Turkcell Iletisim Hizmetleri: Third Quarter 2023 Results

“Remarkable Achievements Resulting in Guidance Upgrade”

ISTANBUL–(BUSINESS WIRE)–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 four reporting segments:

“Turkcell Türkiye” which comprises our telecom, digital services and digital business services related businesses in Türkiye (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 Türkiye only figures, unless otherwise stated. The terms “we”, “us”, and “our” in this press release refer only to Turkcell Türkiye, 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 and digital services related businesses outside of Türkiye.

“Techfin” which comprises all of our financial services businesses.

“Other” which mainly comprises our non-group call center and energy businesses, retail channel operations, smart devices management and consumer electronics sales through digital channels and intersegment 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, 2023 refer to the same item as at September 30, 2022. For further details, please refer to our consolidated financial statements and notes as at and for September 30, 2023, 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 2022 and 2023 is based on Turkish Accounting Standards (TAS) / Turkish Financial Reporting Standards (TFRS) 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.

NOTICE

We are publishing financial statements as of September 30, 2023 prepared in accordance with Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS”/“TFRS”) only. These standards are issued by the Public Oversight Accounting and Auditing Standards Authority (“POA”) and are in full compliance with IAS/IFRS Standards. In an announcement published by the POA on January 20, 2022, it is stated that TAS 29 “Financial Reporting in Hyperinflationary Economies” does not apply to TFRS financial statements as of December 31, 2021. Since then and as of the preparation date of our latest consolidated financial statements, no new statement has been made by the POA about TAS 29 application. Consequently, no TAS 29 adjustment was made to our consolidated financial statements.

Financial statements prepared in accordance with IFRS should apply IAS 29 “Financial Reporting in Hyperinflationary Economies” as of September 30, 2023. In this context, financial statements prepared in accordance with IFRS and TFRS would have significant differences and would not be comparable as of September 30, 2023. We intend to publish IFRS financial statements, compliant with IAS 29 to the extent that it remains applicable, with our Annual Report on Form 20-F that will be filed to the U.S. Securities and Exchange Commission.

Although we have not prepared a detailed comparison of differences between IFRS (unadjusted according to IAS 29) and TFRS, we have noted in our past financial statements that the most significant differences have appeared in the lines Other Operating Income/Expense, Finance Income/Expense, and Investment Activity Income/ Expense. In the past, revenue, net income and EBITDA have generally not differed. While no assurance can be given that this will be the case for Q3 2023, we are not at present aware of changes that would cause other significant differences, other than those resulting from the application of IAS 29.

FINANCIAL HIGHLIGHTS

TRY million	Q322	Q323	*y/y%*	9M22	9M23	*y/y%*
Revenue	14,662	25,993	77.3%	37,835	64,920	71.6%
EBITDA¹	5,990	11,314	88.9%	15,322	27,595	80.1%
EBITDA Margin (%)	40.9%	43.5%	2.6pp	40.5%	42.5%	2.0pp
EBIT²	3,593	7,855	118.7%	8,360	18,464	120.9%
EBIT Margin (%)	24.5%	30.2%	5.7pp	22.1%	28.4%	6.3pp
Net Income	2,396	5,478	128.7%	5,057	11,456	126.5%

THIRD QUARTER HIGHLIGHTS

Another quarter with a solid set of financial results:

Group revenues up 77.3% year-on-year on the back of the strong ARPU performance and larger subscriber base of Turkcell Türkiye and contribution of techfin business

EBITDA up 88.9% year-on-year leading to an EBITDA margin of 43.5%; EBIT up 118.7% year-on-year resulting in an EBIT margin of 30.2%

Net income up 128.7% year-on-year

Free cash flow³ generation of TRY2.3 billion; net leverage⁴ level at 0.8x; long FX position of US$145 million

Strong operational performance continued:

Turkcell Türkiye subscriber base up⁵ by 674 thousand quarterly net additions

392 thousand quarterly mobile postpaid net additions; postpaid subscriber base share at 69.8%

193 thousand quarterly prepaid subscriber net additions supported by increased tourism activity

48 thousand fiber net additions

24 thousand new fiber homepasses; exceeded 5.7 million homepasses in total

Mobile ARPU⁶ ramped up 87.0% year-on-year mainly on the back of sequential price adjustments throughout the year, successful upsell performance and larger postpaid subscriber base

Robust residential fiber ARPU growth of 63.1% year-on-year mainly on the back of price adjustments, upsell efforts to higher tariffs, 12-month commitment structure as well as higher IPTV pricing

Data usage of 4.5G users at 19.0 GB in Q323; smartphone penetration at 89%

We upgraded our guidance⁷for 2023. Accordingly, we now target revenue growth of ~73% up from ~71%, an EBITDA of ~TRY39 billion compared to ~TRY37 billion. We maintain our operational capex over sales ratio⁸ guidance at ~22%

General Assembly meeting held on September 13^th:

TRY2.3 billion dividend distribution was approved; the payment will be made on December 20^th

(1) EBITDA is a non-GAAP financial measure. See page 16 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 Turkish Financial Reporting Standartds (TFRS) 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) Starting from Q421, we have revised the definition of our net debt calculation to include “financial assets” reported under current and non-current assets. Required reserves held in CBRT balances are also considered in net debt calculation. We believe that these assets are highly liquid and can be easily converted to cash without significant change in value.

(5) Including mobile, fixed broadband, IPTV and wholesale (MVNO&FVNO) subscribers

(6) Excluding M2M

(7) 2023 guidance figures are based on TFRS, and do not include the effects of a likely adoption of inflationary accounting in accordance with IAS 29.

(8) Excluding license fee

For further details, please refer to our consolidated financial statements and notes as at September 30, 2023 via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY CEO, ALİ TAHA KOÇ, PhD

I am proud to have been appointed as the CEO of Turkcell, the pioneering founder of communication technologies in Türkiye. In my new role, I am determined to advance Turkcell’s leading position in Türkiye’s digital sovereignty by leveraging my knowledge and the rich experience I have gained in the public sector and global technology companies. We will harness our advanced technological capabilities to foster innovation and create a brighter digital future for all. And together with my team, we will lead Turkcell to be the flag carrier of our country’s technology transformation.

Turkcell’s third-quarter performance confirms the company’s strong business model, best-in-class team, and customer satisfaction-oriented technological capabilities. As I look forward, my main objective is to bolster Turkcell’s position in the telecommunication and technology market. To unlock the full potential that lies within Turkcell, I aim to focus more on technological advancement and innovation, promote sustainable growth, and create value for Turkcell shareholders.

Price adjustments continue to support growth

Despite the resumed acceleration of inflation in the third quarter, the return to generally accepted economic policies of the new economy management and the confidence-building Medium-Term-Program, which prioritizes the fight against inflation, positively impacted the markets. Increased mobility over the summer months and the back-to-school period in September positively affected our operations. A growing subscriber base, the continuation of sequential price adjustments, and our strategy of upselling, along with the support of our digital services, techfin, and international subsidiaries, have enabled us to deliver another strong quarterly performance successfully. Group revenue grew by 77.3% to TRY 26.0 billion. Additionally, despite the rise in personnel expenses, our robust revenue growth resulted in an 88.9% rise in EBITDA¹ to TRY 11.3 billion. Our EBITDA margin improved by 2.6 percentage points to 43.5%. With the active risk management that supported our strong operational results, our net profit reached TRY 5.5 billion, marking a 128.7% increase year-on-year. Additionally, we paid the first installment of our earthquake relief donation in September.

The net additions in postpaid customers surpassed 1.1 million in the first three quarters

The rising competition, which began in the second quarter of the year, continued to impact the third quarter and affect the Mobile Number Portability (MNP) market. While overall price levels in the market continue to rise, we also observed the aggressive campaigns of competitors. As Turkcell, while we occasionally responded to such campaigns, we continue to gain subscribers by sustaining our pricing focus. The price adjustments we made within the scope of inflationary pricing in the mobile segment were also followed by the competition in August. Despite competitive pressures from alternative data service providers, the positive effects of increased tourist numbers, seasonal factors, and our value propositions and strategies tailored to meet customer needs, we had net additions of 586 thousand, where 392 thousand were postpaid and 193 thousand were prepaid subscribers. With our upselling strategy and the increased contribution of price adjustments, mobile blended ARPU² rose 87.0% in the third quarter of the year.

On the fixed side, with the increased penetration due to accelerated investments in previous years and higher demand during the back-to-school period, we gained 48 thousand new fiber subscribers. As our high-speed fiber internet packages continue to attract interest to meet our customers’ rising need for speed, the percentage of subscribers in our customer base preferring 100 Mbps speeds and above is on the rise. To pass on price adjustments to our subscribers in a timelier manner, we converted the majority of our offers into 12-month packages. Thanks to these strategies, our residential fiber ARPU increased by an impressive 63.1% year-on-year.

Steady progress in our strategic focus areas

Pioneering the digital transformation, which holds a significant place in the future of our country and the wider world, we continued our activities at full speed this quarter. With our focus on expanding the reach of our digital services, the number of stand-alone users³ of our digital services and solutions rose 20% compared to the same period last year, to 5.8 million. According to the ICTA, TV+ was the only platform to increase its market share in the second quarter, reaching 1.4 million IPTV subscribers. With the support of our end-to-end customized projects tailored to meet companies’ digitalization needs, the revenue of our digital business services rose 76% year-on-year, exceeding TRY 1.8 billion. While our data center and cloud business continue to experience strong growth, we have a backlog with a total contract value of TRY 2.6 billion from system integration and managed services projects that will convert to revenue in the coming periods. During this quarter, our techfin companies, Paycell and Financell⁴, continued to deliver strong performances, contributing to the group’s growth. Türkiye’s digital financial services platform, Paycell, increased its revenues by 112.3% year-on-year to TRY 518 million this quarter. The volume of Paycell’s flagship service ‘Pay Later’ was 2.6 times that of last year, at TRY 2.5 billion. In addition, during the quarter, Paycell launched the ‘Paycell Shopping Limit’ on Türkiye’s leading e-commerce platforms in collaboration with Financell. Meanwhile, the loan portfolio of Financell, which diversifies its service portfolio to reach new customers, rose to TRY 5.7 billion. With the introduction of new products and projects and an increase in average interest rates, Financell’s revenues grew by 103.7% year-on-year to TRY 516 million.

We are reinforcing our sustainability strategy with science-based targets

In line with our sustainability strategy, we aim to positively impact our environment, society, business, and the planet through all our endeavors. Being an energy-intensive sector, we continue to increase our initiatives to reduce our environmental impact. We prioritize conducting these efforts through a scientific framework. Within this context, we have formulated our 2030 greenhouse gas reduction goals per the Science Based Targets Initiative (SBTi) criteria. Accordingly, we commit to reduce our absolute Scope 1 and 2 greenhouse gas emissions by 50.47% by 2030 compared to the 2020 baseline emissions. We also commit to reduce our absolute Scope 3 greenhouse gas emissions by 25% compared to the 2020 baseline emissions. We take pride in being the only company in the telecommunication and technology sector in Türkiye with science-based targets approved by SBTi. As Turkcell, we conveyed our sustainability strategy at the SDG Investment Forum at NYSE during the UN’s 78^th UN General Assembly. At the event, we also presented Turkcell’s first TCFD (Task Force on Climate-Related Financial Disclosures) Report outlining the risks and opportunities related to climate change and our initiatives toward resilience. We believe that this study will help us holistically evaluate our investments by enabling us to identify our areas requiring development and potential focus points. Furthermore, we are embracing renewable energy, which aligns with our sustainability strategy and offers a cost advantage in meeting our ever-rising energy needs. As Turkcell, in addition to utilizing 100% renewable energy-certified sources, we are ramping up our investments in this field. Accordingly, we took our first step with the 18 MW wind power plant we acquired in 2021. We continue our investments with solar power plants and aim to reach a capacity of 300 MW within the next three years. In the initial phase of these investments, we plan to reach a capacity of 54 MW in the first half of the coming year. We aim to meet 65% of Turkcell’s total energy consumption from our green energy production by 2026.

We continue our profitability-oriented growth strategy and once again revise our guidance⁵ upward

Based on our strong performance in the first nine months, we are revising our revenue growth and EBITDA guidance for 2023 upward to around 73% and approximately TRY 39 billion, respectively. We expect a ratio⁶ of operational capital expenditures to sales of approximately 22%, in line with our previous expectations.

While thanking all our employees who have contributed to this success, we are also grateful to our Board of Directors for their trust and support. The continuous presence by our side of our customers and business partners empowers us, and we owe special gratitude to them all.

On the centennial of our Republic, I am excited about contributing to the upcoming century through technology and innovation. I respectfully and gratefully commemorate Republic of Türkiye’s founder Gazi Mustafa Kemal Atatürk.

(1) EBITDA is a non-GAAP financial measure. See page 16 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income

(2) Excluding M2M

(3) Including IPTV, OTT TV, fizy, lifebox, and Game+

(4) Following the change in organizational structure, the revenues of Turkcell Sigorta Aracılık Hizmetleri A.Ş. (Insurance Agency), which was previously managed under Financell, have are now classified as “Other” in the Techfin segment as of the first quarter of 2023. Within this scope, all past data has beenrevised for comparability purposes.

(5) 2023 guidance figures are based on TFRS, and do not include the effects of a likely adoption of inflationary accounting in accordance with IAS 29.

(6) Excluding license fee

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

Profit & Loss Statement (million TRY)

Quarter

Nine Months

Q322

Q323

y/y%

9M22

9M23

y/y%

Revenue

14,662.5

25,993.0

77.3%

37,834.6

64,919.8

71.6%

Cost of revenue¹

(7,454.4)

(12,174.5)

63.3%

(19,375.3)

(31,301.4)

61.6%

Cost of revenue¹/Revenue

(50.8%)

(46.8%)

4.0pp

(51.2%)

(48.2%)

3.0pp

Gross Margin¹

49.2%

53.2%

4.0pp

48.8%

51.8%

3.0pp

Administrative expenses

(393.8)

(863.0)

119.1%

(1,045.6)

(1,992.0)

90.5%

Administrative expenses/Revenue

(2.7%)

(3.3%)

(0.6pp)

(2.8%)

(3.1%)

(0.3pp)

Selling and marketing expenses

(683.7)

(1,431.3)

109.3%

(1,800.3)

(3,404.2)

89.1%

Selling and marketing expenses/Revenue

(4.7%)

(5.5%)

(0.8pp)

(4.8%)

(5.2%)

(0.4pp)

Net impairment losses on financial and contract assets

(140.4)

(210.7)

50.1%

(291.0)

(627.0)

115.5%

EBITDA²

5,990.3

11,313.6

88.9%

15,322.4

27,595.3

80.1%

EBITDA Margin

40.9%

43.5%

2.6pp

40.5%

42.5%

2.0pp

Depreciation and amortization

(2,397.7)

(3,458.2)

44.2%

(6,962.3)

(9,131.5)

31.2%

EBIT³

3,592.6

7,855.4

118.7%

8,360.1

18,463.8

120.9%

EBIT Margin

24.5%

30.2%

5.7pp

22.1%

28.4%

6.3pp

Net finance income / (expense)

(3,649.7)

(3,275.7)

(10.2%)

(10,064.8)

(16,621.6)

65.1%

Finance income

4.2

798.0

n.m

853.2

3,373.1

295.4%

Finance expense

(3,654.0)

(4,073.7)

11.5%

(10,918.0)

(19,994.7)

83.1%

Other operating income / (expense)

2,414.8

(29.4)

(101.2%)

5,772.0

6,531.8

13.2%

Investment activity income / (expense)

526.1

1,182.9

124.8%

1,622.3

4,564.5

181.4%

Non-controlling interests

0.1

1.8

n.m

0.1

2.9

n.m

Share of profit of equity accounted investees

13.1

(101.5)

(874.8%)

(61.5)

(94.3)

53.3%

Income tax expense

(501.1)

(155.1)

(69.0%)

(571.2)

(1,390.9)

143.5%

Net Income

2,395.8

5,478.4

128.7%

5,056.9

11,456.2

126.5%

(1) Excluding depreciation and amortization expenses.

(2) EBITDA is a non-GAAP financial measure. See page 16 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 grew by 77.3% year-on-year in Q323. Turkcell Türkiye played a pivotal role in achieving this growth, with a solid ARPU boost resulting from price adjustments and successful upselling efforts, as well as the ongoing expansion of the postpaid customer base. Additionally, our digital services and techfin business made significant contributions to overall revenue growth.

Turkcell Türkiye revenues, comprising 79% of Group revenues, rose 84.5% year-on-year to TRY20,438 million (TRY11,076 million).

– Consumer segment⁴ revenues grew 87.8% year-on-year on the back of the price adjustments to reflect inflationary impacts, as well as successful upselling performance, and a growing subscriber base.

– Corporate segment⁴ revenues rose 90.3% year-on-year, on the back of strong momentum in digital business services revenues.

– Standalone digital services revenues registered as part of consumer and corporate segments were up 103.2% year-on-year in Q323 supported by the increased number of stand-alone paid users and price adjustments of services.

– Wholesale revenues grew 61.4% to TRY1,656 million (TRY1,026 million), mainly due to positive impact of currency movements, as well as the increased international carrier traffic and capacity upgrades of customers.

(4) Following the change in the organizational structure, the revenues from sole proprietorship subscribers that we define as Merchant, which were previously managed under the Corporate segment, are being reported under the Consumer segment as of and from the third quarter of 2023. Within this scope, past data has been revised for comparative purposes.

Turkcell International revenues, comprising 11% of Group revenues, rose 75.4% to TRY2,868 million (TRY1,635 million), with the positive impact of currency movements and lifecell’s operational performance.

Techfin segment revenues, comprising 4% of Group revenues, rose 107.5% to TRY1,036 million (TRY499 million). This performance was driven by a 112.3% rise in Paycell revenues and 103.7% increase in Financell revenues. Please refer to the Techfin section for details.

Other subsidiaries’ revenues, at 6% of Group revenues, mainly including consumer electronics sales, call center

revenues and revenues from energy business, increased 13.7% to TRY1,651 million (TRY1,453 million).

Cost of revenue (excluding depreciation and amortization) decreased to 46.8% (50.8%) as a percentage of revenues in Q323. This was driven mainly by the decline in cost of goods sold (3.3pp), energy expenses (2.1pp), and interconnection cost (1.4pp), despite the increase in personnel expenses (1.5pp) and other cost items (1.3pp) as a percentage of revenues.

Administrative Expenses increased to 3.3% (2.7%) as a percentage of revenues in Q323. This was mainly due to increased personnel expenses.

Selling and Marketing Expenses increased to 5.5% (4.7%) as a percentage of revenues in Q323. This was mainly due to the rise in personnel expenses (0.7pp), and marketing expenses (0.1pp).

Net impairment losses on financial and contract assets decreased to 0.8% (1.0%) as a percentage of revenues in Q323.

EBITDA¹rose by 88.9% year-on-year in Q323 leading to an EBITDA margin of 43.5% (40.9%).

– Turkcell Türkiye’s EBITDA rose 94.9% year-on-year to TRY9,275 million (TRY4,759 million) leading to an EBITDA margin of 45.4% (43.0%).

– Turkcell International EBITDA grew 74.4% year-on-year to TRY1,476 million (TRY846 million), which resulted in an EBITDA margin of 51.5% (51.8%).

– Techfin segment EBITDA rose 66.6% to TRY384 million (TRY230 million) with an EBITDA margin of 37.

Contacts

For further information please contact Turkcell

Investor Relations
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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