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Turkcell Iletisim Hizmetleri: Second Quarter 2017 Results
[July 27, 2017]

Turkcell Iletisim Hizmetleri: Second Quarter 2017 Results


Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) (BIST:TCELL):

  • Please note that all financial data is consolidated and comprises that of Turkcell Iletisim Hizmetleri A.S. (the "Company", or "Turkcell") and its subsidiaries and associates (together referred to as the "Group"), unless otherwise stated.
  • We have three reporting segments:
    • "Turkcell Turkey" which comprises all of our telecom related businesses in Turkey (as used in our previous releases, this term covered only the mobile businesses). All non-financial data presented in this press release is unconsolidated and comprises Turkcell Turkey only figures, unless otherwise stated. The terms "we", "us", and "our" in this press release refer only to Turkcell Turkey, except in discussions of financial data, where such terms refer to the Group, and except where context otherwise requires.
    • "Turkcell International" which comprises all of our telecom related businesses outside of Turkey.
    • "Other subsidiaries" which is mainly comprised of our information and entertainment services, call center business revenues, financial services revenues and inter-business eliminations.
  • In this press release, a year-on-year comparison of our key indicators is provided and figures in parentheses following the operational and financial results for June 30, 2017 refer to the same item as at June 30, 2016. For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2017, which can be accessed via our website in the investor relations section (www.turkcell.com.tr).
  • Selected financial information presented in this press release for the second quarter and half year 2016 and 2017 is based on IFRS figures in TRY terms unless otherwise stated.
  • In accordance with our strategic approach and IFRS requirements, Fintur is classified as 'held for sale' and reported as discontinued operations as of October 2016. Certain operating data that we previously presented with Fintur included has been restated without Fintur.
  • In the tables used in this press release totals may not foot due to rounding differences. The same applies to the calculations in the text.
  • Year-on-year and quarter-on-quarter percentage comparisons appearing in this press release reflect mathematical calculation.

SECOND QUARTER HIGHLIGHTS

  • The past two years' digital transformation strategy reflected in strong operational and financial results
  • Record customer gains, ARPU growth and further traction in digital services:
    • Strong year-on-year total subscriber net additions of 2.1 million in Turkey
    • Mobile ARPU1 uplift of 13.7% year-on-year; decline in mobile churn rate to 4.2%
    • Mobile multiplay customer share reaches 46.7%, while multiplay with TV customers on the fixed side rises to 40.5%
    • Data and digital services revenues up 78.6%
    • Data usage of 4.5G users reaches 5.9GB in June
  • Highest revenue and EBITDA2 growth of the past 10 years with all time high revenue and EBITDA:
    • Group revenues and EBITDA up 28.5% and 41.6%, respectively leading to 3.1pp improvement in EBITDA margin to 33.8%, the highest second quarter level since 2008
    • Turkcell Turkey revenues up 26.4% with EBITDA margin of 34.1%; including consumer finance company, Turkcell Turkey revenues up 29.7% with EBITDA margin of 34.4%;
    • Turkcell International revenues up 26.5% with EBITDA margin of 25.6%
    • Other subsidiaries' revenues, comprising information and entertainment services, call center services and financial services revenues, up 74.7% with increased consumer finance company contribution
  • Group net income up 69.2% to TRY704 million mainly on solid operational performance
  • 4.5G license payments completed with TRY1.5 billion final installment paid on April 26th
  • TRY3 billion dividend approved at the General Assembly of May 25th
  • TRY100 million of consumer finance company receivables securitized in April and preparations for the second asset-backed security issuance in progress
  • Given the strong first half performance, we revised our full year guidance for revenue growth from 16%-18% to 21%-23%, for EBITDA margin from 32%-34% to 33%-35%, while maintained our full year guidance for capex3 over sales; capex over sales targeted at 19%-20%4

FINANCIAL HIGHLIGHTS



TRY million   Q216   Q217   y/y %   H116   H117   y/y %
Revenue   3,358   4,316   28.5%   6,583   8,369   27.1%
Turkcell Turkey 3,008 3,803 26.4% 5,936 7,366 24.1%
EBITDA2 1,029 1,457 41.6% 2,031 2,857 40.7%
Turkcell Turkey 923 1,298 40.6% 1,839 2,567 39.6%
EBITDA Margin 30.7% 33.8% 3.1pp 30.8% 34.1% 3.3pp
Net Income   416   704   69.2%   979   1,163   18.8%

(1) Excluding M2M
(2) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(3) Excluding license fee
(4) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2016 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2017 which can be accessed via our web site in the investor relations section (www.turkcell.com.tr).

COMMENTS BY KAAN TERZIOGLU, CEO

Digital transformation has paved the way for 28.5% top-line growth

Our digital transformation began in 2015, and marking a turning point on this journey, the launch of 4.5G in our home country Turkey on April 1, 2016, opened the door to a truly and comprehensively digitalized world. Our customers' appreciation and enthusiasm in embracing our products since then have confirmed the validity of our digital-focused business model. Today, we celebrate our results, which we see as a milestone for both our company and our industry, by ringing the closing bell at the NYSE where we have been listed for 17 years.

Encouraged by our customers' demand, we revise our target upwards

Turkcell Group has registered its record high revenue and EBITDA growth of the past ten years. Group revenues rose 28.5% to TRY4.3 billion, while EBITDA1 increased 41.6% to TRY1.5 billion, achieving a 33.8% EBITDA margin. Net income rose to TRY704 million on 69.2% yearly growth. Our solid financial results on the back of a larger customer base, rising data demand, and higher usage of our products and services on our fast and superior network, prompt us to revise our guidance upwards to 21% - 23% for revenue growth and 33%-35% for EBITDA margin2.

With our digital services, our customers are reshaping how they experience life

With our digital services, we had aimed to transform Turkcell from a network provider into a services-focused experience provider that offers more than voice and data. Our customers increasingly prefer Turkcell services as they transform their ways of interacting, watching, listening, reading, doing business, accessing news and entertainment, and saving their memories. This increasing demand encourages us as we move forward.

BiP, our first and leading global product on this digital transformation journey, has been downloaded over 14.7 million times globally; it serves as a platform for over one million voice and video call minutes per day on average. BiP has established a partnership with the third largest game developer in Europe, Orange Games, and launched the "Game on BiP" platform, enriching its content. Our digital music platform, fizy was the channel on which Turkey's megastar Tarkan premiered his new album. Tarkan fans were not only able to listen to the album for the first time, but also watch his concerts live over fizy. Over 6 million songs on average are streamed daily on fizy, which had been the most downloaded application on AppStore. Our digital magazine application, Dergilik, has brought a breath of fresh air to the sector; in June alone, over 2.1 million magazines were read on this platform, greatly exceeding the print format. Users of our TV platform TV+ have reached 1.5 million. In line with our aim of transforming the small-screen video viewing experience, average per user viewing duration on the TV+ OTT app has risen to 51 min from 7 min prior to the 4.5G launch thanks to our technology, offerings and content. Meanwhile, lifebox, our personal cloud app, which is now also on Apple TV, has been downloaded over 4.9 million times. Our customers have used 110 thousand GB of data in June to upload over 110 million files.

Highest net customer add of the past six years

Our innovative approach to digital services has positively impacted customer satisfaction and loyalty, strengthening customer retention. Further, we recorded the highest quarterly net customer add of the past six years of 757 thousand, reaching 34.2 million mobile customers. The share of postpaid customers has reached 53.2% in total thanks to the highest net postpaid add of the past five years. Our fiber customers rose by 32 thousand this quarter to 1.1 million, whereby total fixed broadband customers exceeded 2 million.

The share of multi-play customers in the mobile segment using voice, data and digital services reached 46.7%3. Meanwhile, the share of multi-play customers with TV on the fixed side reached 40.5%4. These figures, which indicate that our customers want to see Turkcell in more areas of their lives, and our expanding customer base, give us confidence in the sustainability of double-digit growth going forward.

Data usage on 4.5G, a pillar of our growth, has reached 5.9GB

This quarter, we continued to invest in the 4.5G network, the building block of our growing digital services and attractive offerings, and have reached a population coverage of 83.79%. Data consumption of 4.5G users reached 5.9GB in June, and total per capita data consumption increased by 69% year-on-year to 4.1GB.

Rising smartphone penetration on our network has been another factor enabling us to achieve these figures. In fact, this quarter, we have already reached the 70% smartphone penetration target set for year-end 2018.

Moreover, we provide our customers financing options via Financell, a part of Turkcell Group, facilitating their access to the latest technology. Financell, which has provided over 3.7 million loans to date, has become Turkey's largest consumer finance company in terms of the number of loans extended. As part of our responsible financing practices, the number of loan protection and life insurance policies bundled with Financell credit has reached 600 thousand.

The goal of making technology accessible not only underlies Financell, but also our T-series smartphones, the latest and most advanced of which is T80 and the compatible Turkcell VR headset. Virtual reality applications, which are among the technologies set to shape the future, will be accessible to our customers with these two devices.

In a landmark development in our techfin field, Paycell has now been granted an e-money license by banking regulator the BRSA. Thus, in addition to the distinctive payment solutions Paycell already offers, it can now extend its new generation payment card. Our aim is to have 10 million Paycell card users within a three year timeframe.

Serving the highest technology to the populations most in need

We continue to use the latest technologies enabled by digital services on 4.5G for those in who are most in need. With technology, we support the education of children with special needs, help entrepreneurs raise project funding, introduce coding and programming to large segments of society and help disabled individuals fully realize their potential.

In this context, we also serve Turkey's Syrian refugee population with our "Hello Hope" mobile application, which has reached 468 thousand users since its launch in September 2016. Previously recognized by the GSMA for best use of mobile technology in humanitarian and emergency situations, "Hello Hope" received yet another award from the World Summit for Information Society (WSIS) led by the International Telecommunications Union (ITU), the UN body for the telecommunications industry. Additionally, "Hello Hope" was selected among fourteen inspirational projects globally by the UNESCO-Pearson Initiative for Literacy.

Glad to have delivered our commitment to our shareholders with the dividend distribution decision

Our shareholders voted in favor of a 3 billion TL dividend distribution at the General Assembly on May 25, 2017. We are pleased to have met our commitment to our shareholders and distributing nearly 54% of our net income since 2010, in line with our dividend policy. We will continue to work with the same discipline to sustain our solid financial and operational results and maintain our strong balance sheet, which has made this decision possible.

Inspired by the success story in Turkey, we now aim at the global digital market

We became a pioneer in the Turkish financial market with our listing on both the BIST and NYSE seventeen years ago. Today, institutional and individual investors from 52 countries trust Turkcell. We continue to work tirelessly every day to merit this trust with our transformation, which has been inspirational not only in Turkey, but also in the international telecoms arena.

Our goal now is to extend our digital know-how, which grew with the loyalty and demand of our customers in Turkey, on a global scale. We have enhanced our digital products and services, and our digital-focused business model, in order to offer them globally.

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 providing continued guidance and support. We would also like to express our gratitude to our customers, who have been with us throughout this success story.

(1) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(2) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2016 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
(3) Share among mobile voice users excluding subscribers who have not used their lines in the last 3 months
(4) Multiplay customers with TV: Internet + TV users & internet + TV + voice users

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

Profit & Loss Statement
(million TRY)

 

  Quarter   Half Year
Q216   Q217   y/y %   H116   H117   y/y %
Revenue 3,358.1 4,316.0 28.5% 6,583.5 8,368.6 27.1%
Cost of revenue1 (2,236.9) (2,783.9) 24.5% (4,255.7) (5,400.6) 26.9%
Cost of revenue1/Revenue (66.6%) (64.5%) 2.1pp (64.6%) (64.5%) 0.1pp
Depreciation and amortization (567.1) (617.0) 8.8% (1,021.9) (1,245.4) 21.9%
Gross Margin 33.4% 35.5% 2.1pp 35.4% 35.5% 0.1pp
Administrative expenses (175.8) (183.8) 4.6% (354.5) (383.6) 8.2%
Administrative expenses/Revenue (5.2%) (4.3%) 0.9pp (5.4%) (4.6%) 0.8pp
Selling and marketing expenses (483.2) (508.3) 5.2% (964.4) (972.9) 0.9%
Selling and marketing expenses/Revenue (14.4%) (11.8%) 2.6pp (14.6%) (11.6%) 3.0pp
EBITDA2 1,029.3 1,457.0 41.6% 2,030.8 2,856.9 40.7%
EBITDA Margin 30.7% 33.8% 3.1pp 30.8% 34.1% 3.3pp
EBIT3 462.2 840.0 81.7% 1,008.9 1,611.5 59.7%
Net finance income / (costs) 21.8 95.8 339.4% 188.0 (50.8) (127.0%)
Finance costs (140.7) (146.1) 3.8% (195.7) (494.2) 152.5%
Finance income 162.5 241.9 48.9% 383.7 443.4 15.6%
Other income / (expense) 13.8 (36.8) (366.7%) 2.7 (33.1) n.m
Non-controlling interests (11.6) (11.0) (5.2%) (22.5) (23.8) 5.8%
Income tax expense (62.2) (183.9) 195.7% (205.6) (341.2) 66.0%
Discontinued operations (7.9) - n.m 7.3 - n.m
Net Income   416.1   704.1   69.2%   978.8   1,162.6   18.8%

(1) Including depreciation and amortization expenses.
(2) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

Revenue of the Group rose by 28.5% year-on-year in Q217. This growth came mainly from the strong ARPU performance of Turkcell Turkey on the back of solid data and digital services growth, and customer base expansion.

Turkcell Turkey revenues, at 88% of Group revenues, rose by 26.4% to TRY3,803 million (TRY3,008 million).

  • Mobile data revenues grew by 65.1% to TRY1,462 million (TRY886 million) due to rising smartphone penetration, increased data users and higher data consumption.
  • Fixed data revenues rose by 27.8% to TRY326 million (TRY255 million) on increased users, higher consumption and price increases.
  • Digital services revenues grew by 178.8% to TRY692 million (TRY248 million). This growth comes mainly from TV+, our digital publishing service Dergilik, music platform fizy, personal cloud service lifebox and other mobile services.
  • Overall data and digital services revenues, comprising 65% of Turkcell Turkey revenues, rose by 78.6% to TRY2,480 million (TRY1,389 million).
  • Wholesale revenues grew by 40.6% to TRY144 million (TRY102 million) on increased carrier traffic.
  • We reported revenues of TRY22 million originating from our Universal Service Project, which is aimed at building and operating infrastructure in unserved rural areas. Contractually, this project is financed by the Universal Service fund on a net cost basis.

Turkcell International revenues, constituting 6% of Group revenues, rose by 26.5% to TRY258 million (TRY204 million), driven mainly by the increase in lifecell and BeST revenues.

Other subsidiaries' revenues, at 6% of Group revenues, which includes information and entertainment services, call center revenues and revenues from financial services grew by 74.7% to TRY255 million (TRY146 million). The consumer finance company's revenues, which reached TRY141 million (TRY30 million) in Q217 were the main driver of this growth.

Cost of revenue declined to 64.5% (66.6%) as a percentage of revenues in Q217. This was mainly driven by the decline in depreciation and amortization expenses (2.6pp), radio expenses (1.7pp), treasury share (1.3pp), interconnect costs (0.9pp) and other cost items (0.6pp), despite the increase in consumer finance company funding costs (1.5pp), and GSM related equipment costs (3.5pp).

Administrative expenses declined to 4.3% (5.2%) as a percentage of revenues in Q217.

Selling and marketing expenses dropped to 11.8% (14.4%) as a percentage of revenues in Q217, due to the decline in marketing expenses (1.3pp), prepaid subscriber frequency usage fees (0.8pp) and other cost items (0.5pp).

EBITDA1 rose by 41.6% year-on-year in Q217 leading to an EBITDA margin of 33.8% (30.7%) on a 3.1pp improvement. Cost of revenue (excluding depreciation and amortization) rose by 0.4pp, while administrative expenses and selling and marketing expenses declined by 0.9pp and 2.6pp, respectively.

  • Turkcell Turkey's EBITDA grew by 40.6% to TRY1,298 million (TRY923 million) with an EBITDA margin improvement of 3.4pp to 34.1% (30.7%).
  • Turkcell International EBITDA rose by 24.5% to TRY66 million (TRY53 million), which resulted in an EBITDA margin of 25.6% (26.0%).
  • The EBITDA of other subsidiaries rose by 75.1% to TRY93 million (TRY53 million) with the increasing contribution of our consumer finance company.

Net finance income of TRY96 million (TRY22 million) was reported in Q217, which rose year-on-year mainly due to the positive impact of the change in the fair value of cross currency swap transactions.

Income tax expense increased 195.7% year-on-year in Q217. Please see Appendix A for details.

Net income of the Group rose by 69.2% to TRY704 million (TRY416 million) year-on-year in Q217. This was mainly driven by solid growth in EBITDA.

Turkcell Turkey's net income increased by 60.1% to TRY661 million (TRY413 million) in Q217, mainly due to factors explained above with respect to the rise in Group net income.

Total cash & debt: Consolidated cash as of June 30, 2017 declined to TRY4,995 million from TRY6,451 million as of March 31, 2017, mainly due to payment of the final intallment of the 4.5G license fee and first installment of the dividend payment. TRY3,006 million (US$857 million) of consolidated cash was denominated in US$, TRY965 million (EUR241 million) in EUR and TRY1,023 million in TRY and other local currencies.

Consolidated debt as of June 30, 2017 increased to TRY11,197 million from TRY10,730 million as of March 31, 2017. This was mainly due to the increased debt portfolio of our consumer finance company.

  • Turkcell Turkey's debt was TRY7,863 million, of which TRY3,466 million (US$988 million) was denominated in US$, TRY4,066 million (EUR1,016 million) in EUR and the remaining TRY331 million in TRY.
  • The debt balance of lifecell was TRY533 million, denominated in UAH.

(1) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

  • Our consumer finance company had a debt balance of TRY2,797 million, of which TRY177 million (US$51million) was denominated in US$, and TRY533 million (EUR133 million) in EUR (Please note that the figures in parentheses refer to US$ or EUR equivalents).

TRY6,483 million of our consolidated debt is set at a floating rate, while TRY4,042 million will mature within less than a year.

Net debt as of June 30, 2017 was at TRY6,203 million with a net debt to EBITDA ratio of 1.1 times. Excluding consumer finance company consumer loans, our telco only net debt was at TRY2.7 billion with a leverage of 0.5 times.

Turkcell Group's short position was at US$203 million as at the end of Q217 within our comfort zone which is below US$500 million advised by our Board considering the size of our operations and balance sheet. (Please note that this figure takes into account advance payments and the impact of hedging).

Cash flow analysis: Capital expenditures, including non-operational items amounted to TRY773 million in Q217. The cash flow item noted as "other" in Q217 included payment of the final installment of the 4.5G license fee (TRY1,535 million) and the negative impact of the change in other working capital (TRY195 million). The cash flow item noted as "other" in Q216 included payment of the second installment of the 4.5G license fee (TRY1,323 million), advance payments for fixed asset purchases (TRY915 million) and the negative impact of the change in other working capital (TRY2 million).

In Q217 and H117, operational capital expenditures (excluding license fees) at the Group level were at 16.7% and 15.0% of total revenues, respectively.

Consolidated Cash Flow (million TRY)   Quarter   Half Year
Q216   Q217   H116   H117
EBITDA1 1,029.3 1,457.0 2,030.8 2,856.9
LESS:
Capex and License (879.6) (773.3) (1,618.0) (1,344.7)
Turkcell Turkey (801.6) (698.1) (1,477.0) (1,231.5)
Turkcell International2 (71.0) (67.6) (132.7) (102.6)
Other Subsidiaries2 (7.0) (7.6) (8.3) (10.6)
Net interest Income/ (expense) 45.9 139.1 217.4 150.0
Other (2,240.1) (1,729.3) (2,925.9) (2,720.4)
Net Change in Debt 3,291.5 450.5 3,146.3 1,000.4
Cash generated / (used) 1,247.0 (456.0) 850.6 (57.8)
Cash balance before dividend payment 3,769.4 5,994.5 3,769.4 5,994.5
Dividend paid - (1,000.0) - (1,000.0)
Cash balance after dividend payment   3,769.4   4,994.5   3,769.4   4,994.5

(1) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate adjusted EBITDA and its reconciliation to net income.
(2) The impact from the movement of reporting currency (TRY) against local currencies of subsidiaries in other countries is included in these lines.

Operational Review of Turkcell Turkey

Summary of Operational data   Q216   Q117   Q217   y/y %   q/q %
Number of subscribers (million)   34.5   35.8   36.6   6.1%   2.2%
Mobile Postpaid (million) 16.8 17.7 18.2 8.3% 2.8%
Mobile M2M (million) 2.0 2.1 2.2 10.0% 4.8%
Mobile Prepaid (million) 15.8 15.7 16.0 1.3% 1.9%
Fiber (thousand) 965.4 1,085.5 1,117.5 15.8% 2.9%
ADSL (thousand) 675.2 879.6 907.1 34.3% 3.1%
IPTV (thousand) 303.0 402.0 436.0 43.9% 8.5%
Churn (%)
Mobile Churn (%)1 8.0% 5.0% 4.2% (3.8pp) (0.8pp)
Fixed churn (%) 5.1% 5.2% 4.8% (0.3pp) (0.4pp)
ARPU (Average Monthly Revenue per User) (TRY)
Mobile ARPU, blended 25.7 28.8 29.1 13.2% 1.0%
Mobile ARPU, blended (excluding M2M) 27.1 30.5 30.8 13.7% 1.0%
Postpaid 37.7 41.7 42.0 11.4% 0.7%
Postpaid (excluding M2M) 42.3 47.0 47.3 11.8% 0.6%
Prepaid 13.3 14.3 14.6 9.8% 2.1%
Fixed Residential ARPU, blended (TRY) 51.3 53.1 52.7 2.7% (0.8%)
Average mobile data usage per user (GB/user) 2.3 3.0 3.9 69.6% 30.0%
Mobile MOU (Avg. Monthly Minutes of usage per subs) blended   323.5   323.7   345.0   6.6%   6.6%

(1) In Q117, our churn policy was revised to extend from 9 months to 12 months (the period at the end of which we disconnect prepaid subscribers who have not topped up above TRY10.) Additionally, under our revised policy, prepaid customers who last topped up before March will be disconnected at the latest by year-end. Please note that figures for prior periods have not been restated to reflect this change in churn policy. The net mobile subscriber addition figures and mobile churn rate for Q117 and Q217 disclosed in this document have been positively impacted by this change.

Our mobile customer base grew by 757 thousand quarterly net additions, reaching 34.2 million in total, on the back of our value propositions focused on a richer customer experience. Our postpaid customer base expanded by 503 thousand quarterly net additions reaching 53.2% (51.6%) of our total mobile customer base. Meanwhile, we registered 253 thousand quarterly net additions to our prepaid customers. On a year-on-year basis our mobile customer base expanded by 1.6 million net additions.

Our fixed customer base exceeded 2 million customers on 60 thousand quarterly net additions, of which 32 thousand were fiber and 28 thousand were ADSL customers. Fixed customer base grew by 384 thousand net additions year-on-year. IPTV customers reached 436 thousand on 34 thousand quarterly and 133 thousand annual net additions. Total TV users including OTT TV only customers exceeded 1.5 million. Turkcell TV+ mobile application has been downloaded 4.2 million times as of July 2017.

Mobile churn declined 3.8pp year-on-year with our value focused customer strategy, value propositions that led to increased customer retention and attractiveness of our digital services. Fixed churn rate fell 0.3pp year-on-year with actions taken to reduce involuntary churn of customers.

Mobile ARPU (excluding M2M) grew by 13.7% year-on-year driven mainly by our upsell efforts, a favorable change in customer mix and increased data and digital services usage enabled by our 4.5G network. The increased share of triple play customers, who use voice, data and digital services combined, to 46.7%1 contributed to the ARPU rise as well.

Fixed residential ARPU rose by 2.7% year-on-year with the increase in multiplay customers with TV2 to 40.5% of total residential fiber customers, along with upsell efforts and price increases.

Average mobile data usage per user rose by 69.6% year-on-year on the back of strong demand for data and digital services offerings. Average mobile data usage of 4.5G users was at 5.9GB in June.

Smartphones on our network reached 21.5 million with 1.0 million quarterly net additions resulting in a penetration of 70%. 4.5G enabled smartphones reached 61% of the total smartphones.

(1) Share among mobile voice users excluding subscribers who have not used their lines in the last 3 months
(2) Multiplay customers with TV: Internet + TV users & internet + TV + voice users

TURKCELL INTERNATIONAL

lifecell* Financial Data   Quarter   Half Year
Q216   Q217   y/y%   H116   H117   y/y%
Revenue (million UAH) 1,152.2 1,173.3 1.8% 2,284.8 2,353.5 3.0%
EBITDA (million UAH) 304.1 303.6 (0.2%) 660.2 623.3 (5.6%)
EBITDA margin 26.4% 25.9% (0.5pp) 28.9% 26.5% (2.4pp)
Net income / (loss) (million UAH) 1,178.3 (94.0) (108.0%) 1,110.7 (231.9) (120.9%)
Capex (million UAH)   562.5   443.9   (21.1%)   1,019.4   681.5   (33.1%)
Revenue (million TRY) 131.0 157.8 20.5% 259.5 317.6 22.4%
EBITDA (million TRY) 34.5 40.8 18.3% 74.9 84.1 12.3%
EBITDA margin 26.4% 25.9% (0.5pp) 28.9% 26.5% (2.4pp)
Net income / (loss) (million TRY)   128.6   (12.6)   (109.8%)   120.2   (31.3)   (126.0%)

(*) Since July 10, 2015, we hold a 100% stake in lifecell.

lifecell registered a 1.8% rise in revenues in Q217 in local currency terms on a year-on-year basis driven mainly by mobile data revenue growth on the back of rising 3G data users and their increased consumption on the 3G+ network. Overall revenue growth was impacted by the MTR cut from UAH0.23/min to UAH0.15/min, effective as of January 1, 2017. lifecell's EBITDA in local currency terms was nearly flat leading to an EBITDA margin of 25.9%, which has been impacted by a higher operational leasing expense post tower related sale and leaseback transactions

lifecell's revenues in TRY terms rose by 20.5%, while EBITDA increased by 18.3% year-on-year in Q217.

lifecell*   Q216   Q117   Q217   y/y%   q/q %
Number of subscribers (million)1 12.9 12.3 12.3 (4.7%) -
Active (3 months)2 9.7 8.9 8.4 (13.4%) (5.6%)
MOU (minutes) (12 months) 138.9 127.2 126.7 (8.8%) (0.4%)
ARPU (Average Monthly Revenue per User), blended (UAH) 29.3 31.9 31.7 8.2% (0.6%)
Active (3 months) (UAH)   38.2   43.3   45.5   19.1%   5.1%

(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.
(2) Active subscribers are those who in the past three months made a revenue generating activity.

(*) Since July 10, 2015, we hold a 100% stake in lifecell.

lifecell continued its leadership in geographical coverage in Ukraine expanding its 3G+ network. The number of three-month active 3G data users reached 3.5 million, while data consumption per user almost doubled in Q217 on a year-on-year basis. Meanwhile, lifecell maintained its leadership in the market in terms of smartphone penetration, which reached 63% as at the end of Q217. Moreover, during the quarter lifecell introduced BiP-gaming, fizy radio platform and lifebox service, while enabling calls from BiP to lifecell GSM customers.

lifecell's three-month active subscriber base declined to 8.4 million, mainly due to the declining multiple SIM card usage trend in the country. Blended ARPU (3-month active) rose by 19.1% year-on-year in Q217 mainly with rising mobile data consumption and the increased number of customers with higher ARPU tariffs.

BeST*   Quarter   Half Year
Q216   Q217   y/y%   H116   H117   y/y%
Number of subscribers (million) 1.6 1.6 - 1.6 1.6 -
Active (3 months)   1.1   1.2   9.1%   1.1   1.2   9.1%
Revenue (million BYN) 23.8 27.6 16.0% 46.9 51.6 10.0%
EBITDA (million BYN) 0.8 1.8 125.0% 1.1 0.5 (54.5%)
EBITDA margin 3.2% 6.6% 3.4pp 2.4% 1.0% (1.4pp)
Net loss (million BYN) (12.8) (9.3) (27.3%) (22.5) (22.7) 0.9%
Capex (million BYN)   1.7   2.2   29.4%   5.1   5.1   -
Revenue (million TRY) 34.8 52.3 50.3% 67.5 98.4 45.8%
EBITDA (million TRY) 1.1 3.4 209.1% 1.7 1.0 (41.2%)
EBITDA margin 3.2% 6.6% 3.4pp 2.5% 1.0% (1.5pp)
Net loss (million TRY) (18.6) (17.7) (4.8%) (32.3) (43.3) 34.1%
Capex (million TRY)   2.6   3.5   34.6%   7.4   9.3   25.7%

(*)BeST, in which we hold an 80% stake, has operated in Belarus since July 2008.

BeST revenues rose by 16.0% year-on-year in Q217 in local currency terms, driven mainly by growth in voice and data revenues. BeST recorded a 3.4pp EBITDA margin improvement to 6.6% (3.2%), mainly driven by top-line growth and better operational expense management. BeST's revenues in TRY terms rose by 50.3% year-on-year in Q217.

BeST continued to offer 4G services to its customers in Minsk, Vitebsk and Grodno in partnership with becloud. The increase in 4G users led to higher total data consumption and increased data revenues. Furthermore, in accordance with Turkcell's global digital services strategy, BeST continued to increase the penetration of its digital services within its customer base.

Kuzey Kibris Turkcell (million TRY)*   Quarter   Half Year
Q216   Q217   y/y%   H116   H117   y/y%
Number of subscribers (million) 0.5 0.5 - 0.5 0.5 -
Revenue 33.7 40.0 18.7% 66.1 76.3 15.4%
EBITDA 12.8 15.2 18.8% 24.1 28.3 17.4%
EBITDA margin 38.0% 38.1% 0.1pp 36.4% 37.1% 0.7pp
Net income 10.9 9.7 (11.0%) 17.0 17.3 1.8%
Capex   4.4   4.2   (4.5%)   7.3   7.8   6.8%

(*) Kuzey Kibris Turkcell, in which we hold a 100% stake, has operated in Northern Cyprus since 1999.

Kuzey Kibris Turkcell revenues grew by 18.7% year-on-year in Q217, reflecting mobile data growth on the back of increased data consumption. EBITDA rose by 18.8% leading to an EBITDA margin of 38.1% (38.0%).

Fintur has operations in Azerbaijan, Kazakhstan, Moldova and Georgia, and we hold a 41.45% stake in the company. In accordance with our strategic approach and IFRS requirements, Fintur is classified as 'held for sale' and reported as discontinued operations as of October 2016*.

(*)For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2017, which can be accessed via our web site in the investor relations section (www.turkcell.com.tr).

Turkcell Group Subscribers

Turkcell Group subscribers amounted to approximately 51.4 million as of June 30, 2017. This figure is calculated by taking the number of subscribers of Turkcell Turkey and each of our subsidiaries. It includes the total number of mobile, fiber, ADSL and IPTV subscribers of Turkcell Turkey, and the mobile subscribers of lifecell and BeST, as well as those of Kuzey Kibris Turkcell and Turkcell Europe.

Turkcell Group Subscribers   Q216   Q117   Q217   y/y %   q/q %
Mobile Postpaid (million)   16.8   17.7   18.2   8.3%   2.8%
Mobile Prepaid (million) 15.8 15.7 16.0 1.3% 1.9%
Fiber (thousand) 965.4 1,085.5 1,117.5 15.8% 2.9%
ADSL (thousand) 675.2 879.6 907.1 34.3% 3.1%
IPTV (thousand) 303.0 402.0 436.0 43.9% 8.5%
Turkcell Turkey subscribers (million)1 34.5 35.8 36.6 6.1% 2.2%
Ukraine 12.9 12.3 12.3 (4.7%) -
Belarus 1.6 1.6 1.6 - -
Kuzey Kibris Turkcell 0.5 0.5 0.5 - -
Turkcell Europe2 0.3 0.3 0.4 33.3% 33.3%
Turkcell Group Subscribers (million)   49.8   50.4   51.4   3.2%   2.0%

(1) Subscribers to more than one service are counted separately for each service.
(2) The "wholesale traffic purchase" agreement, signed between Turkcell Europe GmbH operating in Germany and Deutsche Telekom for five years in 2010, had been modified to reflect the shift in business model to a "marketing partnership". The new agreement between Turkcell and a subsidiary of Deutsche Telekom was signed on August 27, 2014. The transfer of Turkcell Europe operations to Deutsche Telekom's subsidiary was completed on January 15, 2015. Subscribers are still included in the Turkcell Group Subscriber figure.

OVERVIEW OF THE MACROECONOMIC ENVIRONMENT

The foreign exchange rates used in our financial reporting, along with certain macroeconomic indicators, are set out below.

  Quarter   Half Year
Q216   Q117   Q217   y/y%   q/q%   H116   H117   y/y%
GDP Growth (Turkey) 5.3% 5.0% n.a n.a n.a 4.9% n.a n.a
Consumer Price Index (Turkey) 1.8% 4.3% 1.5% (0.3pp) (2.8pp) 3.6% 5.9% 2.3pp
US$ / TRY rate
Closing Rate 2.8936 3.6386 3.5071 21.2% (3.6%) 2.8936 3.5071 21.2%
Average Rate 2.8736 3.6665 3.5625 24.0% (2.8%) 2.8969 3.6145 24.8%
EUR / TRY rate
Closing Rate 3.2044 3.9083 4.0030 24.9% 2.4% 3.2044 4.0030 24.9%
Average Rate 3.2292 3.9012 3.9348 21.9% 0.9% 3.2232 3.9180 21.6%
US$ / UAH rate
Closing Rate 24.85 26.98 26.10 5.0% (3.3%) 24.85 26.10 5.0%
Average Rate 25.30 27.09 26.48 4.7% (2.3%) 25.53 26.78 4.9%
US$ / BYR rate
Closing Rate 2.0053 1.8720 1.9336 (3.6%) 3.3% 2.0053 1.9336 (3.6%)
Average Rate   1.9698   1.9109   1.8787   (4.6%)   (1.7%)   2.0125   1.8948   (5.8%)

* The official currency of the Republic of Belarus has been redenominated on July 1, 2016. As a result, BYR10,000 has become BYN1 starting from 1 July 2016. Prior periods have been adjusted accordingly for presentation purposes.

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, Cost of Revenue excluding depreciation and amortization, Selling and Marketing expenses and Administrative expenses, but excludes translation gain/(loss), finance income, finance expense, share of profit of equity accounted investees, gain on sale of investments, 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.

Turkcell Group (million TRY)   Quarter   Half Year
Q216   Q217   y/y%   H116   H117   y/y%
Adjusted EBITDA 1,029.3 1,457.0 41.6% 2,030.8 2,856.9 40.7%
Depreciation and amortization (567.1) (617.0) 8.8% (1,021.9) (1,245.4) 21.9%
Finance income 162.5 241.9 48.9% 383.7 443.4 15.6%
Finance costs (140.7) (146.1) 3.8% (195.7) (494.2) 152.5%
Other income / (expense) 13.8 (36.8) (366.7%) 2.7 (33.1) n.m

Consolidated profit from continued operations
before income tax & minority interest

497.8 899.0 80.6% 1,199.6 1,527.6 27.3%
Income tax expense (62.2) (183.9) 195.7% (205.6) (341.2) 66.0%

Consolidated profit from continued operations
before minority interest

435.6 715.0 64.1% 994.0 1,186.4 19.4%
Discontinued operations (7.9) - n.m 7.3 - n.m

Consolidated profit before minority interest

  427.7   715.0   67.2%   1,001.3   1,186.4   18.5%

NOTICE: 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 2017 and for the medium term 2017 to 2019. More generally, all statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding the launch and goals of our payment card business, 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 2016 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.

The Company makes no representation as to the accuracy or completeness of the information contained in this press release, which remains subject to verification, completion and change. No responsibility or liability is or will be accepted by the Company or any of its subsidiaries, board members, officers, employees or agents as to or in relation to the accuracy or completeness of the information contained in this press release or any other written or oral information made available to any interested party or its advisers.

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 99.58% and 96.73%, respectively, as of June 2017. It offers up to 1 Gbps fiber internet speed with its FTTH services. Turkcell Group companies operate in 9 countries - Turkey, Ukraine, Belarus, Northern Cyprus, Germany, Azerbaijan, Kazakhstan, Georgia, Moldova - as of June 30, 2017. Turkcell Group reported a TRY4.3 billion revenue in Q217 with total assets of TRY31.9 billion as of June 30, 2017. 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

Million TRY   Quarter   Half Year
Q216   Q217   y/y %   H116   H117   y/y %
Turkcell Turkey (20.2) (45.1) 123.3% (27.1) (199.9) 637.6%
Turkcell International (4.0) 9.3 n.m (0.8) 2.4 n.m
Other Subsidiaries 0.1 (7.4) n.m (1.5) (3.2) 113.3%
Turkcell Group   (24.1)   (43.3)   79.7%   (29.4)   (200.7)   582.7%

Table: Income tax expense details

Million TRY   Quarter   Half Year
Q216   Q217   y/y %   H116   H117   y/y %
Current Tax expense (37.0) (136.9) 270.0% (150.6) (233.0) 54.7%
Deferred Tax Income/expense (25.2) (47.0) 86.5% (55.0) (108.1) 96.5%
Income Tax expense   (62.2)   (183.9)   195.7%   (205.6)   (341.2)   66.0%
           

TURKCELL ILETISIM HIZMETLERI A.S.
IFRS SELECTED FINANCIALS (TRY Million)

 

 
                 
Quarter Ended Quarter Ended Quarter Ended Half Ended Half Ended
June 30, March 31, June 30, June 30, June 30,
2016   2017   2017   2016   2017
 
 
Consolidated Statement of Operations Data
Turkcell Turkey 3,008.2 3,562.7 3,802.9 5,935.7 7,365.6
Turkcell International 203.8 248.0 257.8 400.7 505.9
Other 146.1 241.9 255.3 247.1 497.1
Total revenues 3,358.1 4,052.6 4,316.0 6,583.5 8,368.6
Direct cost of revenues (2,236.9)   (2,616.6)   (2,783.9)   (4,255.7)   (5,400.6)
Gross profit 1,121.2 1,436.0 1,532.1 2,327.8 2,968.0
Administrative expenses (175.8) (199.8) (183.8) (354.5) (383.6)
Selling & marketing expenses (483.2) (464.6) (508.3) (964.4) (972.9)
Other Operating Income / (Expense) 13.8   3.6   (36.8)   2.7   (33.1)
Operating profit before financing costs 476.0 775.2 803.2 1,011.6 1,578.4
Finance costs (140.7) (348.1) (146.1) (195.7) (494.2)
Finance income 162.5 201.5 241.9 383.7 443.4
                 
Income before tax and non-controlling interest 497.8 628.6 899.0 1,199.6 1,527.6
Income tax expense (62.2)   (157.2)   (183.9)   (205.6)   (341.2)
Income from continuing operations before non-controlling interest 435.6 471.4 715.1 994.0 1,186.4
Discontinued operations (7.9) - - 7.3 -
Non-controlling interests (11.6)   (12.8)   (11.0)   (22.5)   (23.8)
Net income 416.1 458.6 704.1 978.8 1,162.6
 
Net income per share 0.19 0.21 0.32 0.44 0.53
 
Other Financial Data
 
Gross margin 33.4% 35.4% 35.5% 35.4% 35.5%
EBITDA(*) 1,029.3 1,399.9 1,457.0 2,030.8 2,856.9
Capital expenditures 879.6 571.4 773.3 1,618.0 1,344.7
 
Consolidated Balance Sheet Data (at period end)
Cash and cash equivalents 3,769.4 6,450.5 4,994.5 3,769.4 4,994.5
Total assets 28,595.3 32,954.7 31,914.3 28,595.3 31,914.3
Long term debt 6,209.1 7,408.5 7,155.6 6,209.1 7,155.6
Total debt 7,307.2 10,730.1 11,197.4 7,307.2 11,197.4
Total liabilities 13,245.5 16,418.3 17,713.1 13,245.5 17,713.1
Total shareholders' equity / Net Assets 15,349.8 16,536.4 14,201.2 15,349.8 14,201.2

(*) Please refer to the notes on reconciliation of Non-GAAP Financial measures on page 13

(**) For further details, please refer to our consolidated financial statements and notes as at 30 June 2017 on our web site

   

TURKCELL ILETISIM HIZMETLERI A.S.
TURKISH ACCOUNTING STANDARDS SELECTED FINANCIALS (TRY Million)

 

       
                 
Quarter Ended Quarter Ended Quarter Ended Half Ended Half Ended
June 30, March 31, June 30, June 30, June 30,
2016   2017   2017   2016   2017
 
 
Consolidated Statement of Operations Data
Turkcell Turkey 3,008.2 3,562.7 3,802.9 5,935.7 7,365.6
Turkcell International 203.8 248.0 257.8 400.7 505.9
Other 146.1   241.9   255.3   247.1   497.1
Total revenues 3,358.1 4,052.6 4,316.0 6,583.5 8,368.6
Direct cost of revenues (2,236.1)   (2,616.6)   (2,783.9)   (4,254.4)   (5,400.6)
Gross profit 1,122.0 1,436.0 1,532.1 2,329.1 2,968.0
Administrative expenses (175.8) (199.8) (183.8) (354.5) (383.6)
Selling & marketing expenses (483.2) (464.6) (508.3) (964.4) (972.9)
Other Operating Income / (Expense) 145.2   259.2   14.4   365.7   273.6
Operating profit before financing and investing costs 608.2 1,030.8 854.4 1,375.9 1,885.1
Income from investing activities (0.6) 10.8 (0.3) 8.6 10.6
Expense from investing activities (6.1) (20.6) 4.6 (13.1) (16.0)
                 
Income before financing costs 601.5 1,021.0 858.7 1,371.4 1,879.7
Finance income - 61.3 141.1 - 202.4
Finance expense (103.4)   (453.7)   (100.8)   (171.0)   (554.5)
Income from continuing operations before tax and non-controlling interest 498.1 628.6 899.0 1,200.4 1,527.6
Income tax expense from continuing operations (62.4)   (157.2)   (183.9)   (205.9)   (341.2)
Income from continuing operations before non-controlling interest 435.7 471.4 715.1 994.5 1,186.4
Discontinued operations (7.9)   -   -   7.3   -
Income before non-controlling interest 427.8 471.4 715.1 1,001.8 1,186.4
Non-controlling interest (11.6)   (12.8)   (11.0)   (22.5)   (23.8)
Net income 416.2 458.6 704.1 979.3 1,162.6
 
Net income per share 0.19 0.21 0.32 0.45 0.53
 
Other Financial Data
 
Gross margin 33.4% 35.4% 35.5% 35.4% 35.5%
EBITDA(*) 1,029.3 1,399.9 1,457.0 2,030.8 2,856.9
Capital expenditures 879.6 571.4 773.3 1,618.0 1,344.7
 
Consolidated Balance Sheet Data (at period end)
Cash and cash equivalents 3,769.4 6,450.5 4,994.5 3,769.4 4,994.5
Total assets 28,572.9 32,954.7 31,914.3 28,572.9 31,914.3
Long term debt 6,209.1 7,408.5 7,155.6 6,209.1 7,155.6
Total debt 7,307.2 10,730.1 11,197.4 7,307.2 11,197.4
Total liabilities 13,242.2 16,418.3 17,713.1 13,242.2 17,713.1
Total shareholders' equity / Net Assets 15,330.7 16,536.4 14,201.2 15,330.7 14,201.2


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