Turkcell Iletisim Hizmetleri: First Quarter 2020 Results

Dienstag, 28.04.20 20:35
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ISTANBUL –

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 March 31, 2020 refer to the same item as at March 31, 2019. For further details, please refer to our consolidated financial statements and notes as at and for March 31, 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 first and fourth quarters of 2019 and the first quarter of 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

Q119

Q419

Q120

y/y%

q/q%

Revenue

5,675

6,684

6,658

17.3%

(0.4%)

EBITDA1

2,281

2,754

2,809

23.1%

2.0%

EBITDA Margin (%)

40.2%

41.2%

42.2%

2.0pp

1.0pp

EBIT2

1,103

1,349

1,437

30.3%

6.5%

EBIT Margin (%)

19.4%

20.2%

21.6%

2.2pp

1.4pp

Net Income

1,224

756

873

(28.7%)

15.5%

Net Income excluding Fintur transaction gain

452

756

873

93.1%

15.5%

FIRST QUARTER HIGHLIGHTS

  • Strong start to the year on sound financial performance:
    • Revenues up 17% year-on-year on the back of the solid ARPU performance of Turkcell Turkey
    • EBITDA up 23% year-on-year leading to an EBITDA margin of 42.2% on 2.0pp improvement
    • EBIT up 30% year-on-year resulting in an EBIT margin of 21.6% on 2.2pp improvement
    • Strong bottom line performance sustained on robust operations and prudent financial risk management; net income up 93% year-on-year excluding Fintur transaction gain of TRY772 million registered in Q119
    • Strong balance sheet: leverage down to 0.9x, despite FX volatility; US$1.4 billion equivalent of cash on hand; long FX position of US$114 million
  • Robust operational performance:
    • Turkcell Turkey subscriber base up by 614 thousand quarterly net additions, reflecting our commitment to the target of 1 million net subscriber additions per year over the next three years
    • Strong postpaid subscriber quarterly net additions of 679 thousand, best first quarter performance of the past 20 years; postpaid subscriber share at 63%
    • Solid mobile ARPU3 growth of 21.5% year-on-year on larger postpaid subscriber base and upsell efforts
    • Double-digit residential fiber ARPU growth of 13.4% year-on-year
    • Superbox4 subscribers at 400 thousand on 76 thousand quarterly net additions
  • Limited 2-week impact of COVID-19 pandemic on Q120 performance:
    • Rising demand for telco services driven by remote working and education as well as increased communication, and entertainment needs
    • Downside risks on roaming revenues, prepaid top-ups, handset sales, consumer finance business revenues, and enterprise segment revenues due to limited mobility and economic slowdown
  • 2020 guidance5 is revised; still targeting a double-digit growth and stable margins. Revenue growth target of 10%-12%, EBITDA margin target of 40%-42%, EBIT margin target of 19%-21% and operational capex over sales ratio6 target of 17%-19% based on an assumption of COVID-19 impact to continue in Q220 with a gradual recovery thereafter.

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

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

(3) Excluding M2M

(4) Superbox subscribers are included in mobile subscribers.

(5) 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.

(6) Excluding license fee

For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2020 which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY MURAT ERKAN, CEO

We have an important message: “Life’s at home!”

We concluded the first quarter of 2020, having weathered numerous challenges. Just as we felt deep sorrow in the wake of earthquakes and other natural disasters in Turkey, we have begun to feel the consequences of the global COVID-19 pandemic. Right after the first case was identified in Turkey, we witnessed a series of economic and social preventive measures taken swiftly by related governmental bodies, and spearheaded by the Ministry of Health.

We are going through a period in which the vital importance of the telecom sector is being recognized through experience. As Turkcell, we reap the fruits of having consistently invested in our infrastructure over many years, having pioneered the digitalization of the sector. Emboldened by confidence in our infrastructure, we have deployed the resulting strengths to realize our current priority of supporting our country and people as we, as a nation, unite against the pandemic. Accordingly, we have provided additional data packages and benefits free of charge to subscribers who are health workers displaying amazing self-sacrifice, as well as the elderly (aged above 65) and students. Moreover, we have launched several campaigns with the caption #life’sathome in our digital services such as BiP, fizy, TV+, lifebox and Dergilik to entertain our subscribers and help them to be more productive during their time at home. Simultaneously, we have temporarily closed 167 exclusive stores, the majority of which are located at shopping malls, and also taken hygiene measures at, and limited the working hours of our remaining 1,148 exclusive stores. Meanwhile, we have been encouraging our subscribers to use our online platforms, confident in their operational readiness, having already prioritized increased online sales as part of our strategy.

We have taken all necessary measures for our employees’ health

With full confidence in our ICT infrastructure, over 5,000 Turkcell employees have been working from home since March 13th. We believe this to be the largest home office model in Turkey. Additionally, over 10,000 call center agents at our subsidiary Turkcell Global Bilgi are equipped with the technical tools and infrastructure required to continue serving from home. This transition has resulted in one of the fastest operations worldwide.

We have announced strong results and reviewed our targets

We have made a strong start to the year with the results of the first quarter, the last 15 days of which were impacted by the pandemic. Turkcell Group’s consolidated revenues increased by 17.3% year-on-year to TRY6.7 billion. Consolidated EBITDA1 was at TRY2.8 billion, resulting in an EBITDA margin of 42.2%. Net income was at TRY873 million, with an annual rise of 93% excluding the Fintur transaction gain in the first quarter of last year. Despite these strong results, which are also in line with the guidance we announced earlier this year, we have had to revisit our guidance for the year 2020 given the challenging and uncertain period we are currently in. We observe an increase in data usage with a heightened need for communication and connection among both individuals and the business world, as well as greater demand for our digital services and solutions. And yet, travel restrictions and limited mobility are expected to negatively impact several of our revenue lines, particularly roaming, corporate and consumer finance for smart devices. In the assumption that this challenging period will continue throughout the second quarter with a gradual normalization thereafter, we expect2 revenue growth of 10% - 12%, an EBITDA margin range of 40% - 42%, an EBIT3 margin of 19% - 21% and operational capex4 to revenue ratio of 17% - 19% in 2020. This notwithstanding, we aim to sustain double-digit topline growth throughout this critical period, also confident in our ability to monetize our quality and dependable service in the upcoming periods, not least in light of the accelerated digitalization that circumstances have resulted in, all to the benefit of our stakeholders.

We continued to strengthen our postpaid subscriber base with an additional 679 thousand net additions

We have given our best first quarter performance of the past 20 years by adding 679 thousand net postpaid subscribers, the number of which reached 21 million, rising to 63% of the total base. Mobile blended ARPU5 rose 21.5% to TRY46.3 on a higher postpaid subscriber base and with upsell to higher tariffs.

The demand for Superbox6, our pioneer product in Turkey that provides fiber-like speed over the mobile network, has accelerated amid heightened demand for fast home internet. We registered 76 thousand net Superbox subscribers, reaching 400 thousand in total. In addition, our fixed broadband subscribers increased to 2.3 million. We registered 34 thousand net fiber subscriber additions during this quarter. Residential fiber ARPU rose 13.4% year-on-year to TRY71.2 in this quarter.

Having increased our total subscriber base by 614 thousand, we have shown that we are on track with our subscriber net additions target of 1 million per year.

Our digital services are expanding with innovative features

Digital services revenues on a stand-alone basis grew by 29% year-on-year on the back of increased subscription, inflationary pricing, and corporate customers. We support our customers who choose to stay at home during this period with our digital services enriched with various campaigns and attractive features. Video calls over BiP doubled in the last week of March compared to the last week of February, while TV+ sessions have lengthened; data usage has doubled. With Dergilik, where we have introduced AI-based vocalization, the number of articles read rose 75% for the same period. Also this quarter, we launched Turkcell Digital Security, a service that secures the internet experience of those individuals concerned about personal data theft and fraud.

Those who chose Turkcell have managed their business remotely

The revenues of Digital Business Solutions, which offers services for the digital transformation of both private and public sector companies, grew yearly by 42% this quarter. Our main focus has been to deliver seamless service to our customers with our strong infrastructure and advanced services and solutions. While doing so, we have also secured nearly 700 new projects during the quarter. Around 1,600 companies already use our data center services, and we trust that demand for our cloud and data security solutions will accelerate with the rising popularity of remote-working and education. Also this quarter, Ikitelli City Hospital was inaugurated earlier than scheduled, becoming the sixth hospital to use the Turkcell Hospital Information Management System.

March saw a record high transaction volume for Paycell

Our innovative techfin payment platform, Paycell, registered its all-time-high transaction volume growth of 146% in March on a yearly basis. The limitations on mobility and concurrent increase in digital content consumption was instrumental in this rise. This quarter, Istanbul Kart application users were introduced to the top-up through Paycell option, further enriching the Paycell service offering. Going forward, we expect the demand for Paycell to increase as user habits change to meet the new necessities of the time.

Our strong balance sheet and liquidity position emerged as our key strengths

Our TRY9.2 billion cash in hand, most of which is in foreign currency, and a manageable level of indebtedness have stood out as our key strengths in this fragile macroeconomic environment impacted by the pandemic. Thanks to these, and in line with our long-term financing strategy, we prepaid the last two principal payments of our club loan amounting to EUR148.4 million and US$166.7 million six months in advance. By doing so, we increased the average loan maturity at Turkcell İletişim to 5 years. Turkcell Group has a 0.9x Net Debt/EBITDA ratio, thus below the sector average.

Together, we will beat this pandemic that has altered the flow of history

I consider the COVID-19 pandemic to be a turning point in everyone’s lives, and one that has brought about different experiences. Indeed, history, from now on, will be defined as “before and after COVID-19”. I am confident that we will surmount these challenging days in a spirit of unity and support for each other. As Turkcell, we will continue to support the entire ecosystem. Meanwhile, I would like to express my gratitude to all those who work tirelessly while putting their lives at risk, in particular our healthcare workers.

This hectic period has enabled us to understand that the telecoms sector is a key component of all others. Digitalization has become inevitable on a comprehensive scale. Once this period is over, I believe we will enter a new era in which corporates swiftly transform their infrastructure and consumers use mobile internet and digital services more than ever. As Turkcell, with our robust infrastructure and innovative services, we are ready to stand by our customers in that new era.

We thank all our colleagues for the part they have played in our success, along with our Board of Directors for their unyielding trust and support. We also express gratitude to our customers and business partners, who have remained with us throughout our success story.

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

(2) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 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) Superbox subscribers are included in mobile subscribers

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

Profit & Loss Statement (million TRY)

Q119

Q419

Q120

y/y%

q/q%

Revenue

5,675.4

6,683.8

6,658.2

17.3%

(0.4%)

Cost of revenue1

(2,730.2)

(3,206.3)

(3,197.4)

17.1%

(0.3%)

Cost of revenue1/Revenue

(48.1%)

(48.0%)

(48.0%)

0.1pp

-

Gross Margin1

51.9%

52.0%

52.0%

0.1pp

-

Administrative expenses

(190.6)

(217.4)

(188.3)

(1.2%)

(13.4%)

Administrative expenses/Revenue

(3.4%)

(3.3%)

(2.8%)

0.6pp

0.5pp

Selling and marketing expenses

(403.2)

(384.9)

(348.7)

(13.5%)

(9.4%)

Selling and marketing expenses/Revenue

(7.1%)

(5.8%)

(5.2%)

1.9pp

0.6pp

Net impairment losses on financial and contract assets

(70.3)

(121.3)

(114.8)

63.3%

(5.4%)

EBITDA2

2,281.1

2,753.8

2,809.0

23.1%

2.0%

EBITDA Margin

40.2%

41.2%

42.2%

2.0pp

1.0pp

Depreciation and amortization

(1,178.1)

(1,404.9)

(1,372.1)

16.5%

(2.3%)

EBIT3

1,103.0

1,348.9

1,437.0

30.3%

6.5%

EBIT Margin

19.4%

20.2%

21.6%

2.2pp

1.4pp

Net finance income / (costs)

(420.4)

(214.3)

(221.4)

(47.3%)

3.3%

Finance income4

535.1

44.9

621.5

16.1%

n.m

Finance costs4

(955.5)

(259.2)

(842.9)

(11.8%)

225.2%

Other income / (expense)

(51.8)

(128.2)

(94.0)

81.5%

(26.7%)

Non-controlling interests

(19.8)

2.0

(1.2)

(93.9%)

(160.0%)

Share of profit of equity accounted investees

0.8

(19.1)

(3.2)

(500.0%)

(83.2%)

Income tax expense

(159.8)

(233.7)

(244.4)

52.9%

4.6%

Discontinued operations

772.4

-

-

n.a

n.a

Net Income

1,224.5

755.6

872.7

(28.7%)

15.5%

(1) Excluding depreciation and amortization expenses.

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

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

(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 17.3% year-on-year in Q120. This resulted from the strong ARPU performance of Turkcell Turkey with a growing postpaid customer base, and continued upsell efforts supported by higher data consumption, as well as digital services usage.

Turkcell Turkey revenues, comprising 86% of Group revenues, rose 18.7% to TRY5,738 million (TRY4,833 million).

- Consumer segment revenues grew 16.2% on the back of rising postpaid subscriber share, increased data consumption and upsell efforts.

- Corporate segment revenues rose 28.8% driven mainly by the strong momentum of digital business solutions, which grew 42% year-on-year.

- Wholesale revenues rose 19.9% to TRY279 million (TRY233 million), mainly on increased international carrier traffic and the positive impact of currency movements.

Turkcell International revenues, comprising 8% of Group revenues, rose 31.7% to TRY560 million (TRY425 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 TRY360 million (TRY417 million).

- Our consumer finance company’s revenues were at TRY163 million (TRY242 million) in Q120. Revenues were impacted by contraction in the consumer loan portfolio, which declined from TRY3.6 billion as of Q119 to TRY2.1 billion as of Q120, due mainly to the installment limitation on consumer loans for telecom devices.

- 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 21% year-on-year in Q120.

Standalone digital services revenues grew 29% year-on-year in Q120 on the back of increasing number of standalone users and price adjustments.

Cost of revenue (excluding depreciation and amortization) declined to 48.0% (48.1%) as a percentage of revenues in Q120. The increase in radio expense (0.6pp) and cost of goods sold (0.4pp) was more than offset by the decline in cost of revenue of financial services (1.0pp) and other cost items (0.1pp) as a percentage of revenues.

Administrative Expenses decreased to 2.8% (3.4%) as a percentage of revenues in Q120, driven mainly by effective cost management measures.

Selling and Marketing Expenses decreased to 5.2% (7.1%) as a percentage of revenues in Q120. This was driven by the decline in selling expenses (0.9pp), marketing expenses (0.6pp), and other cost items (0.4pp) as a percentage of revenues.

Net impairment losses on financial and contract assets was at 1.7% (1.2%) as a percentage of revenues in Q120.

EBITDA1 rose by 23.1% year-on-year in Q120 leading to an EBITDA margin of 42.2% (40.2%), driven mainly by strong topline growth and disciplined cost controls.

- Turkcell Turkey’s EBITDA rose 26.9% year-on-year to TRY2,424 million (TRY1,910 million) leading to an EBITDA margin of 42.2% (39.5%) in Q120.

- Turkcell International EBITDA2 rose 29.0% year-on-year to TRY250 million (TRY194 million) with an EBITDA margin of 44.6% (45.6%) in Q120.

- The EBITDA of other subsidiaries stood at TRY135 million (TRY178 million) in Q120.

Depreciation and amortization expenses increased 16.5% year-on-year in Q120.

Net finance expense decreased to TRY221 million (TRY420 million) in Q120. This was due mainly to improving net FX impact registered after hedging in Q120, and lower interest expense on financial assets and liabilities, despite the lower interest income on time deposits. Excluding the impact of swap interest expense, we registered a TRY21 million FX gain in Q120.

Please note that the Group started to apply hedge accounting as of July 1, 2018 for existing participating cross currency swap and cross currency swap transactions, in accordance with the IFRS 9 hedge accounting requirement. Please see the IFRS report for details.

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

Income tax expense increased to TRY244 million (TRY160 million) in Q120, due mainly to a deferred tax expense incurred in Q120.

Net income of the Group was at TRY873 million (TRY1,224 million) in Q120. Excluding the Fintur transaction gain of TRY772 million recorded in Q119, net income rose 93% year-on-year in Q120. This was driven mainly by strong operating performance on the back of strong topline growth and effective cost management, as well as prudent financial risk management. Please also note that our net income was impacted by the TRY46 million payment we performed in relation to administrative fine imposed by the Competition Board. You may refer to our IFRS report for the details of the dispute with the Competition Board.

Total cash & debt: Consolidated cash as of March 31, 2020 had declined to TRY9,212 million from TRY10,239 million as of December 31, 2019, due mainly to debt repayments. Excluding FX swap transactions for TRY borrowing, 88% of our cash is in US$, 5% in EUR, and 7% in TRY.

Consolidated debt as of March 31, 2020 decreased to TRY19,500 million from TRY20,306 million as of December 31, 2019 on the back of debt repayments, despite the negative impact of currency movements. Please note that TRY1,482 million of our consolidated debt is comprised of lease obligations.

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

(2) We started to capitalize the frequency usage fees of BeST in Q219 in accordance with IFRS16. This change positively impacted Turkcell International EBITDA.

Consolidated debt breakdown excluding lease obligations:

- Turkcell Turkey’s debt was at TRY15,593 million, of which TRY8,946 million (US$1,373 million) was denominated in US$, TRY5,201 million (EUR721 million) in EUR, TRY220 million (CNY241 million) in CNY, and the remaining TRY1,226 million in TRY.

- Our consumer finance company had a debt balance of TRY1,494 million, of which TRY1,254 million (US$192 million) was denominated in US$, and TRY87 million (EUR12 million) in EUR with the remaining TRY154 million in TRY.

- The debt balance of lifecell was TRY929 million, fully denominated in UAH.

TRY766 million of lease obligations is denominated in TRY, TRY16 million (US$2 million) in US$, TRY152 million (EUR21 million) in EUR, and the remaining balance in other local currencies (please note that the figures in parentheses refer to US$ or EUR equivalents).

Net debt as of March 31, 2020 was at TRY10,288 million with a net debt to EBITDA ratio of 0.94 times. Excluding consumer finance company consumer loans, our telco only net debt was at TRY8,213 million with a leverage of 0.79 times.

Turkcell Group has a long FX position of US$114 million as per IFRS financial statements as of March 31, 2020.

Capital expenditures: Capital expenditures, including non-operational items, amounted to TRY1,560 million in Q120. In the same period operational capital expenditures (excluding license fees) at the Group level were at 12.6% of total revenues.

Capital expenditures (million TRY)

Q119

Q419

Q120

Operational Capex

883.6

1,696.0

836.7

License and Related Costs

0.7

0.1

28.1

Non-operational Capex (Including IFRS15 & IFRS16)

468.4

749.2

695.2

Total Capex

1,352.6

2,445.4

1,560.0

Operational Review of Turkcell Turkey

Summary of Operational Data

Q119

Q419

Q120

y/y %

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