health, geopolitical and climate conditions could have a material adverse impact on the company's business, revenues, earnings and cash flows.
• Environmental, social and governance risks may adversely impact the company's business.
• Climate-related risks may adversely impact the company's business.
• There can be no assurance that the company will be successful with respect to acquisitions, dispositions, joint ventures, partnerships or other strategic transactions, or that it will achieve the anticipated benefits thereof.
• Following the spin-off, conflicts of interest, or the appearance of conflicts of interest, may develop between the executive officers and directors of Liberty Global, on the one hand, and the executive officers and directors of the company, on the other hand.
• If Liberty Global is unable for any reason to effectively provide services to the company pursuant to the companies' services arrangements, or if the company is unable to adequately, timely and cost-effectively replace such services once such arrangements expire, the company's business could be adversely affected.
• Potential indemnification liabilities to Liberty Global pursuant to the agreements entered into in connection with the spin-off could materially and adversely affect the company's business, financial condition, financial performance and cash flows.
• The terms that the company receives in its agreements with Liberty Global may be less beneficial to the company than the terms the company may have otherwise received from unaffiliated third parties.
• The company may have a significant indemnity obligation to Liberty Global, which is not limited in amount or subject to any cap, if the spin-off is treated as a taxable transaction due to certain actions by the company.
• The company may determine to forgo certain transactions in order to avoid the risk of incurring significant tax-related liabilities.
• The price of the company's shares and the company's ADSs may be volatile.
• A viable and active trading market is unlikely to develop for the company's Class B Shares or the company's Class B ADSs.
• Mr. Malone and Mr. Fries have significant voting power with respect to corporate matters considered by the company's shareholders.
• If the company were a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. holders of the company's ADSs could be subject to adverse U.S. federal income tax consequences.
• If securities or industry analysts cease publishing or publish unfavorable research about the company, the price and trading volume of the company's Class A Common Shares and the company's Class A ADSs could decline.
• The company's shareholders may be unable to effect service of process in the U.S. or enforce judgments obtained against the company, members of the company's Board or members of the Executive Committee in U.S. courts and may have limited access to a judicial forum favorable to plaintiffs.
• The company's articles of association provide for an opting-up clause, as a result of which the company's shareholders may not benefit from the protection afforded to them by the mandatory bid rule under Swiss law and may not be able to sell their company's Shares in the event of an effective change of control.
• The company's shareholders outside of Switzerland may not be able to exercise preemptive rights in future issuances of equity or other securities that are convertible into equity.
• Shareholders' equity interest in the company may be diluted by future equity sales and share issuances.
• The company is a foreign private issuer and holders of the company's Shares or the company's ADSs should not expect to receive the same information during the same timeframes as such information is normally provided to holders of securities of listed U.S. domestic companies.
• As permitted under Nasdaq's listing rules, as a foreign private issuer the company adheres to certain Swiss corporate governance requirements that differ to those of listed U.S. domestic companies.
• The Nasdaq listing of the company's ADSs is for a transitional period only.
• The company plans to cease reporting under the Exchange Act as soon as practicable in accordance with applicable rules and regulations.
• The company's ADS holders do not directly hold the company's Shares and may not be able to exercise their right to vote the company's Shares underlying their company's ADSs.
• The company's ADS holders' right to receive any dividends that the company declares on the company's Shares are more limited than if they were holding the company's Shares.
• The company's ADS holders may be subject to limitations on their ability to cancel their company's ADSs and withdraw the underlying company's Shares.
• The company's ADS holders' rights to pursue claims against the depositary as a holder of the company's ADSs are limited by the terms of the deposit agreement.

Risks

• The company has substantial indebtedness that may have a material adverse effect on its ability to execute its business strategy.
• The company will require a significant amount of cash to meet its obligations under its indebtedness and fund other liquidity needs, which it may not be able to generate or raise on acceptable terms or at all.
• The expenditures required to renew the portion of the company's spectrum expiring in 2028 are uncertain but may be significant.
• A decline in ARPU in the company's mobile and fixed networks may adversely affect its business, revenues, earnings and cash flows if the company fails to expand its subscriber base to offset ARPU declines.
• The company depends on its agreement with Swiss Towers AG for access to the majority of its mobile antenna sites and passive mobile infrastructure.
• The company does not own all of its network infrastructure and equipment or the land on which it is constructed.
• The telecommunications industry is significantly affected by technological changes, and the company may not be able to effectively anticipate or react to these changes.
• The company's brands are subject to reputational risks and impairment.
• The company's network infrastructure and IT systems are vulnerable to damage and disruptions.
• The company's business may be adversely affected by opposition to construction or installation of passive and active mobile infrastructure.
• If the company is unable to successfully manage its customer churn, its revenues and cash flows may be reduced.
• The legal relationships between the company and its customers are generally based on standard contracts and forms; any errors in the documentation could therefore affect a large number of customer relationships.
• If the company fails to maintain or improve its customer service channels, the company's ability to maintain and grow its subscriber base could be materially adversely affected.
• Failure to perform on major or high-value contracts could adversely affect the company.
• The company relies on third-party suppliers for certain of its products and services and outsources certain of its operations.
• If the company fails to maintain or expand its distribution channels, the company's ability to maintain and grow its subscription base could be materially adversely affected.
• The loss of key personnel or employees may have an adverse impact on the company.
• If Huawei is ever prohibited from operating in Switzerland, or Huawei's equipment is prohibited from being used in Switzerland, the company would be required to incur substantial additional expenses.
• The company is subject to the risk of fraudulent or otherwise improper behavior by its customers, distribution partners, suppliers, employees and others, which the company's risk management and internal controls may not prevent or detect.
• The company is subject to extensive regulation and has been, and may in the future be, adversely affected by changes in laws, regulations or policy.
• The company requires spectrum allocations as well as other licenses and permits, to deliver services to its subscribers.
• The company may be subject to financial risks related to tax compliance.
• The company may be subject to intellectual property infringement claims by others and may be unable to adequately protect its own intellectual property rights.
• The company's and third-party IT systems are vulnerable to security breaches and cyberattacks.
• Sensitive personal data could be subject to misappropriation, misuse, leakage, falsification or accidental release or loss of information, and the company may fail to comply with data protection legislation or appropriate practices.
• Unfavorable conditions in and outside Switzerland may materially adversely impact the company's business, revenues, earnings and cash flows.
• Adverse public health, geopolitical and climate conditions could have a material adverse impact on the company's business, revenues, earnings and cash flows.
• Environmental, social and governance risks may adversely impact the company's business.
• Climate-related risks may adversely impact the company's business.
• There can be no assurance that the company will be successful with respect to acquisitions, dispositions, joint ventures, partnerships or other strategic transactions, or that it will achieve the anticipated benefits thereof.
• Following the spin-off, conflicts of interest, or the appearance of conflicts of interest, may develop between the executive officers and directors of Liberty Global, on the one hand, and the executive officers and directors of the company, on the other hand.
• If Liberty Global is unable for any reason to effectively provide services to the company pursuant to the companies' services arrangements, or if the company is unable to adequately, timely and cost-effectively replace such services once such arrangements expire, the company's business could be adversely affected.
• Potential indemnification liabilities to Liberty Global pursuant to the agreements entered into in connection with the spin-off could materially and adversely affect the company's business, financial condition, financial performance and cash flows.
• The terms that the company receives in its agreements with Liberty Global may be less beneficial to the company than the terms the company may have otherwise received from unaffiliated third parties.
• The company may have a significant indemnity obligation to Liberty Global, which is not limited in amount or subject to any cap, if the spin-off is treated as a taxable transaction due to certain actions by the company.
• The company may determine to forgo certain transactions in order to avoid the risk of incurring significant tax-related liabilities.
• The price of the company's shares and the company's ADSs may be volatile.
• A viable and active trading market is unlikely to develop for the company's Class B Shares or the company's Class B ADSs.
• Mr. Malone and Mr. Fries have significant voting power with respect to corporate matters considered by the company's shareholders.
• If the company were a passive foreign investment company for U.S. federal income tax purposes for any taxable year, U.S. holders of the company's ADSs could be subject to adverse U.S. federal income tax consequences.
• If securities or industry analysts cease publishing or publish unfavorable research about the company, the price and trading volume of the company's Class A Common Shares and the company's Class A ADSs could decline.
• The company's shareholders may be unable to effect service of process in the U.S. or enforce judgments obtained against the company, members of the company's Board or members of the Executive Committee in U.S. courts and may have limited access to a judicial forum favorable to plaintiffs.
• The company's articles of association provide for an opting-up clause, as a result of which the company's shareholders may not benefit from the protection afforded to them by the mandatory bid rule under Swiss law and may not be able to sell their company's Shares in the event of an effective change of control.
• The company's shareholders outside of Switzerland may not be able to exercise preemptive rights in future issuances of equity or other securities that are convertible into equity.
• Shareholders' equity interest in the company may be diluted by future equity sales and share issuances.
• The company is a foreign private issuer and holders of the company's Shares or the company's ADSs should not expect to receive the same information during the same timeframes as such information is normally provided to holders of securities of listed U.S. domestic companies.
• As permitted under Nasdaq's listing rules, as a foreign private issuer the company adheres to certain Swiss corporate governance requirements that differ to those of listed U.S. domestic companies.
• The Nasdaq listing of the company's ADSs is for a transitional period only.
• The company plans to cease reporting under the Exchange Act as soon as practicable in accordance with applicable rules and regulations.
• The company's ADS holders do not directly hold the company's Shares and may not be able to exercise their right to vote the company's Shares underlying their company's ADSs.
• The company's ADS holders' right to receive any dividends that the company declares on the company's Shares are more limited than if they were holding the company's Shares.
• The company's ADS holders may be subject to limitations on their ability to cancel their company's ADSs and withdraw the underlying company's Shares.
• The company's ADS holders' rights to pursue claims against the depositary as a holder of the company's ADSs are limited by the terms of the deposit agreement.

Future Outlook

The company's strategic focus is anchored in three growth engines: main consumer brand, flanker brands, and B2B segment. Key strategic initiatives include expanding customer relationships, delivering innovative services, exploring adjacent growth opportunities, and driving sustainable financial performance.

Management Comments

• Mike Fries, Chairman of the Board of Directors, stated that Sunrise is well-equipped to deliver its long-term vision of sustainable growth by continuing to provide customers with best-in-class networks and attractive service offerings.
• The company is committed to utilizing free cash flows to support attractive shareholder distributions in a disciplined manner.

Industry Context

The Swiss telecommunications industry is mature and saturated, with substantially all Swiss individuals receiving one or more telecommunications services. The company competes with Swisscom and Salt, the primary telecommunications service providers in Switzerland, to maintain and expand their respective subscriber base.

Comparison to Industry Standards

• The company's ARPU for telecommunications services in Switzerland is higher than in the EU-15 countries on an absolute basis.
• The company's mobile network is among the top five best-performing mobile networks worldwide, according to connect mobile network tests.
• The company's performance is assessed against a peer group within the STOXX Europe 600 Telecommunications Index for relative Total Shareholder Return (rTSR).

Legal Proceedings

• In January 2023, Swisscom filed a formal lawsuit against Sunrise GmbH, asserting that it is in breach of the Swisscom MVNO and claiming approximately CHF 90 million in damages.
• In April 2024, Sunrise agreed with Swisscom to resolve the matter, the terms of which are not material to us and, as a result, the lawsuit against Sunrise GmbH has been withdrawn.

Related Party Transactions

• The company has entered into a master separation agreement, tax separation agreement, technology master services agreement, transitional services agreements and several other agreements with Liberty Global to effect the separation of the Sunrise Business and to provide a framework for the company's relationship with Liberty Global after the spin-off.

Stakeholder Impact

• The company is committed to utilizing free cash flows to support attractive shareholder distributions in a disciplined manner.
• The company is committed to ensuring inclusive, equitable, and high-quality training and lifelong learning opportunities for all employees.
• The company is committed to providing a high level of customer experience.
• The company is committed to protecting people's health and the environment.

Next Steps

• The company plans to cease reporting under the Exchange Act as soon as practicable in accordance with applicable rules and regulations.
• The company will pay dividends exclusively out of qualifying additional paid-in capital (capital contribution reserves (Kapitaleinlagereserven)), for as long as such reserves are available.
• The company will conduct a quantitative risk assessment to further strengthen its approach to climate-related challenges in 2025.
• The company will continue to implement its electrification scheme and was able to transform its company car fleet completely to all-electric operation; company vans are to be converted by 2028 at the latest.

Key Dates

Keywords

Financial Results, Annual Report, Telecommunications, Sunrise Communications, Financials, Switzerland, 20-F Filing