BusinessWire

Turkcell Iletisim Hizmetleri: Second Quarter 2020 Results

“Solid Performance Under the Covid-19 Headwind”

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 June 30, 2020 refer to the same item as at June 30, 2019. For further details, please refer to our consolidated financial statements and notes as at and for June 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 second quarter and half year 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

Q219

Q220

y/y%

H119

H120

y/y%

Revenue

6,191

6,924

11.8%

11,866

13,582

14.5%

EBITDA1

2,553

2,824

10.6%

4,834

5,633

16.5%

EBITDA Margin (%)

41.2%

40.8%

(0.4pp)

40.7%

41.5%

0.8pp

EBIT2

1,287

1,373

6.7%

2,390

2,810

17.6%

EBIT Margin (%)

20.8%

19.8%

(1.0pp)

20.1%

20.7%

0.6pp

Net Income

465

852

83.1%

1,690

1,724

2.1%

SECOND QUARTER HIGHLIGHTS

  • Solid financial performance despite Covid-19 pandemic:
    • Group revenues up 12% with Turkcell Turkey’s topline growing 14% on the back of strong ARPU performance despite 2.6pp decline in roaming revenues
    • Standalone digital revenues up by 23%; Digital business solutions revenues up 15%
    • Strong free cash flow3 generation of TRY1.3 billion
    • Net income up 83% year-on-year on the back of solid operational performance and disciplined financial risk management
    • Leverage down to 0.8x despite FX fluctuations; long FX position at US$50 million
  • Robust operational performance:
    • Turkcell Turkey subscriber base up by 181 thousand quarterly net additions
    • 144 thousand quarterly mobile postpaid net additions; postpaid subscriber share at 63%
    • Mobile ARPU4 growth of 14.0% year-on-year on higher postpaid share and increased data usage
    • Data usage of 4.5G users at 13.9 GB in Q220
    • Residential fiber ARPU growth of 9.1% year-on-year
    • Superbox5 subscribers at 491 thousand on 91 thousand quarterly net additions
    • Digital channels’ share at Turkcell Turkey consumer sales (excluding fixed business) at 11%
  • 2020 guidance6 reiterated; revenue growth of 10%-12%, EBITDA margin target of 40%-42%, EBIT margin target of 19%-21% and operational capex over sales ratio7 target of 17%-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 2020 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 June 30, 2020 which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY MURAT ERKAN, CEO

The second quarter of 2020 was the period in which the impact of the COVID-19 pandemic was felt the most worldwide. During this period, the key role of the telecom sector in our lives and in the economic system were once again highlighted. As Turkcell, we were ready to fully meet the technology and communication needs of our customers with our digital services, communication solutions and strong network, in line with our strategic focus areas.

Let us recall this period briefly: Through the agile actions we took for our employees and customers, we quickly adapted to changing conditions. With our dynamic organizational structure and effective crisis management, we commenced remote working on the first day of the outbreak, prioritizing the health of our employees, the very heart of Turkcell. Global Bilgi, our subsidiary which provides call center services employing over 10 thousand people, was also included in the remote working program. As part of the measures taken, we temporarily closed some of our stores and limited the working hours of those remaining open. While aiming to meet all the communication needs of our customers from a single point, our strong network, in which we have invested TRY31 billion over the past five years, has been our main pillar. In a period when telecom operators around the world requested internet broadcasters to restrict service or lower video resolution as a solution to the intensive use of the network, we successfully managed the traffic increase, approaching 50%, with our strong infrastructure. With the support packages we offered to healthcare professionals and our customers aged 65 and over, who needed communication the most, and children who continued distance education, we were there for them in difficult times. In order to enhance the experience of our fiber subscribers in remote working and remote education, we increased the upload speeds up to four times and the lowest download speed to 50 Mbps. We provided additional benefits in our services such as BiP, Dergilik, fizy and TV +, which are a part of our rich portfolio of digital services, specific to this period under our #lifesathome motto. Turkcell customers aged 65 and over, who stayed at home, could make a call to Paycell's call center and order basic food and cleaning agents and pay through their bills. As part of our social responsibility projects, we provided new 3D printers to the Whiz Kids Laboratories opened with our support, and children could produce face shields for healthcare workers. Last but not least, in this period, we disclosed the impact of changing conditions on our business and our expectations with all our stakeholders in a transparent and timely manner.

In this period, transactions and purchases made through the Digital Operator app and our website, both of which have been in our focus area with their strengthened infrastructure in recent years, have reached record levels. In April, when curfews were imposed intensively, the number of visitors to the digital channels reached 38 million, while the number of online orders increased 5x. As of the second quarter, our online sales increased by 2.7x compared to the same period of the previous year and 11% of Turkcell Turkey consumer revenues (excluding fixed business) were realized through digital channels.

As of June 1, we embarked upon a new era as a nation. While maintaining precautions against the epidemic, steps towards a return to normal life were taken with the removal of travel bans, partially resumed flights and the opening of workplaces. In the new period, we expect to observe a higher demand for remote working, remote education, remote healthcare services, new generation customers keeping up with digital life and the ecosystem, e-commerce and contactless payment systems from both consumers and corporates. In this context, we are working on our business plan to meet needs with our digital service portfolio, digital business solutions and our tech-fin services and solutions. As Turkcell, Turkey's leading telecommunication company, we owe our readiness for this period with our products and services portfolio to our strategic foresight, the ability to accurately identify industry and customer needs, and our dynamic and timely actions.

We strengthened our customer base, despite the tough conditions of the COVID-19 outbreak

Although the constraints that came with the COVID-19 outbreak affected customer acquisitions in the mobile business, we acquired a net 144 thousand postpaid customers this quarter. The share of postpaid customers in our mobile base stands at 63%. Mobile blended ARPU1 increased 14.0% year-on-year to TRY46.4 on the back of rising data and digital service usage and upsell to higher tariffs.

In this period during which we spent more time at home, we acquired a net 36 thousand fiber and 7 thousand ADSL customers. Our total fixed broadband customer base was 2.3 million. In addition, Superbox, our product providing uninterrupted fiber-speed broadband service over our mobile network, has increased its penetration on the back of accelerated demand. While we have reached 491 thousand subscribers with a net 91 thousand new additions in this quarter, we are excited to have scaled half a million subscribers in July.

We have announced strong results; guidance maintained

In the second quarter of 2020, when the restrictions of the pandemic impacted our business and the ecosystem the most, we achieved strong results with our robust business model and prudent financial risk management discipline. On a consolidated basis, our revenue increased 11.8% year on year to TRY6.9 billion. Ultimately, we posted 14.5% growth in the first half of the year. EBITDA2 was at TRY2.8 billion with an increase of 10.6%, and an EBITDA margin of 40.8%. Thanks to effective cost management and declining financing expenses, net profit reached TRY852 million on an 83.1% rise year on year. Excluding the Fintur transaction gain in the first quarter of 2019, our first half profit rose 88.0%. In our first quarter results announcement, we revised our 2020 guidance by evaluating the possible risks of the pandemic under difficult and uncertain conditions. For the second half of the year, we anticipate international travel and tourism coming to a standstill, which will affect our roaming revenues. In spite of this, considering our growth in the first half of the year, we maintain the targets3 announced earlier for 2020, and expect revenue growth of 10%-12%, an EBITDA margin range of 40%-42%, an EBIT4 margin of 19%-21% and an operational capex to revenue ratio5 of 17%-19%.

We are there for our customers in this period with our three strategic focus areas

The standalone revenues of our digital services, one of the three main strategic focus areas, have increased by 23% year-on-year in this quarter. As a solution to the rising demand for video calls during the pandemic period, we introduced the Beta version of our BiP Conference product. We successfully used it at the United Nations Global Compact meeting. As part of our cooperation with the Ministry of Health, we have created a BiP channel where current COVID-19 information, measures and content are shared. Starting in March, 2 million students followed EBA TV (education channel) via TV+ with a 6GB gift for those studying at home. Further, we have begun to offer our YaaniMail e-mail service, another service developed by Turkish engineers, and one that will provide our corporate customers uninterrupted 24/7 service through our data centers. In line with our strategy of selling our digital services to operators abroad, we signed an agreement with Digicel, which provides services in the Caribbean islands, for our BiP and lifebox. These services are in use in the Caribbean market as of July 1.

In digital business solutions, another strategic focus area, we have recorded a 15% year-on-year revenue increase this quarter. Through our Digital Business Services company, we offer end-to-end solutions to businesses keen to provide safe and healthy services in the new era. In this context, we contribute to the reduction of risk with our smart solutions such as thermal camera systems, air quality and social distance measurement, and in-store customer count, developed with our technology know-how, while we also offer special consultancy and services to companies on cyber security, which is more prominently on the agenda in the time of remote working. Meanwhile, during this period, we opened three additional hospitals, two of which were field hospitals. We will strengthen our market leadership in this sector with Tekirdağ Hospital, scheduled to be opened in the upcoming period. Also, in this period, we have prepared ourselves for the forthcoming busy period by strengthening our collaborations with global suppliers such as SAP, HP, Cisco and Microsoft.

Our tech-fin business, our third strategic focus, has accelerated with the increasing use of contactless and online payment solutions. With the digitalization of payment habits, our new generation payment platform, Paycell, came to the forefront with its user-friendly and secure payment infrastructure. Digital content purchases through Paycell increased by 84% year-on-year to TRY215 million. The number of 3-month active subscribers using the Paycell application was 2.5x that of the same period of last year. Transaction volume over the Paycell card also grew by 71% compared to the same period of last year. Also, during this period, we have taken another important step in this field by enabling 24/7 money transfer service to an IBAN number at partner banks.

We continue to generate cash

As Turkcell Group, we have prioritized our financial risk management strategy during the pandemic period. We also strengthened our balance sheet in the second quarter, generating free cash flow6 of TRY1.3 billion, supported by strong liquidity and prudent finance management. By focusing on structural and sustainable changes in expense management, we reduced sales and marketing expenses, and kept our variable expenses under control. We closely monitored our collection risks specific to this period, and continued to manage the risk on our strong portfolio created with our effective credit scoring metrics with a focused approach. As of the end of June, the ratio of net debt to EBITDA had improved compared to previous year by 0.4 points to 0.8x. On the other hand, in order to eliminate foreign currency risk, and in addition to derivative transactions, we aim to protect ourselves against foreign currency fluctuations by increasing the trade volume in local currency in agreements with foreign suppliers. In this context, we initially agreed with Chinese suppliers to make future contracts in China's local currency, the Yuan.

We keep pace with change and trust our team and customers.

In 2020, in which we mark the 20th anniversary of Turkcell’s dual initial public offering on the Istanbul and New York Stock Exchange, we are undergoing an unprecedented period of difficulty; one that began with natural disasters and continued with the COVID-19 outbreak. As Turkcell, we see this period as an important opportunity to gain further experience, taking courage from our competent management team, strong human resources, resilient business model, and innovative products and digital services that keep pace with the age. We expect to successfully overcome this adversity.

Last but not least, a new process for change in our shareholding structure has begun in June with the announcements made jointly by Turkey Wealth Fund, Telia Company, Cukurova Holding and LetterOne. I consider it important that Turkey Wealth Fund views Turkcell as a strategic asset, invests in the existing road map and transparently explains that it supports our current profit distribution policy, protecting minority shareholder rights. We will continue to follow related developments.

We would like to thank all our employees for their contribution to our success, and our Board of Directors for their unyielding trust and support. We also express our gratitude to our customers and business partners, who have remained with us throughout our success story.

(1) Excluding M2M
(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) 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 2020 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
(4) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.
(5) Excluding license fee
(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

 

 

Half Year

 

Q219

Q220

y/y%

H119

H120

y/y%

Revenue

6,191.1

6,923.9

11.8%

11,866.5

13,582.1

14.5%

Cost of revenue1

(3,018.5)

(3,498.6)

15.9%

(5,748.7)

(6,696.0)

16.5%

Cost of revenue1/Revenue

(48.8%)

(50.5%)

(1.7pp)

(48.4%)

(49.3%)

(0.9pp)

Gross Margin1

51.2%

49.5%

(1.7pp)

51.6%

50.7%

(0.9pp)

Administrative expenses

(184.9)

(166.4)

(10.0%)

(375.5)

(354.7)

(5.5%)

Administrative expenses/Revenue

(3.0%)

(2.4%)

0.6pp

(3.2%)

(2.6%)

0.6pp

Selling and marketing expenses

(413.4)

(327.9)

(20.7%)

(816.5)

(676.6)

(17.1%)

Selling and marketing expenses/Revenue

(6.7%)

(4.7%)

2.0pp

(6.9%)

(5.0%)

1.9pp

Net impairment losses on financial and contract assets

(21.4)

(106.8)

399.1%

(91.8)

(221.5)

141.3%

EBITDA2

2,552.8

2,824.3

10.6%

4,833.9

5,633.3

16.5%

EBITDA Margin

41.2%

40.8%

(0.4pp)

40.7%

41.5%

0.8pp

Depreciation and amortization

(1,265.8)

(1,451.5)

14.7%

(2,443.9)

(2,823.6)

15.5%

EBIT3

1,287.0

1,372.8

6.7%

2,390.0

2,809.8

17.6%

EBIT Margin

20.8%

19.8%

(1.0pp)

20.1%

20.7%

0.6pp

Net finance income / (costs)

(571.7)

(233.8)

(59.1%)

(992.1)

(455.2)

(54.1%)

Finance income4

(200.4)

506.2

n.m

334.7

1,127.7

236.9%

Finance costs4

(371.4)

(740.0)

99.2%

(1,326.8)

(1,582.9)

19.3%

Other income / (expense)

(73.8)

(51.1)

(30.8%)

(125.7)

(145.1)

15.4%

Non-controlling interests

(14.3)

(1.3)

(90.9%)

(34.1)

(2.5)

(92.7%)

Share of profit of equity accounted investees

1.0

(0.0)

(100.0%)

1.7

(3.3)

(294.1%)

Income tax expense

(163.0)

(234.9)

44.1%

(322.7)

(479.3)

48.5%

Discontinued operations

-

-

n.a

772.4

-

n.a

Net Income

465.2

851.7

83.1%

1,689.6

1,724.4

2.1%

(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 11.8% year-on-year in Q220. This resulted from Turkcell Turkey’s strong ARPU performance on the back of larger postpaid share, and higher data consumption, as well as upsell efforts.
Turkcell Turkey revenues, comprising 87% of Group revenues, rose 14.1% to TRY6,003 million (TRY5,261 million).

- Consumer segment revenues grew 15.3% on the back of rising postpaid subscriber share, increased data consumption and upsell efforts.
- Corporate segment revenues rose 14.1% with the continued momentum of digital business solutions, which grew 15% year-on-year.
- Wholesale revenues stood at TRY259 million (TRY287 million), due to lower roaming revenues impacted by limited mobility.

Roaming revenues declined to 0.9% of Turkcell Turkey revenues (Q219:3.5%), due to limited mobility.
Turkcell International revenues, comprising 8% of Group revenues, rose 17.5% to TRY578 million (TRY492 million), mainly with the contribution of our Ukrainian operations and the positive impact of currency movements.
Other subsidiaries' revenues, at 5% of Group revenues, which includes call center revenues, revenues from financial services and energy business revenues were at TRY343 million (TRY438 million).

- Consumer finance company’s revenues were at TRY132 million (TRY235 million) in Q220 impacted by the contraction in the consumer loan portfolio, which declined from TRY3.2 billion as of Q219 to TRY1.8 billion as of Q220. This was due mainly to the installment limitation on consumer loans for telecom devices and the impact of Covid-19 pandemic.
- Our contract with Spor Toto to carry out sports betting operations in Turkey ended as of August 28, 2019.

Excluding consumer finance business and sports betting operations, our consolidated revenue growth was 15% year-on-year in Q220.

Standalone digital services revenues grew 23% year-on-year in Q220 on the back of increasing number of standalone users.

Cost of revenue (excluding depreciation and amortization) increased to 50.5% (48.8%) as a percentage of revenues in Q220 driven mainly by the increase in cost of goods sold (0.7pp), radio expenses (0.5pp), transmission expenses (0.5pp) and other cost items (0.5pp), despite the decrease in cost of revenue of financial services (0.5pp).

Administrative Expenses decreased to 2.4% (3.0%) as a percentage of revenues in Q220, driven mainly by lower office overhead costs and travel expenses.

Selling and Marketing Expenses decreased to 4.7% (6.7%) as a percentage of revenues in Q220. This was driven by the decline in selling expenses (1.0pp), marketing expenses (0.6pp) with more targeted but lower number of events and other cost items (0.4pp) as a percentage of revenues.

Net impairment losses on financial and contract assets was at 1.5% (0.3%) as a percentage of revenues in Q220.

EBITDA1 rose by 10.6% year-on-year in Q220 leading to an EBITDA margin of 40.


Contacts

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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