Turkcell Iletisim Hizmetleri: First Quarter 2022 Results

“STRONG START TO 2022”

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 Turkey,” which comprises our telecom, digital services and digital business services 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 the context otherwise requires.
  • “Turkcell International” which comprises all of our telecom and digital services related businesses outside of Turkey.
  • “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 March 31, 2022, refer to the same item as at March 31, 2021. For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2022, 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 first and fourth quarters of 2021 and the first quarter of 2022 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

FIRST QUARTER HIGHLIGHTS

• Solid financial performance:
  • Group revenues up 36.7% year-on-year on increased ARPU growth and larger subscriber base of Turkcell Turkey, higher contribution from international operations and techfin business
  • Group EBITDA up 30.1% year-on-year leading to an EBITDA margin of 40.2%
  • EBIT up 34.4% year-on-year resulting in an EBIT margin of 20.7%
  • Net income at TRY803 million
  • Healthy net leverage³ level at 1.2x
  • Short FX position of US$204 million (broadly in line with our FX neutral definition, which is between -US$200 million and +US$200 million)
• Robust set of operational results:
  • Turkcell Turkey subscriber base up by 577 thousand quarterly net additions
  • 423 thousand quarterly mobile postpaid net additions; postpaid subscriber base share at 66.7%
  • 59 thousand quarterly mobile prepaid net additions
  • 50 thousand fixed subscriber net additions; 53 thousand fiber net additions
  • 186 thousand new fiber homepasses in line with our annual expansion plan
  • Mobile ARPU⁴ growth of 19.8%; residential fiber ARPU growth of 21.0%
  • Average monthly data usage of 4.5G subscribers at 14.7 GB in Q122; smartphone penetration at 86%
  • Digital channel’s share⁵ in sales at 21.8%

• 2022 guidance⁶ maintained; revenue growth target of around 30%, EBITDA target of around TRY19 billion, and operational capex over sales ratio⁷ target of between 20% – 21%

⁽¹⁾ EBITDA is a non-GAAP financial measure. See page 15 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⁾ Starting from Q421, we have revised the definition of our net debt calculation to include “financial assets at fair value through other comprehensive income” reported under current and non-current assets, and “financial assets at amortized cost”. We believe that these assets are highly liquid and can be easily converted to cash without significant change in value.

⁽⁴⁾ Excluding M2M

⁽⁵⁾ Share of all sales from digital channels (including voice, data, services & smart devices) in Turkcell Turkey consumer sales (excluding fixed business) and equipment related revenues in other segment.

⁽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 2021 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 March 31, 2022 via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY CEO, MURAT ERKAN

We step into the year strongly, despite the challenges and uncertainties

Challenging macroeconomic conditions caused by high inflation, increased energy and labor costs, disruptions to the supply chain all around the world, and international political risk from the Russia-Ukraine war stood out in the first quarter of 2022. And meanwhile, the effects of COVID-19 variants that unsettled the markets continued to be observed, despite being reduced by widespread vaccination programs. While the recovery in mobility started with the substantial easing of the COVID-19 restrictions in Turkey as of March, the main concerns that stood out in this quarter were the prevailing impact of currency depreciation in the last quarter of 2021 and the inflationary environment. Then, of course, we are deeply saddened by the humanitarian disaster resulting from the war that has been waged for the past two months in Ukraine, the home of our largest international subsidiary. Perceiving communication as a human right in all conditions, we continue the activities of our subsidiary lifecell, and ensure the continuity of our network for seamless communication. Prevailing conditions have made our company confront uncertainties. And yet we continued to improve our growth, managing operations effectively with our diversified business model and proactive risk management, which we implemented decisively in the first quarter of the year.

Accordingly, our consolidated revenues increased by 36.7% year-on-year to TRY10.7 billion in the first quarter of the year. While our strong growth was driven mainly by Turkcell Turkey’s performance, the international and techfin segments, which grew by 101.4% and 58.5% year-on-year, respectively, also supported growth. EBITDA¹ increased by 30.1% to TRY4.3 billion, with an EBITDA margin of 40.2%. Net profit was at TRY803 million. These results, realized in line with our guidance, enabled us to take a strong step into a challenging 2022, which will be shaped within the framework of global political and economic uncertainties.

We serve 40 million Turkcell subscribers

Since December 2021, we have sought to reflect the cost pressures caused by energy, commodities and labor, as well as the effects of the inflationary environment in our prices. Within a similar conjuncture in the first quarter, we maintained our focus on inflationary pricing, introducing price increases in fixed broadband services in January and also in mobile services in March. While rationalization prevailed in the market as our price increases were followed by those of competitors, the decline in the MNP market also continued. This quarter we also saw an acceleration in upsell of our existing customers to higher packages. Confirming our customer-driven approach, analysis of our customers’ behavior indicates that the churn rate continued to decrease with the timely actions we have taken.

We reached 40 million subscribers with 577 thousand net additions in the first quarter of the year. Our robust and fast network, value-oriented pricing strategy and brand loyalty have been instrumental in customers opting for Turkcell. On the mobile front, we achieved 482 thousand net additions, recording 423 thousand postpaid and 59 thousand prepaid subscriber net additions. Our postpaid customer base reached 24.1 million, comprising 66.7% of the total mobile subscriber base. Besides the price increases, mobile blended ARPU (excluding M2M) accelerated compared to the previous quarter, rising 19.8% on the back of increased mobility, upsell efforts and a larger postpaid subscriber base. Reflecting the success of our customer-driven approach, the average monthly churn rate was realized at 1.6%, the lowest level of the past four years.

We observe that customers’ need for high-speed and high-quality fixed internet connection has continued in the post-pandemic period. Our fiber subscriber base registered 53 thousand quarterly net additions thanks to our superior network quality and extensive sales channels, while our total fixed broadband subscribers exceeded 2.7 million. The subscribers of our IPTV service, which is in 65 out of every 100 households among our residential fiber customers, exceeded 1.1 million with 44 thousand quarterly net additions. Residential fiber ARPU rose by 21.0% with price increases, upsell to faster packages and increased TV+ penetration. With the target of increasing our fiber rollout, in the first quarter we reached 186 thousand new fiber homepasses in line with our plans.

We meet the needs of our customers with our strategic focus areas that increase our inclusivity

We continue to stand by our customers with the instant messaging, TV and music platforms, personal cloud services and e-mail services in our digital services portfolio, the engine of our digital transformation. BiP, which has been downloaded more than 92 million times to date, and the international recognition of which continues to rise day by day, had one out of every five of its active users from abroad. TV+, our digital TV platform, has accelerated its mobile subscriber additions in this quarter thanks to enriched content, its accessibility through smart televisions and the firm growth in our TV+ Ready product. The paid users of Lifebox, through which we provide a cloud-based storage service, increased by 50% compared to the same period of last year. Additionally, we launched the user-friendly “Office Collaboration” feature in Lifebox Business, where we serve approximately one thousand corporate customers. With all these developments, in the first quarter, the stand-alone revenues of our Digital Services & Solutions increased by 15.3% to TRY424 million and Digital OTT service revenues increased 46.3% year-on-year.

The total revenues of Digital Business Services, the leader in the IT Services market, rose 75.2% year-on-year to TRY791 million. The biggest contributor to this increase was the acceleration of end-to-end system integration projects. In the first quarter of the year, we set a fresh record with close to a thousand new contracts signed. We have put into practice 2,310 system integration and managed services projects to date; from those we have a contract value (backlog) of TRY1.9 billion to be collected over the coming periods. In line with the demand for digital transformation accelerated by the COVID-19 pandemic, the revenues of data center and cloud technologies services almost doubled in the first quarter. We continue efforts to meet this demand with a larger capacity and to transform our country into a leading hub of data and cloud technologies. Within this scope, we will focus on capacity increases at our new generation data centers in the upcoming period.

We remain the pioneer of the Techfin industry with our expanding product range

Financell and Paycell had a strong quarter, contributing to the growth of our techfin business revenues, which increased by 58.5% in the first quarter of 2022. Financell is the pioneer of financing for technological needs. And as well as serving individual customers, it continues to create innovative financial solutions that increase SME competitiveness with the Digital Transformation Financing program that strengthens their digital infrastructures. Reaching a loan portfolio of TRY2.3 billion with an annual increase of 24%, Financell’s revenues increased by 50.0% in this quarter with the contribution of the insurance business. With its superior technology and wide range of solutions Paycell, the payment platform that has swiftly adapted to new payment habits, notably transformed during the pandemic, has seen another successful quarter registering 67.2% growth. Paycell’s 3-month active users reached 6.9 million and transaction volume reached TRY6.7 billion, tripling on an annual basis. The transaction volume of “Pay Later” allowing expenditures to be reflected on Turkcell invoices, doubled and the transaction volume over Paycell Card rose to eightfold of the same period of last year. We accelerated our efforts to expand our POS service to support an increased number of merchants, and have increased the number of Android POS by 66% to 9.6 thousand since the previous quarter. Considering the virtual POS service, the transaction volume of our POS solutions has doubled compared to the previous quarter to TRY2.1 billion.

We continue to stand by our customers in difficult conditions

During these days of intense global and macroeconomic challenges, we, as Turkcell, aim to provide better service to our customers day by day by maintaining our innovative approach. Despite the difficulties we have experienced, especially in Ukraine, we maintain our 2022 guidance shared in February, thanks to our accelerated performance in Turkey.

I extend my thanks to all our colleagues for their contribution that has enabled our strong start to the year, and to our Board of Directors for their confidence in us and invaluable support. I also express our gratitude to our customers and business partners, ever with us on our journey to success.

⁽¹⁾ EBITDA is a non-GAAP financial measure. See page 15 for the explanation of how we calculate Adjusted EBITDA and it’s reconciliation to net income.

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

⁽¹⁾ Excluding depreciation and amortization expenses.

⁽²⁾ EBITDA is a non-GAAP financial measure. See page 15 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 36.7% year-on-year in Q122. This was driven mainly by growth in Turkcell Turkey revenues thanks to the expanding subscriber base, as well as price adjustments to reflect inflationary impacts and upsell efforts leading to higher ARPU growth compared to previous quarters. A strong contribution from Turkcell International, continued momentum in techfin and higher energy business revenues also supported the topline in the first quarter.

Turkcell Turkey revenues, comprising 74.3% of Group revenues, rose 33.0% year-on-year in Q122 to TRY7,950 million (TRY5,979 million).

– Consumer segment revenues grew 26.9% year-on-year with the contribution of price adjustments to reflect inflationary impacts, upsell efforts, and a growing subscriber base.

– Corporate segment revenues rose 42.7% year-on-year, driven mainly by the strong momentum of digital business services, which grew 75.2% year-on-year with all-time high quarterly new contracts.

– Standalone digital services revenues, registered as part of the consumer and corporate segments, grew 15.3% year-on-year in Q122. The slower growth compared to previous quarters resulted from the negative impact of the regulatory decision that amended the usage conditions of our voicemail service, the revenues of which are reported under digital services. Excluding this impact, the growth would have been 36%.

– Wholesale revenues rose 71.3% year-on-year to TRY583 million (TRY340 million), mainly due to the positive impact of currency movements, as well as the traffic increase and capacity upgrades of customers.

Turkcell International revenues, constituting 13.3% of Group revenues, rose 101.4% year-on-year to TRY1,427 million (TRY708 million). lifecell was the main driver of this performance as the impact of the current situation on business remained limited in the first quarter. Currency movements also had a positive impact on Turkcell International revenues.

Techfin segment revenues, comprising 3.3% of Group revenues, rose 58.5% to TRY353 million (TRY223 million). The 67.2% rise in Paycell revenues and 50.0% growth of our financing business, Financell, were the drivers of this performance. Please refer to the Techfin section for details.

Other subsidiaries’ revenues, at 9.0% of Group revenues, mainly including consumer electronics sales, call center revenues and revenues from energy business, increased 5.3% to TRY966 million (TRY917 million). The decline in equipment revenues was more than compensated for by the increase in call center and energy business revenues.

Cost of revenue (excluding depreciation and amortization) increased to 51.4% (50.0%) year-on-year as a percentage of revenues in Q122. This was due mainly to the rise in radio expenses (2.2pp), mostly related to increasing energy prices, employee expenses (0.8pp), and other cost items (1.1pp) despite the decline in cost of goods sold (2.7pp) as a percentage of revenues.

Administrative Expenses rose to 2.8% (2.5%) year-on-year as a percentage of revenues in Q122. This was led by higher employee expenses (0.2pp) and other cost items (0.1pp) as a percentage of revenues.

Selling and Marketing Expenses increased to 5.1% (4.6%) year-on-year as a percentage of revenues in Q122. This was due mainly to the rise in employee expenses (0.3pp), selling expenses (0.1pp), and other expenses (0.1pp) as a percentage of revenues.

Net impairment losses on financial and contract assets was at 0.5% (0.6%) as a percentage of revenues in Q122.

EBITDA¹rose by 30.1% year-on-year in Q122 leading to an EBITDA margin of 40.2% (42.2%).

– Turkcell Turkey’s EBITDA rose 20.3% year-on-year to TRY3,286 million (TRY2,731 million), leading to an EBITDA margin of 41.3% (45.7%). Rising energy prices and higher employee expenses pressured the profitability of this segment.

– Turkcell International EBITDA increased 107.3% year-on-year to TRY714 million (TRY345 million), driving an EBITDA margin of 50.1% (48.6%) on a 1.5pp improvement.

– Techfin segment EBITDA rose 31.8% year-on-year to TRY182 million (TRY138 million) with an EBITDA margin of 51.5% (62.0%). The lower EBITDA margin was due mainly to the higher funding costs of Financell, and the changing revenue mix and higher marketing expenses of Paycell.

– The EBITDA of other subsidiaries was at TRY121 million (TRY93 million).

Depreciation and amortization expenses increased 25.9% year-on-year in Q122.

Net finance expense increased to TRY1,259 million (TRY207 million) year-on-year in Q122. The decline in swap rates in the first quarter, which negatively impacted fair valuation of our short-term derivative instruments, and further depreciation of the TRY resulted in higher FX losses. Lower interest income on time deposits and a higher interest expense on borrowings also led to a higher net finance expense.

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

Income tax expense declined to TRY146 million (TRY344 million) in Q122. This was driven by a deferred tax income of TRY11 million registered in Q122 compared to a deferred tax expense of TRY181 million reported in Q121.

Net income of the Group was TR803 million (TRY1,105 million) in Q122. Despite the strong operational performance, the decline in net income resulted mainly from higher net finance expense incurred in the quarter.

(1) EBITDA is a non-GAAP financial measure. See page 15 for the explanation of how we calculate adjusted EBITDA and its reconciliation to net income

Total cash & debt: Consolidated cash as of March 31, 2022, increased to TRY18,804 million from TRY18,629 million as of December 31, 2021. Our cash position was positively impacted by currency movements during the quarter. However, we switched around US$50 million of our hard currency cash to FX Protected TL Time Deposits, which is reported under the “Financial assets at fair value through other comprehensive income” item on our balance sheet. Excluding FX swap transactions, 76% of our cash is in US$, 12% in EUR, and 10% in TRY.

Consolidated debt as of March 31, 2022, increased to TRY40,855 million from TRY36,778 million as of December 31, 2021, due mainly to the impact of currency movements. TRY2,984 million of our consolidated debt is comprised of lease obligations. Please note that 49% of our consolidated debt is in US$, 26% in EUR, 3% in CNY, 7% in UAH, and 14% in TRY.

Net debt¹ as of March 31, 2022, was at TRY19,449 million with a net debt to EBITDA ratio of 1.2 times. Excluding finance company customer loans, our telco only net debt was at TRY17,100 million with a leverage of 1.1 times.

Turkcell Group had a short FX position of US$204 million as at the end of the first quarter (Please note that this figure takes hedging portfolio and advance payments into account). The short FX position of US$204 million is broadly in line with our FX neutral definition, which is between -US$200 million and +US$200 million.

Capital expenditures: Capital expenditures, including non-operational items, amounted to TRY2,918 million in Q122.

For Q122, operational capital expenditures (excluding license fees) at the Group level were at 17.

Contacts

For further information please contact Turkcell

ALI SERDAR YAGCI, Head of Investor Relations & Corporate Finance

[email protected]

Corporate Communications:

EBRU FILIZFIDANOGLU, Corporate Communications Manager

+90533210933

Investor Relations
Tel: + 90 212 313 1888

[email protected]

Corporate Communications:
Tel: + 90 212 313 2321

[email protected]

Read full story here