Sunrise Annual Report 2017 Annual Report Annual Report 2017 2017 WorldReginfo - 4304bf9e-3269-4430-b6e8-ac0cdaa28d84 Facts & Figures Customers by subscription type (in percent) Landline 3.426 network 12.9% million Mobile network Subscription 68.6% type Internet 12.3% Customers With more than 3.4 million customers, Sunrise TV is the leading alternative telecom provider 6.2% in Switzerland, both in the mobile and landline network sectors. Additionally, Sunrise is the third largest provider of landline network, Internet and TV services. Revenue by subscription type (in percent) Landline services (incl. voice) 1,713 Mobile services Revenue 20.4% 66.4% Employees 29% of the total number of 1,713 Sunrise Landline Internet employees (1,645 FTEs) are women. Approxi- (incl. IPTV) mately 14% of Sunrise employees work 13.2% part-time. Sunrise trains 122 apprentices in five apprenticeship programs. connect test history since 2011 (in points) Sunrise Swisscom Salt 1000 91 800 Offices and retail stores 600 With 85 retail locations, Sunrise has a presence in all regions of Switzerland. The Company 400 is headquartered in Zurich and has additional business offices in Prilly, Geneva, Bern, Basel 200 and Lugano. * 2011 2012 2013 2014 2015 2016 2017 * connect began using a 1000-point scoring system in 2016. The values in the chart have been adjusted to the 500-point scoring system of previous years. WorldReginfo - 4304bf9e-3269-4430-b6e8-ac0cdaa28d84 Content 2 Message to 67 Compensation Report Shareholders 68 Introduction 69 Compensation Governance 71 Compensation System 7 Financial and 77 Board of Directors Compensation 79 Executive Leadership Team Operational KPIs Compensation 8 Financial KPIs 82 Shareholdings of the Board of Directors and Executive Leadership 9 Operational KPIs Team 83 Audit Report 11 Operational and Financial Review 85 Consolidated Financial 12 Business Activities Statements 12 Sunrise Strategy 86 Consolidated Statements of Income 14 Customers 87 Consolidated Statements of 15 Market Environment Comprehensive Income 16 Products, Services and Sales Channels 88 Consolidated Statements of Financial 21 B2B Position 21 Network 90 Consolidated Statements of Cash Flow 23 Regulatory Environment 91 Consolidated Statements of Changes in Equity 25 Corporate Responsibility 92 Notes to the Consolidated 27 Employees Financial Statements 30 Environment 142 Audit Report 32 Community 32 Major Events 32 Financial Review 147 Statutory Financial 36 Risks 38 Additional Disclosures Statements 39 Outlook 148 Income Statement 149 Balance Sheet 150 Notes to the Statutory Financial Statements 41 Corporate Governance 156 Appropriation of Available Earnings and Capital Reserves 42 Group Structure and Shareholders 158 Audit Report 42 Capital Structure 44 Board of Directors 57 Executive Leadership Team 63 Compensation, Share holdings and Loans 63 Shareholders’ Participation Rights 64 Change of Control Provision 64 Auditor 65 Information Policy 65 Subsequent Events after December 31, 2017 Content | Sunrise 1 WorldReginfo - 4304bf9e-3269-4430-b6e8-ac0cdaa28d84 Message to Shareholders Message to Shareholders Peter Kurer Chairman of the Board (right) Dear Shareholders, Olaf Swantee Chief Executive Officer (left) Fiscal year 2017 was a positive and successful year for Sunrise. We were able to stabilize organic adjusted EBITDA, and our share price rose by 33%. Thanks to a number of initiatives Sunrise implemented, our customers now enjoy even better services than they did just one year ago. For example, they now have unlimited Internet access at top speeds, both at home and on the go. These initiatives have helped Sunrise expand its position as the leading competitor in the Swiss telecommunications market during the past year, thus also strengthening its posi- tion as an agile, refreshing, customer-focused and innovative alternative to Swisscom, the government-controlled market leader. Solid results thanks to superior quality and competitive rates Mounting competition did not keep Sunrise from growing its net customer base by 108,800 in the mobile postpaid sector (+7.3%) to a total of 3.4 million custom- ers. Compared to the previous year, the Internet sector also grew by a total of 50,400 new subscriptions (+13.6%). Once again, one of the strongest growth drivers turned out to be Sunrise Smart TV with an increase of 50,700 (+31.1%) subscriptions. Overall, accelerated customer growth was able to compensate for ongoing price pressure in the market. This led to a MTR adjusted increase of 0.3% and revenue of CHF 1,854 million. Adjusted EBITDA declined by 1.6% to CHF 601 million due to higher service fees after the tower disposal in Au- gust 2017. Excluding this, adjusted EBITDA would have increased by 0.8% organically. Net profit increased to CHF 505 million. This high net profit contains a one-time gain of CHF 420 million from the sale of our antenna towers to an investment consortium. 2 Sunrise | Message to Shareholders WorldReginfo - 4304bf9e-3269-4430-b6e8-ac0cdaa28d84 Sunrise share performance in 2017 Sunrise is The Sunrise share price soared by 33% in 2017. By comparison, the Swiss Performance Index (SPI) reported an increase of 20% and the STOXX Europe 600 on its way Telecommunications Index (€) decreased by 4% during the same period. Together with the dividend that was paid out in April, our shareholders earned a to becoming total return (share price change and dividend) of 39%. the most 2017 dividend At the Annual General Meeting, the distribution of a higher ordinary dividend of recommended CHF 4.00 per share will be proposed. This corresponds to a total dividend of approximately CHF 180 million and an attractive dividend growth of 20% over telecom the previous year. company in First-class infrastructure and high level of security As in 2016, Sunrise won several awards in 2017: The Swiss business magazine Switzerland. BILANZ confirmed once more in its independent survey, the largest annual customer survey in the Swiss telecom market, that Sunrise offers the best mobile Olaf Swantee communications network for residential and business customers as well as the Chief Executive Officer best TV service in Switzerland. Sunrise also took first place in the BILANZ Telekom Rating as the best full-service provider (universal provider) for residential customers and small and medium-sized enterprises. In the mobile network test conducted by connect, Europe’s largest trade journal, Sunrise was named the “test winner” yet again. Swisscom earned the same distinction and made up for last year’s lost ground, but was unable to get ahead of Sunrise. By scoring 973 out of a maximum of 1,000 points, Sunrise surpassed its top result of the previous year and was again rated Outstanding. Additionally, it earned the highest number of points ever achieved in any mobile network test in more than 70 countries. Having attained an excellent geographic coverage of 95% of Switzerland, Sunrise currently offers the highest 4G area coverage in Switzerland and supplies the Swiss population with top-quality mobile broadband services. This also means that Sunrise offers mobile broadband Internet connections in areas where satisfactory Internet access cannot be provided over the landline network. At up to 900 Mbit/s (4G+), the Sunrise mobile network already offers fiber-optic network speeds in the five largest Swiss cities. An external audit again confirmed the certification of the Sunrise information security management system (ISMS). This makes Sunrise the first and only telecom provider in Switzerland to satisfy the technical infrastructure and operational process requirements of the stringent ISO 27001 certification standard on a company-wide basis. Business customers, in particular, consider this an essential indicator of quality. Seizing new opportunities In response to a challenging economic environment, Sunrise has continued to adjust and refine its business strategy. With new and innovative products and a sustained network infrastructure expansion, Sunrise has been able to position itself as the leading full-service competitor in the Swiss market. In this context, the Company’s digitalization strategy represents a vital pillar of innovation. The new Sunrise website is one of the digital transformation projects that is clearly visible from the outside. More personalization, a mobile-friendly display, and a compre- Message to Shareholders | Sunrise 3 WorldReginfo - 4304bf9e-3269-4430-b6e8-ac0cdaa28d84 Sunrise has hensive online shop and service area – all this, plus the accompanying app, make it easy for our customers to access their accounts and make changes directly achieved online, anytime and from anywhere. Those features earned Sunrise the prestig- ious Swiss Digital Transformation Award from the jury of the Best of Swiss Web financial Awards. Every year, this award honors the company that has made the most stability and impressive advances in the area of digital transformation. Sunrise took another step toward digitalization with the launch of its ID Checker, is proposing a the first entirely digital customer identification tool in Switzerland. The Sunrise ID Checker makes it easy to digitalize identification processes and correspondence, 20% higher and, going forward, will allow the end-to-end digital processing of orders and owner changes without requiring the customer to be present at any particular dividend for time or location. 2017. Strengthening our brand for a digital future To illustrate its accomplishments as a digital pioneer and its positioning as Peter Kurer