Sunrise Communications AG Balances Growth and Headwinds

Sunrise Communications AG Class A ((CH:SUNN)) has held its Q1 earnings call. Read on for the main highlights of the call.

Sunrise Communications AG delivered a mixed but steady first quarter, as management balanced modest operational gains with visible near‑term headwinds. Revenue was essentially flat while profitability improved, and leadership struck a confident tone on execution and guidance, even as they acknowledged pressure in fixed services, negative free cash flow and elevated early‑year investment.

Mobile Growth Holds Up in a Softer Quarter

Sunrise added 10,000 postpaid mobile customers in Q1 2026, down from 12,000 a year earlier yet still signaling solid trading in a seasonally weak period. The company emphasized that mobile remains the primary growth engine, with stable net additions helping offset softness in other parts of the portfolio.

EBITDAaL Margins Show Resilience

Adjusted EBITDAaL grew 2.5% year over year, underscoring margin resilience despite heavy promotions across the Swiss telecom market. Management pointed to disciplined cost control and efficiency measures as key drivers, positioning the business to absorb competitive pressure without sacrificing profitability.

Revenue Flat but In Line With Expectations

Group revenue in the quarter was broadly stable, inching up 0.1% versus the prior year and tracking management’s internal plan. While top‑line momentum is far from robust, the company framed this stability as a positive outcome given ongoing weakness in fixed services and a promotional environment weighing on headline growth.

Guidance and Progressive Dividend Reaffirmed

The company reiterated its full‑year 2026 outlook, targeting broadly stable revenue, around CHF 1.0 billion in adjusted EBITDAaL and adjusted free cash flow of CHF 380–400 million. Management also reaffirmed a progressive dividend, aiming for a DPS of CHF 3.49, implying a modest increase over last year and signaling confidence in future cash generation.

Loyalty Programme Targets Churn and Cross‑Sell

Sunrise reported that all consumer customers are now enrolled in Sunrise Rewards, its new loyalty programme rolled out from March. The scheme is designed to reduce churn and increase the number of products per customer over time, aligning with management’s strategy to deepen relationships rather than rely solely on new customer acquisition.

Price–Value Leadership Recognised Externally

Connect magazine ranked Sunrise best in six of seven tariff profiles, awarding top marks across service, quality and value categories. Management highlighted this recognition as proof that the brand’s price‑value positioning resonates, which could support customer acquisition and retention as the company moves to implement price increases.

Sovereign Cloud and AI Push in B2B

A new partnership with PHOENIQS will see Sunrise offer sovereign end‑to‑end cloud and AI solutions aimed at corporate and public‑sector clients. Products are slated for launch in the second half of 2026, with management viewing this as a strategic differentiator that should enhance the B2B mix and support long‑term growth.

CapEx Front‑Loaded but on a Downward Trajectory

Q1 CapEx consumed 18.5% of sales, above the company’s full‑year target of under 15%, reflecting front‑loaded investment. Management noted that spending was roughly CHF 10 million lower than last year and stressed that a largely completed 5G rollout plus software and AI efficiencies should allow CapEx intensity to trend down over time.

Strong Growth in EBITDAaL Less P&E Additions

Adjusted EBITDAaL less property and equipment additions grew around 16%, highlighting improved operating leverage. This metric, closely watched by investors for its link to cash generation, benefited from lower OpEx phasing and reduced CapEx in the quarter, even as reported free cash flow remained negative.

Dividend Payout and Tax Advantage for Investors

Sunrise paid a dividend of CHF 3.42 for FY 2025 following shareholder approval at the AGM in May. Notably for private Swiss investors, this payout is not subject to Swiss withholding tax, reinforcing the stock’s appeal to income‑oriented holders looking for after‑tax yield stability.

Fixed Broadband Remains a Drag

Fixed consumer services continued to weigh on performance, with internet broadband net adds at minus 1,000 in Q1. Management acknowledged that this segment is still a drag on service revenue and remains a key area of concern as competitive dynamics and shifting customer behavior pressure the fixed line and broadband business.

Weak Service Revenue and ARPU Pressure

Underlying service revenue trends remain lackluster, similar to Q4 levels and vulnerable to further softness in Q2 and Q3. Average revenue per user is under pressure from the gap between legacy and new tariffs and from discounts within converged offers, with the company counting on upcoming price increases to stabilize the trajectory.

CapEx Intensity Above Target Early in the Year

The elevated 18.5% CapEx‑to‑sales ratio in Q1 underscores front‑loaded investment that must moderate to meet the sub‑15% full‑year goal. Management reiterated its expectation for CapEx intensity to decline as the year progresses, but the early spike will be closely watched by investors focused on capital discipline.

Free Cash Flow Still Negative in Q1

Adjusted free cash flow came in at minus CHF 111 million, broadly in line with last year’s seasonal outflow. The company attributed this to working capital timing and the concentration of interest payments in the first quarter, arguing that these effects are temporal rather than structural.

Restructuring Costs and Delayed Benefits

Sunrise booked CHF 27.8 million in restructuring expenses linked to a roughly 7% reduction in headcount. The cash impact will unwind over the next 12–18 months, with most savings only starting from April, meaning investors will see limited near‑term benefit despite the upfront cost.

CHmobile Remains a Niche Contributor

The CHmobile offer drew strong initial interest around its Black Friday launch but remains a small slice of the base, contributing well under 10% of inflows in Q1. While its limited scale reduces the risk of ARPU dilution, it also means the brand is not yet a meaningful growth driver for the group.

Promotional Market and Unclear Response to Price Hikes

Management described the Swiss telecom market as rational but still heavily promotional, with competitors’ moves influencing customer behavior. The company has announced price increases, yet customer reaction will only become clear once higher bills land from August, adding an element of uncertainty around churn and revenue.

Working Capital Phasing Weighs on Cash

Working capital was slightly worse than last year due to timing effects from both organic and inorganic factors, contributing to the negative free cash flow. Sunrise stressed that these are quarter‑specific phasing issues rather than a structural deterioration, though they remain a short‑term drag on cash metrics.

Guidance Reinforced by Early Results and Price Increases

Forward‑looking guidance remains unchanged, with Sunrise targeting stable revenue, adjusted EBITDAaL around CHF 1.0 billion and adjusted free cash flow of CHF 380–400 million for 2026, underpinning a higher dividend per share. Management flagged an across‑the‑board price increase from August, which could add upside to revenue and margins, though they expect clearer visibility only after third‑quarter results.

Sunrise’s earnings call painted a picture of a telecom operator in transition, balancing firm cost discipline and new strategic initiatives against persistent pressure in fixed services and cash flow seasonality. Management’s firm reiteration of guidance and dividend growth signals confidence, but investors will be watching service revenue trends, customer reaction to price hikes and the pace of CapEx normalization over the rest of the year.