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Turkcell Iletisim Hizmetleri: First Quarter 2016 ResultsTurkcell Iletisim Hizmetleri A.S. (NYSE:TKC) (BIST:TCELL):
FIRST QUARTER SUMMARY
FINANCIAL HIGHLIGHTS
(1) EBITDA is a non-GAAP financial measure. See page 13 for the
reconciliation and the explanation of how we calculate Adjusted EBITDA
to net income. For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2016 which can be accessed via our web site in the investor relations section (www.turkcell.com.tr). COMMENTS BY KAAN TERZIOGLU, CEO Turkcell had a solid start to 2016, focused on data and digital services, following a customer centric approach with differentiation through 4.5G We made a strong start to 2016, in line with our plans. We registered all-time-high first quarter revenue and EBITDA, both at the Turkcell Turkey and Turkcell Group level. Turkcell Turkey, comprising 91% of Group revenues, continued its double-digit growth at 10.0% year-on-year, recording an EBITDA margin of 31.3%. Group revenues rose 8.3% to TRY3.2 billion, while EBITDA increased 8.1% to TRY1.0 billion, achieving a 31.1% EBITDA margin. Proforma Group net income1 rose by 15.1% to TRY544 million, while net income as per IFRS increased 298.8% to TRY563 million. In the first quarter of 2016, our key agenda item was the launch of 4.5G services on April 1st, which will underpin Turkey's digital transformation. The Turkcell team has established a strong 4.5G network and made mobile broadband with 4.5G speed available in 81 cities with a population coverage of over 70%, within a short period of time. And since the launch, Turkcell customers have registered high demand for 4.5G. As of today 4.5G customers have reached 5.0 million2, while 4.5G data traffic on our network reached 22%. We have started to implement our action plans across the dealer network, at our call center and on digital channels to meet all our customers' needs through a single point of service with offers that bolster Turkcell's positioning as a converged communications and technology services company. We are working to provide our customers a unique convergence experience on the back of our strength in mobile and fixed services. In this regard, having declared a list of ten principles, we are using every means to ensure customer satisfaction. Turkcell Turkey: Continued growth in Postpaid, Fiber and TV In the first quarter of 2016, the total number of subscribers in the five countries where we have direct operations reached 50.8 million, of which 35.2 million3 were in Turkey. Turkcell continued to gain postpaid, fiber and TV subscribers in the quarter. Postpaid customers rose by 1.2 million year on year, reaching 50% of our subscriber base. Fiber subscribers rose by 159 thousand year-on-year to 935 thousand, while total fixed subscribers amounted to 1.6 million. Turkcell TV+, which continues its rapid growth with 514 thousand yearly increase, reached 679 thousand total subscribers. In accordance with our convergence strategy, the mobile triple play ratio, which includes voice, data and service users reached 17%4 while multiplay with TV service users increased to 30% of fiber residential customers. Mobile ARPU rose by 8.8% to TRY24.7 and fixed residential ARPU rose 6.8% to TRY50.3 in the first quarter of 2016 due to a larger postpaid subscriber base, and increased data and services revenues. Turkcell Consumer Financing solution to our customers' technology needs In March, our consumer financing company commenced operations across Turkey to facilitate the financing of our customers' technology needs, and to improve the Group balance sheet, which is among our strategic priorities. Within a short period of time, Turkcell Consumer Financing Company has provided more than 400 thousand loans of approximately TRY500 million worth and supported the penetration of smart devices. Indeed, smartphone penetration on our network rose by 13 percentage points to 55% year-on-year. With the increase in the number of smartphones, our data and service revenues grew 31% to TRY1.2 billion year-on-year, and accounted for 42% of Turkcell Turkey revenues. Additionally, through our mobile payment platform, named Paycell, we provide our customers various alternative means of payment, including via Turkcell invoice. Over the past 12 months, this platform has seen 16 million transactions amounting to TRY440 million. Paycell, redefined with advanced technological capabilities, will serve both Turkcell and non-Turkcell customers. We are opening services to all-access, providing globally competitive services Our innovative services continued to expand rapidly during this quarter as well. We opened BiP, Turkcell TV+, Smart Storage, Goals on Your Mobile and our renamed music service fizy, to all-access. Our new generation communication platform BiP has been downloaded 7.5 million times to date, and in 192 countries. BiP is one of the world's most innovative applications with 39% of its users being from other operators. Smart Storage, the most widely used personal cloud service in Turkey, has been downloaded 2.6 million times, while downloads on Turkey's most popular music platform, fizy, have reached 5.7 million. Meanwhile, Goals on Your Mobile services has been downloaded 2.1 million times. As a result, our service revenues increased 57.2% year-on-year. We are advancing in line with our plans in 2016 Having seen a solid start to the year, we believe that we can achieve our 2016 targets by providing a strong 4.5G network, along with our converged services. We would like to congratulate the Turkcell team and all of our stakeholders for their contribution to our success, and to thank our Board of Directors for their continued support. We would also like to express our gratitude towards our customers, who have shown their trust in us throughout our success story.
(1) We use "proforma net income" as a means of presenting our net income
net of certain non-operating items and items that we believe are
non-recurring. We define "proforma net income" in this document as net
Income excluding FX gain / (loss) (including tax and minority impact),
interest Income on time deposits of Turkcell Iletisim Hizmetleri, share
of profit of equity accounted investees (Fintur), and one-off items.
Please note that this is a non-GAAP measure and that we may in future
presentations change the scope of items that we deduct from net income
to arrive at "proforma net income." FINANCIAL AND OPERATIONAL REVIEW OF THE FIRST QUARTER 2016 The following discussion focuses principally on the developments and trends in our business in the first quarter of 2016 in TRY terms. Selected financial information presented in this press release for the first and fourth quarters of 2015, and the first quarter of 2016 is based on IFRS figures. Selected financial information for the first and fourth quarters of 2015, and the first quarter of 2016 prepared in accordance with IFRS and Turkish Accounting standards, is also included at the end of this press release. Financial Review of Turkcell Group
(1) Including depreciation and amortization expenses. Revenues of the Group rose by 8.3% year-on-year. Turkcell Turkey revenues, comprising 91% of Group revenues, grew by 10.0% to TRY2,928 million (TRY2,662 million) due to a 10.0% rise in consumer segment revenues to TRY2,338 million (TRY2,124 million) and an 8.7% increase in corporate segment revenues to TRY525 million (TRY483 million).
Turkcell International revenues, constituting 6% of Group revenues, rose by 2.1% to TRY197 million (TRY193 million), turning to positive growth after 7 quarters of year-on-year decline. Other subsidiaries' revenues, comprising 3% of Group revenues, which includes information and entertainment services in Turkey and Azerbaijan, call center revenues and revenues from financial services declined by 18.0% to TRY101 million (TRY123 million), due to lower revenues from Azerbaijan, partly driven by currency devaluation. Direct cost of revenues rose to 62.6% (61.4%) as a percentage of revenues, mainly due to the rise in depreciation and amortization expenses (0.9pp) along with increase in various other cost items (0.3pp). Administrative expenses rose to 5.5% (4.7%) as a percentage of revenues, mainly due to various cost items including new headquarters rental expense and performance related payments to personnel. Selling and marketing expenses fell by 1.1pp to 14.9% (16.0%) as a percentage of revenues, driven by the decline in selling expenses (0.9pp) with our value focused customer acquisition strategy and other costs items (1.1pp). This was despite the rise in marketing expenses (0.9pp), mainly due to 4.5G launch costs. EBITDA*rose by 8.1% year-on-year, while the EBITDA margin was at 31.1% (31.1%). The decline in selling and marketing expenses of 1.1pp was offset by the increase in direct cost of revenues (excluding depreciation and amortization) of 0.3pp and administrative expenses of 0.8pp.
Net finance income of TRY166 million (net finance expense of TRY483 million) was recorded in Q116. This was mainly driven by lower translation losses of TRY5 million (TRY698 million) registered in Q116. This positive impact more than offset the decline in interest income from time deposits, due to a lower cash balance, and the rise in interest expense in relation to loans and 4.5G payables. Please see Appendix A for translation gain and loss details. Income tax expense declined 38.8% year-on-year. Please see Appendix A for details. (*)EBITDA is a non-GAAP financial measure. See page 13 for the reconciliation of an explanation of how we calculate Adjusted EBITDA to net income. Net income of the Group as per IFRS rose 298.8% to TRY563 million (TRY141 million) in Q116 year-on-year. This was mainly driven by higher EBITDA, lower translation losses and tax expense, despite the decline in interest income on time deposits, a lower contribution from Fintur and increased interest expense on loans and 4.5G payables. Proforma net income* rose 15.1% to TRY544 million (TRY473 million) in Q116. Please see Appendix A for a reconciliation of Group proforma net income to net income per IFRS. Total debt as of March 31, 2016 declined to TRY4,028 million from TRY4,214 million as of December 31, 2015, in consolidated terms. The decrease in debt balance was mainly due to Turkcell Turkey's loan payments.
TRY1,795 million of our consolidated debt is set at a floating rate, while TRY655 million will mature within less than a year. (Please note that the figures in parentheses refer to US$ or EUR equivalents). Cash flow analysis: Capital expenditures, including non-operational items, amounted to TRY738 million in Q116. The net change in debt mainly relates to Turkcell Turkey loan payments. The cash flow item noted as "other" includes regulatory fee payments (TRY491 million) and the negative impact of the change in working capital (TRY195 million). In Q116, operational capital expenditures at the Group level stood at 20%** of total revenues.
(1) EBITDA is a non-GAAP financial measure. See page 13 for the
reconciliation of an explanation of how we calculate Adjusted EBITDA to
net income. (*)We use "proforma net income" as a means of presenting our net income net of certain non-operating items and items that we believe are non-recurring. We define "proforma net income" in this document as net Income excluding FX gain / (loss) (including tax and minority impact), interest Income on time deposits of Turkcell Iletisim Hizmetleri, share of profit of equity accounted investees (Fintur), and one-off items. Please note that this is a non-GAAP measure and that we may in future presentations change the scope of items that we deduct from net income to arrive at "proforma net income." (**) Excluding license fees Operational Review in Turkey
(1) As per our churn policy, prepaid subscribers are disconnected from the system if they do not top-up above TRY10 during a nine month period. Additionally, in the first quarter of 2016, 196 thousand subscriptions which had not topped-up at all within the stipulated period were also disconnected. Mobile customers in Turkey declined by 673 thousand during the quarter to 33.3 million in total, mainly on losses in the more price-sensitive prepaid segment. We continued to disconnect subscriptions that had not topped-up at all within the stipulated period, which amounted to 196 thousand during the first quarter and reached 575 thousand in total in the last two quarters. Meanwhile, the postpaid customer base continued to expand by 124 thousand quarterly net additions to 16.7 million, to 50.1% (45.3%) of the total. The fixed customer base reached 1.6 million supported by a strong fiber network, dedicated sales force and customer care. We recorded 61 thousand quarterly net additions, of which 36 thousand were fiber and 25 thousand were ADSL subscribers. The Turkcell TV platform reached 268 thousand customers on 44 thousand quarterly net additions. Including mobile TV and web TV users, Turkcell TV customers amounted to 679 thousand. Mobile churn improved by 0.2pp year-on-year on the back of value focused customer acquisitions and targeted retention actions. Mobile ARPU rose by 8.8% year-on-year with the continued favorable change in subscriber mix, our upsell strategy and a focus on high value customer groups, as well as increased package penetration. Fixed ARPU increased by 6.8% year-on-year with growth of multiplay customers with TV1, comprising 30% of total residential fiber customers. Mobile MoU rose by 8.1% driven by our increased postpaid base and upsell strategy. Smartphone penetration on our network reached 55% as we registered 5142 thousand quarterly net additions. Accordingly, there were 16.6 million smartphones on our network at the end of the quarter, where 42% are 4.5G enabled.
(1) Multiplay customers with TV: Internet + TV users & internet + TV +
voice users TURKCELL INTERNATIONAL
(1) We may occasionally offer campaigns and tariff schemes that have an
active subscriber life differing from the one that we normally use to
deactivate subscribers and calculate churn. (*) Since July 10, 2015, we hold a 100% stake in lifecell. lifecell revenues grew by 6.9% in local currency terms reflecting rising mobile broadband revenues on the back of 3G+ services and increased smartphone tariff subscriptions with higher ARPU. lifecell's EBITDA rose by 8.7% in local currency terms leading to an EBITDA margin improvement of 0.5pp to 31.4%, driven by effective cost management efforts and an increased share of mobile broadband in the revenue mix of lifecell. Meanwhile, the 4.9pp quarter-on-quarter decline in EBITDA margin was due to increased network related costs and marketing expenses. In Q116, lifecell's revenues in TRY terms rose by 1.9% year-on-year turning to positive growth following a series of quarters of declining revenue trend. Meanwhile, lifecell's EBITDA in TRY terms grew by 3.6%. lifecell has continued its 3G+ network roll-out, reaching 16 regional cities and smaller towns in 49 districts. 3G+ adoption momentum continued, reaching 2.3 million three-month active data users. Meanwhile, with a smartphone penetration of 48%, lifecell has almost doubled data usage per user post introduction of 3G+. lifecell's investment in 3-carrier technology allows it to provide the fastest 3G speed of 63.3 Mbps in Ukraine. In Q116, lifecell's three-month active subscriber base declined to 10.4 million on 199 thousand quarterly net losses. This was mainly due to increased competition and tension in the eastern part of the country, which led to temporary interruptions to the lifecell network. Blended ARPU (3-month active) rose by 5.2% driven by increased mobile broadband usage. MoU (12-month active) fell by 9.3% due to changing consumer behavior.
(1) Starting from Q116, subscriber figure for BeST includes suspended subscriptions whose contracts are still in place. All figures presented in this document for prior periods have been restated to reflect this change. (*)BeST, in which we hold an 80% stake, has operated in Belarus since July 2008. BeST registered solid year-on-year revenue growth of 30.7% in Q116 in local currency terms with the increasing active subscriber base and increased voice and terminal revenues. EBITDA margin improved by 1.5pp to 1.7% (0.2%), mainly driven by top-line growth and strict cost management. In TRY terms, its performance remained impacted by yearly devaluation of the local currency. Revenues rose by 9.3% to TRY33 million (TRY30 million), while EBITDA improved to TRY0.5 million (TRY0.1 million).
(1) Starting from Q116, subscriber figure for KKTCELL includes M2M subscriptions as well. All figures presented in this document for prior periods have been restated to reflect this change. (*) KKTCELL, in which we hold a 100% stake, has operated in Northern Cyprus since 1999. KKTCELL's revenues increased by 3.2% year-on-year to TRY32 million (TRY31 million), reflecting strong mobile broadband growth driven by higher data demand. EBITDA declined by 7.4% to TRY11 million (TRY12 million) leading to an EBITDA margin of 34.8% (38.9%). This was driven by regulatory amendment regarding the termination rates and additional frequency fees. Fintur's consolidated revenues declined by 50.1% year-on-year, mainly due to tough competitive environment especially in Kazakhstan and pressure on currencies due to macroeconomic challenges. Fintur's subscribers declined to 16.8 million during the quarter driven by the decrease in Kcell subscribers due to the competitive environment. The contribution of Fintur to Group's net income decreased to US$5 million (US$38 million) year-on-year mainly driven by significant negative currency effects in reported figures and lower earnings impacted by negative revenue development in the several markets.
(1) Telia Company disclosed a change to the definition of prepaid mobile subscription for all countries of operations in its Q115 results announcement on April 21, 2015. Prepaid subscriptions are counted if the subscriber has been active during the last three months. In line with Telia Company's reporting, we disclose Fintur operations' subscriber numbers as three-month active. Prior periods are restated accordingly. (*) We hold a 41.45% stake In Fintur, which has interests in Kazakhstan, Azerbaijan, Moldova and Georgia. Turkcell Group Subscribers Turkcell Group subscribers amounted to approximately 67.6 million as of March 31, 2016. This figure is calculated by taking the number of subscribers of Turkcell Turkey and each of our subsidiaries and unconsolidated investees. It includes the total number of mobile, fiber, ADSL and IPTV subscribers of Turkcell Turkey, the mobile subscribers of lifecell and BeST, as well as KKTCELL, Turkcell Europe and Fintur.
(*) Turkcell Group subscribers figure includes the subscriber figures of our non-consolidated subsidiaries.
(1) Subscribers to more than one service are counted separately for each
service. OVERVIEW OF THE MACROECONOMIC ENVIRONMENT The foreign exchange rates used in our financial reporting, along with certain macroeconomic indicators, are set out below.
RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS: We believe Adjusted EBITDA, among other measures, facilitates performance comparisons from period to period and management decision making. It also facilitates performance comparisons from company to company. Adjusted EBITDA as a performance measure eliminates potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates on periods or companies) and the age and book depreciation of tangible assets (affecting relative depreciation expense). We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties in evaluating the performance of other mobile operators in the telecommunications industry in Europe, many of which present Adjusted EBITDA when reporting their results. Our Adjusted EBITDA definition includes Revenue, Direct Cost of Revenue excluding depreciation and amortization, Selling and Marketing expenses and Administrative expenses, but excludes translation gain/(loss), finance income, share of profit of equity accounted investees, gain on sale of investments, income/(loss) from related parties, minority interest and other income/(expense). Nevertheless, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our results of operations, as reported under IFRS. The following table provides a reconciliation of Adjusted EBITDA, as calculated using financial data prepared in accordance with IFRS as issued by the IASB, to net profit, which we believe is the most directly comparable financial measure calculated and presented in accordance with IFRS as issued by the IASB.
FORWARD-LOOKING STATEMENTS: This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. This includes, in particular, our targets for revenue, EBITDA and capex in 2016 and our 4.5G development in Turkey. More generally, all statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding our operations, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as, among others, "will," "expect," "intend," "estimate," "believe", "continue" and "guidance". Although Turkcell believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to be correct. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. For a discussion of certain factors that may affect the outcome of such forward looking statements, see our Annual Report on Form 20-F for 2015 filed with the U.S. Securities and Exchange Commission, and in particular the risk factor section therein. We undertake no duty to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. ABOUT TURKCELL: Turkcell is a converged telecommunication and technology services provider, founded and headquartered in Turkey. It serves its customers with voice, data, TV and value-added consumer and enterprise services on mobile and fixed networks. Turkcell launched LTE services in its home country on April 1st, 2016, employing LTE-Advanced and 3 carrier aggregation technologies in 81 cities. In 2G and 3G, Turkcell's population coverage is at 99.85% and 95.05%, respectively, as of March 2016. It offers up to 1 Gbps fiber internet speed with its FTTH services. Turkcell Group companies serve 67.6 million subscribers in 9 countries - Turkey, Ukraine, Belarus, Northern Cyprus, Germany, Azerbaijan, Kazakhstan, Georgia, Moldova - as of March 31, 2016. Turkcell Group reported a TRY3.2 billion revenue with total assets of TRY26.2 billion as of March 31, 2016. It has been listed on the NYSE and the BIST since July 2000, and is the only NYSE-listed company in Turkey. Read more at www.turkcell.com.tr This press release can also be viewed using the Turkcell Investor Relation app, which can be downloaded here for iOS, and here for Android mobile devices. Appendix A - Tables Table: Translation gain and loss details
Table: Income tax expense details
Table: Reconciliation of Group proforma net income to net income per IFRS
* Please refer to the notes on reconciliation of Non-GAAP Financial
measures on page 13
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