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Turkcell Posts 3rd Quarter 2014 Results [Manufacturing Close - Up]
[October 28, 2014]

Turkcell Posts 3rd Quarter 2014 Results [Manufacturing Close - Up]


(Manufacturing Close - Up Via Acquire Media NewsEdge) Turkcell reported third quarter 2014 results.

In its release on October 23, the Company noted highlights of the third quarter of 2014 -Group revenues grew by 6 percent to TRY3,162 million (TRY2,981 million), driven by higher growth in mobile broadband and fiber broadband revenues.



-Group EBITDA1 rose by 3 percent to TRY1,050 million (TRY1,016 million), while the EBITDA margin declined by 0.9pp to 33.2 percent (34.1 percent). This resulted mainly from increased sales and marketing expenses due to intense competition in the Turkish mobile market, the higher interconnect and network costs of Turkcell Turkey and increased operational expenses of certain subsidiaries.

-Group net income rose by 8 percent to TRY755 million (TRY699 million).


-Turkcell's mobile business in Turkey recorded revenue growth of 5 percent to TRY2,477 million (TRY2,365 million) with a 33.5 percent (34.5 percent) EBITDA margin.

-Mobile broadband revenues rose by 38 percent to TRY530 million (TRY385 million).

-Voice revenues2 increased by 0.7 percent to TRY 1,676 million (TRY1,664 million).

-Revenues of subsidiaries3 increased by 11 percent to TRY685 million (TRY616 million), while EBITDA rose by 11 percent to TRY222 million (TRY199 million), despite a lower contribution from our Ukrainian business due to further currency devaluation.

COMMENTS FROM CEO, SUREYYA CILIV "In the third quarter, we recorded our historically highest Group revenue and EBITDA. Consolidated revenues rose 6 percent to TRY3.2 billion, while EBITDA grew 3 percent to TRY1.1 billion. Meanwhile, EBIT rose 3 percent to TRY647 million and net income climbed 8 percent to TRY755 million.

Turkcell Turkey's mobile business revenues grew by 5 percent, despite a tough competitive environment. This growth was driven mainly by a 38 percent rise in mobile broadband revenues and 7 percent growth in mobile services, whereas messaging declined 27 percent parallel to industry-wide trends. Turkcell Superonline grew by 38 percent year on year on the strength of our growing fiber customer base. While Astelit's revenues increased by 16 percent in local currency terms, they declined by 21 percent in TRY terms due to 62 percent devaluation in Ukraine. Overall, the nine-month Group performance was in line with our plans, and we maintain our full year guidance.

As the Turkcell team, our strategic focus is on providing a superior experience with more value and best-in-class service through technology, innovation, and operational excellence. In this respect, the T-50, which launched in July, with its superior quality and affordable price, ranked as the top selling smartphone in Turkey in the third quarter, and was a key contributor in reaching 37 percent smartphone penetration. Meanwhile, we recently launched our cutting edge TV platform Turkcell TV plus, taking the Turkcell TV service to the next level. We, therefore, continue to increase customer satisfaction through the service we provide and the synergy between our 3G network and fiber infrastructure.

We thank all of our customers, employees, business partners and shareholders for their contribution to our success." OVERVIEW OF TURKCELL TURKEY The third quarter of the year was seasonally favorable with increased customer usage. Meanwhile, aggressively priced offers introduced in the first half continued to be effective throughout the quarter. The competition maintained its primary focus on acquisition offers with high data incentives, leading to increased MNP activity.

In this environment, our continued timely execution resulted in 97 thousand net additions in this quarter together with the positive impact of seasonality. Postpaid subscriber base continued to be our main focus, which expanded by 295 thousand in the third quarter, and by 793 thousand in the first nine months, mainly driven by pre-to- post switches. This focus is marked by the favorable change in our subscriber mix by 3.1pp year-on-year in favor of the postpaid base, which constitutes 42.6 percent of the total. The rise in mobile data usage increased both postpaid ARPU, and prepaid ARPU, resulting in overall 4.8 percent blended growth, regardless of the dilutive impact of switches.

Smartphones, a key driver of mobile broadband revenues, reached 11.9 million on our network with 923 thousand net quarterly additions, indicating 37 percent penetration. Our newest T-50 smartphone, the sales of which have exceeded our expectations, has contributed to the notable increase in quarterly net additions compared to the previous quarter. Our "Smartphone Festival" campaign that started in late August was also effective in this rise.

Moreover, we took our Turkcell TV service to the next level and recently launched Turkcell TV+, our TV platform that offers seamless multiple screen experience, 12-hour rewinding and cloud- recording, anytime, anywhere. The synergy between Turkcell's 3G technology and Turkcell Superonline's fiber network allows this product to be enjoyed seamlessly on any compatible device, which we believe, will boost customer satisfaction. This platform also enables Turkcell Superonline to offer triple play services.

The overall performance of Turkcell Group in the first nine months has been in line with our plans. Therefore, we maintain our full year guidance of TRY12,000 million - TRY 12,200 million for revenues, TRY3,700 million - TRY3,800 million for EBITDA and 17 percent operational capex over sales.

FINANCIAL AND OPERATIONAL REVIEW OF THE THIRD QUARTER 2014 The following discussion focuses principally on the developments and trends in our business in the third quarter of 2014 in TRY terms. Selected financial information presented in this press release for the third quarter of 2013, and the second and third quarters of 2014, both in TRY and US$, is based on IFRS figures.

Selected financial information for the third quarter of 2013, and the second and third quarters of 2014, both in TRY and in US$ prepared in accordance with IFRS, and in TRY prepared in accordance with the Turkish Accounting Standards.

Revenue rose by 6.1 percent to TRY3,162.2 million (TRY2,980.7 million), driven mainly by: -14.3 percent increase in mobile broadband and services revenues in Turkey to TRY800.8 million (TRY700.8 million), comprising 32.3 percent (29.6 percent) of mobile business revenues in Turkey.

-37.8 percent growth in mobile broadband revenues to TRY530.1 million (TRY384.8 million) with increased smartphone penetration, mobile broadband users and usage amount -26.8 percent decrease in SMS revenues, which continued to be negatively impacted by the industry-wide declining trend in demand, as well as the 20 percent decreased SMS maximum price following the related ICTA decision in January 2014 -6.5 percent rise in mobile services revenues, which is a promising growth business for Turkcell where we are committed to further growth through products -Starting from Q314, bulk SMS and one-time password (OTP) revenues, which were recorded under mobile services revenues, have been reclassified under SMS revenues. Furthermore, IFRS adjustments on mobile broadband and services revenues, previously netted-off from mobile services revenues for presentation purposes, will be treated separately going forward. Total mobile broadband and services revenues figures did not change after this reclassification and the change of presentation.

-11.3 percent growth in revenues of subsidiaries to TRY685.2 million (TRY615.6 million), constituting 21.7 percent (20.7 percent) of the Group top line.

-38.2 percent growth in Turkcell Superonline revenues to TRY327.6 million (TRY237.1 million) -20.9 percent decline in Astelit revenues to TRY193.9 million (TRY245.0 million) Direct cost of revenues grew by 7.2 percent to TRY1,880.2 million (TRY1,754.0 million), while as a percentage of revenues increased to 59.5 percent (58.8 percent), driven mainly by the higher interconnect and network costs of Turkcell Turkey and increased operational expenses of certain subsidiaries.

Administrative expenses as a percentage of revenues declined by 0.3pp to 4.4 percent (4.7 percent) year-on-year.

Selling and marketing expenses as a percentage of revenues rose by 0.4pp to 15.7 percent (15.3 percent) year-on-year due to increased selling expenses (0.4pp) and other cost items (0.3pp), as opposed to decreased marketing expenses (0.3pp).

The EBITDA of subsidiaries improved by 11.2 percent to TRY221.8 million (TRY199.4 million) driven mainly by the increased EBITDA of Turkcell Superonline.

Net finance income rose by 3.3 percent to TRY142.0 million (TRY137.5 million), despite the increased translation loss of TRY54.5 million (TRY27.8 million), which has been compensated for primarily by higher interest income.

Astelit recorded a translation loss of TRY125.0 million due to the devaluation of the UAH against the US$ during the quarter. Meanwhile, BeST recorded a TRY55.4 million translation loss, Turkcell Superonline recorded a TRY32.6 million translation loss and other group companies recorded a TRY8.5 million translation loss. Turkcell Turkey recorded a translation gain of TRY167.0 million.

Share of profit of equity accounted investees declined by 28.1 percent year-on-year to TRY66.8 million (TRY92.9 million) mainly due to a total non-cash write down of US$36 million in Fintur as a result of the ongoing assessment of its operational assets. The impact of this on our Group financials was TRY33 million on the basis of our 41.45 percent share of Fintur.

Net income rose by 8.0 percent to TRY755.0 million (TRY699.1 million) in Q314. This was driven by increased EBITDA, higher interest income, the positive impact of TRY depreciation against USD, and the one-off positive impact of TRY24 million from the A- Tel share sale process, which we announced on August 27. On the other hand, net income was negatively impacted by the devaluation of UAH against US$ in Ukraine and BYR against US$ in Belarus, in addition to the write down of the operational assets of Fintur.

Total debt as of September 30, was at TRY3,545.0 million (US$1,555.6 million), which was at TRY3,459.9 million (US$1,629.4 million) as of June 30, in consolidated terms. The debt balance of Ukraine (including intra-group debt) was TRY1,523.7 million (US$668.6 million), while that of Belarus was TRY1,461.9 million (US$641.5 million), and of Turkcell Superonline was TRY704.9 million (US$309.3 million).TRY3,003.8 million (US$1,318.1 million) of our consolidated debt is at a floating rate, while TRY2,443.7 million (US$1,072.3 million) will mature within less than a year. (Please note that the figures in parentheses refer to US$ equivalents).

Cash flow analysis: Capital expenditures, including non- operational items, amounted to TRY555.1 million in Q314, of which TRY363.8 million was related to Turkcell Turkey, TRY125.3 million to Turkcell Superonline, TRY36.6 million to Astelit, and TRY9.9 million to BeST. The cash flow item noted as "other" included cash inflows mainly relating to the effects of foreign exchange rate valuation fluctuations on cash and cash equivalents, a decrease in advance payment for capex, TRY92 million in dividends from Fintur and cash outflows due to corporate tax payment and the change in net working capital.

Subscribers of our mobile business in Turkey rose by 97 thousand in Q314, despite the prevailing tough competitive environment. Our postpaid subscriber base continued to expand, by 295 thousand, as a result of our continued focus on customer satisfaction and our efforts to switch prepaid to postpaid. The share of our postpaid subscribers in the total subscriber base increased to 42.6 percent (39.5 percent).

Churn Rate refers to voluntarily and involuntarily disconnected subscribers. Our churn rate rose to 8.2 percent (6.9 percent) due to increased competition.

ARPU rose by 4.8 percent to TRY23.8 (TRY22.7) mainly on increased mobile broadband revenues and higher postpaid subscriber base. Meanwhile, postpaid and prepaid ARPU rose by 2.3 percent and 0.8 percent year-on-year, respectively, regardless of the dilutive impact of switches.

MoU increased 6.0 percent year-on-year to 288.0 minutes (271.6 minutes), due to higher incentives and greater package utilization.

Turkcell is a communications and technology company.

More Information: http://www.turkcell.com.tr ((Comments on this story may be sent to [email protected])) (c) 2014 ProQuest Information and Learning Company; All Rights Reserved.

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