“TARGETS RAISED ON THE BACK OF A SOLID SET OF RESULTS”

ISTANBUL–(BUSINESS WIRE)–Turkcell Iletisim Hizmetleri (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 in periods prior to Q115, 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 call center business revenues, financial services revenues, energy business 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 September 30, 2020 refer to the same item as at September 30, 2019. For further details, please refer to our consolidated financial statements and notes as at and for September 30, 2020, 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 third quarter and nine months of 2019 and 2020 is based on IFRS figures in TRY terms unless otherwise stated.
  • 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.

FINANCIAL HIGHLIGHTS

TRY million

Q319

Q320

y/y%

9M19

9M20

y/y%

Revenue

6,587

7,649

16.1%

18,453

21,232

15.1%

EBITDA1

2,839

3,394

19.6%

7,673

9,027

17.7%

EBITDA Margin (%)

43.1%

44.4%

1.3pp

41.6%

42.5%

0.9pp

EBIT2

1,641

1,877

14.4%

4,031

4,687

16.3%

EBIT Margin (%)

24.9%

24.5%

(0.4pp)

21.8%

22.1%

0.3pp

Net Income

801

1,211

51.1%

2,491

2,935

17.8%

THIRD QUARTER HIGHLIGHTS

  • Robust financial performance achieved in the normalization period:

    • Group revenues up 16% with Turkcell Turkey’s topline growing 18%, driven mainly by strong ARPU performance and equipment revenues supported by digital channels and corporate projects
    • EBITDA up 20% resulting in an EBITDA margin of 44.4%; EBIT up 14% leading to an EBIT margin of 24.5%
    • Standalone digital services revenues up 28%; Digital business solutions revenues up 40%; Paycell non-group revenues up 85%
    • Strong free cash flow3 generation of TRY1 billion
    • Net income up 51% year-on-year on the back of solid operational performance and prudent financial risk management; highest quarterly level generated from operations
    • Leverage at 0.8x, despite FX fluctuations; long FX position at US$31 million
    • TRY812 million dividend distribution approved at the General Assembly held on October 21st
  • Solid operational performance:

    • Turkcell Turkey subscriber base up by 382 thousand quarterly net additions
    • 317 thousand quarterly mobile postpaid net additions; postpaid subscriber share at 64%
    • Mobile ARPU4 growth of 14.0% year-on-year on higher postpaid share and increased data and digital services usage
    • Data consumption of 4.5G users at 14.1 GB in Q320
    • Residential fiber ARPU growth of 9.4% year-on-year
    • Superbox5 subscribers up to 551 thousand on 60 thousand quarterly net additions
    • Digital channels’ share in Turkcell Turkey consumer sales (excluding fixed business) at 12%
  • New era with the change in ownership

    • Simplified ownership structure; enhanced corporate governance
  • We revise our guidance6 for 2020 upwards. Accordingly, we target revenue growth of 14%-15%, EBITDA margin of 41%-42%, EBIT margin of 20%-21% and operational capex over sales ratio7 of ~19%.

(1) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

(2) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

(3) Free cash flow calculation includes EBITDA and the following items as per IFRS cash flow statement; acquisition of property, plant and equipment, acquisition of intangible assets, change in operating assets/liabilities, payment of lease liabilities and income tax paid

(4) Excluding M2M

(5) Superbox subscribers are included in mobile subscribers.

(6) 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 2019 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(7) Excluding license fee

For further details, please refer to our consolidated financial statements and notes as at and for September 30, 2020, which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY MURAT ERKAN, CEO

Continuous and strong growth across all our operations

The third quarter of 2020 became a period in which the effects of the COVID-19 pandemic were swiftly recovered from within the framework of Turkey’s normalization program. In the new order, digitalization came to prominence for both individuals and institutions, mainly in the form of remote education, remote working and tele-medicine. Through our strong infrastructure, innovative digital services and solutions and customer-oriented business approach, we, as Turkcell Group, pioneer this digital transformation as we have done to date. Ensuring the sustainability of this transformation and delivering the services that form the digital backbone for Turkey over the coming decade remain our primary objectives.

While this quarter has been one of transition to the new normal, we have achieved financial results above expectations thanks to our business model and practices adapting swiftly to changing conditions. We registered TRY7.6 billion consolidated revenues on a yearly increase of 16.1%. Consolidated EBITDA1 reached TRY3.4 billion with an EBITDA margin of 44.4% on a 1.3 percentage point rise. Net income rose 51% to TRY1.2 billion, the highest quarterly level we generated from our operations to date. With these results, we recorded 15.1% yearly growth with TRY21.2 billion revenues and TRY9 billion EBITDA on an increase of 17.7% in the first nine-months.

Taking into consideration these strong results and our expectations for the remainder of the year, we revise our guidance2 for 2020 upwards. Accordingly, we raise our consolidated revenue growth to 14% – 15%, EBITDA margin to 41% – 42% and EBIT3 margin to 20% – 21%. We expect the Group’s operational capex to sales ratio4 at around 19%, due mainly to local currency depreciation.

We continue to strengthen our customer base

Responding swiftly with solutions to changing customer demands has been among our priorities during this period. TurkcellBiz, with which tariff plans can be used jointly with family and friends, and Dev Paketler (Mega Plans), by which annual data quotas may be purchased have been among our firsts in the sector. Our strategy of ever standing by our customers’ side, as well as our innovative and comprehensive tariffs and additional benefits offered with which we pioneer the sector, such as Shake&Win, have led us to gain a net 382 thousand subscribers in the third quarter. Our postpaid customer base has increased by a net 317 thousand subscribers. Mobile blended ARPU5 has reached TRY52.0 on an increase of 14% year-on- year with the effect of rising data and digital service usage and upsell to higher plans. In this quarter, in which smart phone penetration has reached 80%, average mobile data consumption has been 12.2 GB on a quarterly rise of 51%.

Despite the seasonal weakness of fixed internet demand given the mobility of our customers during the summer, we have met continued strong demand with a new array of tariff plans; we gained a net 45 thousand fiber customers during the quarter. Thus, total fixed broadband subscribers reached 2.4 million. Our Superbox product, with which we pioneered the market, reached 551 thousand subscribers by 2.5 times that of the past year with a net increase of 60 thousand new customers enjoying uninterrupted home internet service at fiber speed over the mobile network.

This quarter, we have reinforced the usage habits of our customers who became acquainted with our digital channels due to the pandemic in the second quarter, with smart offers and win-win deals. As visitors to digital channels reached 28 million, our conversion to sales ratio has doubled on an annual basis. And as the additional data plan purchases and TL top-up transaction volume over our digital channels has increased by 3.1 times on an annual basis, 12% of the consumer sales of Turkcell Turkey (excluding our fixed business) were registered over digital channels. In the upcoming periods we will continue to focus on sales through digital channels, which positively impacts our operational costs.

We continue to meet the requirements of the era through our three key strategic focus areas

The stand-alone revenue of our digital services, one of the three key strategic focus area, has risen by 28% year over year in this quarter. Through our product TV+ Ready we offer the opportunity to turn every television into a smart TV thanks to the embedded TV+ application. Within the scope of offering digital communication solutions, and in a first, we have duplicated our BiP application into a closed platform for the company ASELSAN, ensuring that the intra-company correspondence of around 8 thousand employees is conducted securely over a national and domestic application. Again, in this quarter, we have extended our portfolio by introducing our lifebox transfer service, ensuring safe and secure file sharing.

Digital business solutions, another strategic focus area, has grown by 40% year over year in revenue terms this quarter. Also this quarter, we launched Turkcell Multiple Cloud service, by which we will offer our corporate customers the convenience of global cloud services procurement, end-to-end management, project and consultancy services in line with our service strategy from a single point of contact. We are the only service provider delivering service in Turkey with the cloud security standard assurance determined by the International Organization for Standardization (ISO) through our cloud services, marking another solution of ours for the digital transformation of corporates. We have also launched “Secure Digital Signature” and “Turkcell Digital Archive” services for our corporate customers. We initially started using digital signature protected by developed security protocols within our own company. By means of this service that ensures the digitalization of companies’ processes involving signatures, and that facilitates the process of archiving and accessing documents, we offer operational efficiency. We also contribute to our sustainability targets through savings in paper consumption. Also this quarter, our business partnerships with global suppliers continued, and we have raised the number of such corporations to 20.

With regards to our tech-fin business, the third strategic focus, Paycell has continued its growth riding the tailwind of the pandemic, having reached 4.6 million users and increased its non-group revenue by 85% on a yearly basis. In use at 11 thousand member merchants as of quarter-end, Paycell has launched mobile POS as another innovative solution. In compliance with related legislation, and being the first Android POS device for which an application was filed with the Revenue Administration Authority, Paycell Android POS offers cost and efficiency advantages to member merchants, while providing the processes of collection, inventory monitoring and e-invoice over a single platform.

Sustainability is our focus in every field

As we produce the technologies of the future, sustainability remains a focal point in all our corporate collaborations and processes by means of our digital products and services. At the last meeting of the United Nations Global Compact CFO Taskforce, of which we are one of the founding members representing Turkey, we determined four critical areas for sustainable development initiatives. Our objective is to reflect Turkcell’s success in the field of sustainability onto the field of financing. Additionally, we have provided our employees the online training on “Sustainable Business Development in the Mobile Sector” of the World GSM Association (GSMA), thereby leading the way. We will continue to share our targets and efforts in the area of sustainability with all our stakeholders.

We continue generating cash

The Group net debt over EBITDA ratio had reached 0.8x as of September-end with an improvement of 0.2x compared to the same period of last year. We generated free cash flow6 of TRY1 billion from our operations on the back of strong liquidity and prudent financial management. Despite currency volatility, we have maintained our profitability thanks to FX cash in hand as well as derivative instruments held to eliminate foreign currency risk.

New shareholder; new era

There were two important outcomes for our shareholders at our ordinary general assembly meeting held on October 21st. First, it was resolved that the dividend of TRY812 million corresponding to the highest distribution ratio permitted by relevant legislation, would be distributed to our shareholders on November 30th from our profit for the year 2019. Secondly, following the approval of the related resolutions at the AGM, share transfers were completed. And hence, Turkey Wealth Fund became the largest shareholder of our Company with its 26.2% stake, while LetterOne raised its stake in the Company to 24.8%. Looking at the 26-year history of Turkcell, I consider this change to be a milestone. I trust that we will register great results for our Company and our country in this new era with Turkey Wealth Fund, which has already declared its support for our strategy, and that it perceives great value at Turkcell.

We extend our thanks to all our employees for their contribution to our success, and to our Board of Directors for their confidence in us and their invaluable support. We also express our gratitude to our customers and business associates standing by us at all times on our journey to success.

(1) EBITDA is a non-GAAP financial measure. See page 14 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 2019 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

(4) Excluding license fee

(5) Excluding M2M

(6) Free cash flow calculation includes EBITDA and the following items as per IFRS cash flow statement; acquisition of property, plant and equipment, acquisition of intangible assets, change in operating assets/liabilities, payment of lease liabilities and income tax paid

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

Profit & Loss Statement (million TRY)

 

Quarter

 

Nine Months

Q319

Q320

y/y%

9M19

9M20

y/y%

Revenue

6,586.9

7,649.5

16.1%

18,453.4

21,231.6

15.1%

Cost of revenue1

(3,081.8)

(3,727.2)

20.9%

(8,830.6)

(10,423.1)

18.0%

Cost of revenue1/Revenue

(46.8%)

(48.7%)

(1.9pp)

(47.9%)

(49.1%)

(1.2pp)

Gross Margin1

53.2%

51.3%

(1.9pp)

52.1%

50.9%

(1.2pp)

Administrative expenses

(186.8)

(184.2)

(1.4%)

(562.3)

(538.9)

(4.2%)

Administrative expenses/Revenue

(2.8%)

(2.4%)

0.4pp

(3.0%)

(2.5%)

0.5pp

Selling and marketing expenses

(353.8)

(295.6)

(16.4%)

(1,170.3)

(972.2)

(16.9%)

Selling and marketing expenses/Revenue

(5.4%)

(3.9%)

1.5pp

(6.3%)

(4.6%)

1.7pp

Net impairment losses on financial and contract assets

(125.7)

(48.5)

(61.4%)

(217.5)

(270.1)

24.2%

EBITDA2

2,838.7

3,393.9

19.6%

7,672.6

9,027.3

17.7%

EBITDA Margin

43.1%

44.4%

1.3pp

41.6%

42.5%

0.9pp

Depreciation and amortization

(1,197.7)

(1,516.6)

26.6%

(3,641.7)

(4,340.2)

19.2%

EBIT3

1,640.9

1,877.3

14.4%

4,030.9

4,687.1

16.3%

EBIT Margin

24.9%

24.5%

(0.4pp)

21.8%

22.1%

0.3pp

Net finance income / (costs)

(521.2)

(294.7)

(43.5%)

(1,513.3)

(749.8)

(50.5%)

Finance income4

(82.2)

1,307.8

n.m

252.6

2,435.5

864.2%

Finance costs4

(439.1)

(1,602.5)

265.0%

(1,765.9)

(3,185.3)

80.4%

Other income / (expense)

(92.8)

(11.2)

(87.9%)

(218.4)

(156.4)

(28.4%)

Non-controlling interests

1.9

(0.0)

(100.0%)

(32.2)

(2.5)

(92.2%)

Share of profit of equity accounted investees

1.6

(5.3)

(431.3%)

3.4

(8.6)

(352.9%)

Income tax expense

(229.2)

(355.5)

55.1%

(551.9)

(834.8)

51.3%

Discontinued operations

–

–

n.a

772.4

–

n.a

Net Income

801.3

1,210.6

51.1%

2,490.9

2,935.0

17.8%

(1) Excluding depreciation and amortization expenses.

(2) EBITDA is a non-GAAP financial measure. See page 14 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.

(4) Fair value loss and interest expense regarding derivative instruments and the respective fair value gain and interest income regarding derivative instruments are represented on a net basis. Starting from Q219, interest income on financial assets and interest expenses for financial liabilities, both measured at amortized cost, are represented on a net basis. Historical periods were restated to reflect this change.

Revenue of the Group rose 16.1% year-on-year in Q320. This resulted mainly from Turkcell Turkey’s strong ARPU performance on the back of larger postpaid share, and higher data consumption, as well as larger equipment revenues supported by sales on digital channels and corporate projects.

Turkcell Turkey revenues, comprising 87% of Group revenues, rose 17.6% to TRY6,648 million (TRY5,652 million).

– Consumer segment revenues grew 15.3% driven mainly by the rising postpaid subscriber share, increased data consumption and digital services usage as well as equipment sales.

– Corporate segment revenues rose 26.4% on the back of strong performance of digital business solutions, which grew 39.6% year-on-year.

– Wholesale revenues increased to TRY391 million (TRY328 million), on the back of higher international data traffic transmission despite lower roaming revenues impacted by limited mobility.

Turkcell International revenues, comprising 9% of Group revenues, rose 25.3% to TRY658 million (TRY525 million), mainly with the contribution of our Ukrainian operations and the positive impact of currency movements.

Other subsidiaries’ revenues, at 4% of Group revenues, which includes call center revenues, revenues from financial services and energy business revenues were at TRY344 million (TRY410 million).

– Finance company’s revenues were at TRY127 million (TRY218 million) in Q320 impacted by the contraction in the consumer loan portfolio, which declined from TRY2.7 billion as of Q319 to TRY1.9 billion as of Q320. This was due mainly to the installment limitation on consumer loans for telecom devices. The second factor behind the decline in interest income is lower interest rates compared to last year.

– Our contract with Spor Toto to carry out sports betting operations in Turkey ended as of August 28, 2019.

Excluding finance business and sports betting operations, our consolidated revenue growth was 18.7% year-on-year in Q320.

Standalone digital services revenues grew 27.9% year-on-year in Q320 backed by the increase in the number of standalone users.

Cost of revenue (excluding depreciation and amortization) rose to 48.7% (46.8%) as a percentage of revenues in Q320. This was driven mainly by the increase in cost of goods sold (4.0pp) with higher equipment sales, despite the decrease in treasury share expense (0.6pp), TRX expenses (0.7 pp) and other cost items (0.8pp).

Administrative Expenses decreased to 2.4% (2.8%) as a percentage of revenues in Q320, driven mainly by lower office overhead costs and travel expenses.

Selling and Marketing Expenses declined to 3.9% (5.4%) as a percentage of revenues in Q320. This was driven mainly by the decline in selling expenses (1.1pp) and marketing expenses (0.4pp) as a percentage of revenues.

Net impairment losses on financial and contract assets was at 0.6% (1.9%) as a percentage of revenues in Q320.

EBITDA1 rose by 19.6% year-on-year in Q320 leading to an EBITDA margin of 44.4% (43.1%). This was driven by strong topline growth and disciplined cost controls particularly during the pandemic environment.

– Turkcell Turkey’s EBITDA rose 23.2% year-on-year to TRY2,946 million (TRY2,392 million) leading to an EBITDA margin of 44.3% (42.3%) in Q320.

– Turkcell International EBITDA grew 25.8% year-on-year to TRY298 million (TRY236 million) with an EBITDA margin of 45.2% (45.0%) in Q320.

– The EBITDA of other subsidiaries stood at TRY151 million (TRY211 million) in Q320.

Depreciation and amortization expenses increased 26.6% year-on-year in Q320.

Net finance expense decreased to TRY295 million (TRY521 million) in Q320. This was driven mainly by lower net FX loss after hedging, lower interest expense on financial assets and liabilities, and higher interest income on time deposits.

See Appendix A for the details of net foreign exchange gain and loss.

Income tax expense increased to TRY355 million (TRY229 million) in Q320.

Net income of the Group rose 51.1% to TRY1,211 million (TRY801 million) in Q320, the highest quarterly level we generated from our operations to date. This was driven mainly by solid operational performance as well as prudent financial risk management.

Total cash & debt: Consolidated cash as of September 30, 2020 increased to TRY13,524 million from TRY10,929 million as of June 30, 2020 driven by strong cash flow generation and positive impact of currency movements. Excluding FX swap transactions, 66% of our cash is in US$, 2% in EUR, and 31% in TRY.

Consolidated debt as of September 30, 2020 increased to TRY22,841 million from TRY19,776 million as of June 30, 2020 mainly due mainly to the negative impact of currency movements. Please note that TRY2,065 million of our consolidated debt is comprised of lease obligations.

Consolidated debt breakdown excluding lease obligations:

– Turkcell Turkey’s debt was at TRY18,958 million, of which TRY10,827 million (US$1,387 million) was denominated in US$, TRY6,154 million (EUR674 million) in EUR, TRY279 million (CNY245 million) in CNY, and the remaining TRY1,698 million in TRY.

– Finance company had a debt balance of TRY807 million, of which TRY274 million (US$35 million) was denominated in US$, and TRY70 million (EUR8 million) in EUR with the remaining TRY464 million in TRY.

Contacts

Investor Relations

Korhan Bilek, Tel: + 90 212 313 1888

investor.relations@turkcell.com.tr

Corporate Communications:

Tel: + 90 212 313 2321

Turkcell-Kurumsal-Iletisim@turkcell.com.tr

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