Turkcell Iletisim Hizmetleri: Second Quarter 2021 Results

“STRONG PERFORMANCE PROMPTS 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 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 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 June 30, 2021 refer to the same item as at June 30, 2020. For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2021, 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 2020 and 2021 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

SECOND QUARTER HIGHLIGHTS

• Robust financial performance despite the impact of the pandemic:
  • Group revenues up 23.5% with Turkcell Turkey’s strong ARPU and subscriber net add performance, international operations contribution and higher equipment revenues backed by digital channels
  • EBITDA up 22.7% year-on-year leading to an EBITDA margin of 40.5%; EBIT up 25.5% year-on-year resulting in an EBIT margin of 20.2%
  • Net income up 30.6% year-on-year
  • Leverage at 0.9x, despite FX fluctuations; long FX position at US$146 million

• Strong operational momentum continued:
  • Turkcell Turkey subscriber base up by 617 thousand quarterly net additions, highest Q2 net addition performance since Q217; 1.3 million total net additions in the first half of 2021
  • 501 thousand quarterly mobile postpaid net additions; postpaid subscriber base share at 66.2%
  • 28 thousand quarterly prepaid subscriber net additions
  • Mobile ARPU³ growth of 13.7%; fixed residential ARPU growth of 13.2% year-on-year
  • Data usage of 4.5G users at 15.1 GB in Q221
  • The average monthly mobile churn rate was at 1.7% in Q221, the lowest since Q118
  • The average monthly fixed churn rate was at 1.3% in Q221, the lowest since Q212
  • Digital channels’ share in Turkcell Turkey consumer sales (excluding fixed business) at 17.5%; up 6.5pp year-on-year

• We revise our 2021 guidance⁴. Accordingly, we target revenue growth of ~18%, EBITDA of ~TRY14.3 billion and an operational capex over sales ratio⁵ of 21% – 22%.

<sup>(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) Excluding M2M

(4) 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.

(5) Excluding license fee</sup>

For further details, please refer to our consolidated financial statements and notes as at June 30, 2021 via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY CEO, MURAT ERKAN

We have accelerated growth thanks to our successful business model and customer centric approach, and revised up our guidance

We have accelerated our strong growth performance and achieved successful financial and operational results in the second quarter of 2021. Despite the COVID-19 related restrictions during the quarter, our diversified business model with our digital services, our customer-centric approach and our value offerings supported by the entire Turkcell ecosystem have played a significant role in our success.

In this period, our consolidated revenues reached TRY8.5 billion on an annual increase of 23.5% compared to the second quarter of the previous year. We achieved annual growth of 20.6% in the first half of the year. Our growth performance was driven mainly by the increased ARPU and subscriber performance of Turkcell Turkey, and the rising contribution of our Turkcell International business due to our successful performance in Ukraine. Consolidated EBITDA¹ was TRY3.5 billion indicating an increase of 22.7%. Our net profit grew by 30.6% to TRY1.1 billion.

Considering our financial performance and our expectations for the second half of the year, we revise our 2021 guidance² upwards. Accordingly, we increase our revenue growth guidance to around 18% and our EBITDA guidance to around TRY14.3 billion. Due to increased fiber investments and currency fluctuations, we target an operational capex over sales ratio³ of 21-22%.

We continue strong net subscriber additions together with our postpaid subscriber focus

Even though the increased pandemic related measures had a restrictive impact on subscriber mobility in second quarter, we effectively maintained our communication with our customers through our digital channel and maintained our focus on expanding our postpaid mobile subscriber base. The share of the digital channel in our consumer revenues (except our fixed business) rose to 17.5% with an increase of 6.5 point on an annual basis. In this quarter, we increased our postpaid customer base to 22.9 million gaining a net 501 thousand postpaid subscribers. Thus, the share of our postpaid subscriber base within the total mobile base was realized at 66%, 3 points above the second quarter of last year. Mobile blended ARPU (excluding M2M) has reached TRY52.3 on an annual 13.7% rise on the back of the expanding postpaid subscriber base, rising data usage, price adjustments and upsell to higher packages. Thanks to the offerings we created leveraging our analytical capabilities and with our customer-centric approach, we continued improving our customer retention performance. Additionally, as a result of lower subscriber mobility due to pandemic-related restrictions, the average monthly churn rate was realized at 1.7%, the lowest level of the past 3 years.

In the fixed broadband segment, demand remained strong under the prevailing pandemic restrictions. We achieved net 40 thousand fiber subscriber additions in this quarter with our high-speed internet offers that we provide over our fiber network, meeting the quality connection needs of our customers. Our fixed broadband customer base exceeded 2.5 million with our strong subscriber net additions during this quarter.

Thanks to our digital-centric strategy and strong business model, we obtained a net 617 thousand subscribers including TV+ in this period. Additionally, our total net subscriber additions reached 1.3 million in the first half of the year and total number of subscribers of Turkcell Turkey rose to 38.1 million.

Our digital services continue to add value to our customers’ lives

The stand-alone revenues of our digital services business, which includes major brands such as BiP, TV+, lifebox and fizy, reached TRY404 million on an annual increase of 32% in this quarter. BiP, our communication and life platform developed by Turkcell engineers, continued attracting attention not only in Turkey, but also in international markets. BiP’s total downloads exceeded 82 million while 3-month active users were at 26.4 million. We aim at making BiP an application used by an ever-wider audience through cooperation with international operators. Meanwhile, thanks to the rich content of our TV+ service, we gained a net 40 thousand IPTV subscribers during the quarter. Thus, we now offer our TV+ service to 62 out of every 100 fiber subscribers. Our cloud storage service lifebox, which stands out for its secure and smart technologies, has reached a new milestone by exceeding 1 million paid users. We have also taken an important step towards increasing the use of our services on the corporate front by launching our products BiP Meet, lifebox business and fizy business, which we will offer to our customers as part of our B2B business model.

We lead the digital transformation of companies with of our Digital Business Services

The total revenues of Digital Business Services through which we offer solutions for end-to-end digital transformation of our corporate customers grew by 22% on an annual basis to TRY618 million. We contributed to the digital transformation of our customers by signing 678 projects with a total contract value of approximately TRY170 million thanks to the diversified products and services we offer such as data center, cloud technologies, managed services, cyber-security, and internet of things. We have put into practice 1,792 system integration and managed services projects in total to date as of the end of the second quarter. We have a contract value (backlog) of TRY917 million to be realized beyond the second quarter of 2021. Thanks to our data centers that respond to our customers’ rapidly increasing need for data storage and cloud technologies, we hold the leading position in this segment. By offering customizable cloud services over turkcellbulut.com, we ensure that our customers manage their digital transformation processes more efficiently. In this quarter, we continued developing our product and service ecosystem which we offer to our customers by increasing the number of our global business partners to 24. In this quarter, we launched our cybersecurity products “Telco Anti Fraud” and, “Fortigate Firewall” which respond to the security needs of different sectors and “Turkcell RPA” which was developed for the automation of robotic processes.

Paycell stands out with its innovative services

As one of the most important initiatives in Turkey in field of techfin and an innovative payment platform offering an array of solutions to its customers, Paycell again delivered a remarkable performance in this quarter. The 3-month active users of Paycell, which pioneers the digitalization of payment methods, reached 5.5 million, while quarterly mobile payment volume increased to TRY418 million on an annual rise of 94%. The quarterly transaction volume of Paycell card, which enables our customers to experience Paycell on all POS devices in Turkey, quadrupled on an annual basis to TRY301 million. Paycell revenues increased by 78% on an annual basis thanks to our services which change the payment habits of our users, thereby increasing demand. I strongly believe that digital payment services will gradually become widespread thanks to the economic scale of our country, our young population, tech savviness, and supportive regulatory developments. Duly Paycell, supporting the strength of Turkcell Group, is set to sustain its strong momentum in the upcoming quarters.

TOGG continues taking firm steps

Aiming to start production by the end of 2022 at its facility in Gemlik, which is currently under construction, TOGG completed its first body assembly using exclusively domestically manufactured parts this quarter. TOGG was awarded in the “Professional Concept” category at the ‘iF Design Awards 2021’, thus becoming the first Turkish brand to be awarded in the field of mobility. Additionally, in this period, we increased our shareholding in TOGG from 19% to 23% following changes to the shareholding structure. I believe that TOGG, which has already achieved marked success in the field of mobility, will make invaluable contributions to Turkcell’s ecosystem over the coming years.

Make the world yours

Another development of this quarter has been the implementation of our corporate brand transformation as we initiated our communication strategy under the motto: “Make the world yours”. We position all our digital services and solutions as independent brands under the Turkcell umbrella brand within the framework of our strategy of making Turkcell a digital ecosystem brand, beyond being a telecommunication operator. In this period where consumer habits change swiftly, we emphasize the sheer range of digital services we offer to meet customer needs.

We make investments to achieve our sustainability targets

We continue taking significant steps towards our sustainability targets, which are a focal point of our business model. In line with our target of meeting our electricity consumption from renewables by 2030 and becoming a carbon neutral company by 2050, we have signed a share transfer agreement to acquire Boyut Grup Enerji, which owns İzmir Karadağ Wind Power Plant. We intend to complete the share transfer of Karadağ Wind Energy Power Plant, which has an 18 MW installed capacity and thereby the potential to meet the annual electricity need of approximately 22,500 houses, upon receipt of approval from the respective authorities and fulfillment of various conditions precedent.

As Turkcell Group, by keeping a human dimension and ethical values in the foreground, we have disclosed our Sustainable Governance Principles, which include human rights and environmental policies, aimed at contributing to economic, social and environmental sustainability. We are committed to compliance with the codes of conduct and respect for the environment in all our business processes in accordance with our principles comprising 15 articles that cover our relationship with our employees, customers, business associates, and all our stakeholders.

Granfondo, the world-renowned long-distance road bike race for amateur cyclists, has met with cycling lovers for the first time in Istanbul under the sponsorship of Turkcell. 1,000 amateur cyclists and sport fans participating in the race have contributed to the education scholarship created for the children of those healthcare professionals who succumbed to Covid-19 during the pandemic. Additionally, revenue generated from the recycling of waste electronic devices brought by sport fans to the race area was also added to this education scholarship.

As Turkey’s Turkcell, we use all our means to heal the wounds of the disastrous wildfires that have deeply saddened our country. We have introduced our communication packages, named the “Hero Package,” so as to provide all firefighting teams under the coordination of AFAD uninterrupted and easy communication. We have donated 50 thousand saplings to re-plant our forests damaged in the recent fires. We established an Animal Field Hospital for the treatment of animals harmed by the fire with donations from Turkcell volunteers. Additionally, we will utilize the revenue of opening concert of ‘Turkcell Starry Nights’ for a sapling donation.

We will continue our strong performance

I believe that we will continue our strong performance by offering the best quality communication service to our country, and by continuing to pioneer its digital transformation as we have done throughout this challenging period.

I extend my thanks to all our teammates, mainly our Board of Directors, for ensuring that we continue to advance. I also express gratitude to our customers and business associates for remaining with us on our journey to success.

<sup>(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) 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.

(3) Excluding license fee</sup>

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

<sup>(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.</sup>

Revenue of the Group grew by 23.5% year-on-year in Q221. This growth was driven mainly by the strong ARPU performance of Turkcell Turkey and subscriber base growth. Turkcell International’s strong revenue performance as well as equipment revenues supported by digital channels also contributed to Group revenue growth.

Turkcell Turkey revenues, comprising 76% of Group revenues, rose 18.8% year-on-year to TRY6,505 million (TRY5,474 million).

– Consumer segment revenues grew 16.3% year-on-year on the back of data and digital services usage, rising subscriber base, upsell efforts and price adjustments.

– Corporate segment revenues rose 22.6% supported by the continued momentum of digital business services, which grew 21.6% year-on-year.

– Standalone digital services revenues registered as part of consumer and corporate segments grew 32.1% year-on-year in Q221 supported by the increased number of paid users.

– Wholesale revenues grew 46.2% to TRY379 million (TRY259 million), mainly with the positive impact of currency movements, customer’s data capacity upgrades and increased international carrier traffic.

Turkcell International revenues, comprising 10% of Group revenues, rose 45.4% to TRY840 million (TRY578 million), mainly on the strong performance of Ukrainian operations and positive impact of currency movements.

Techfin segment revenues, comprising 3% of Group revenues, rose 23.9% to TRY242 million (TRY195 million). Growth was driven mainly by the 78% rise in Paycell revenues while finance company’s revenues were stable on a year-on-year basis. Please refer to the Techfin section for details.

Other subsidiaries’ revenues, at 11% of Group revenues, which include mainly non-group call center and energy business revenues, and consumer electronics sales revenues rose 42.1% to TRY961 million (TRY676 million). This was driven mainly by increased equipment revenues supported by digital channels.

Cost of revenue (excluding depreciation and amortization) rose to 51.4% (50.5%) as a percentage of revenues in Q221. This was due mainly to the rise in cost of goods sold (1.4pp) despite the decline in other cost items (0.5pp).

Administrative Expenses increased to 2.6% (2.4%) as a percentage of revenues in Q221.

Selling and Marketing Expenses increased to 4.8% (4.7%) as a percentage of revenues in Q221. This was driven mainly by the increase in marketing expenses (0.3pp), despite the decline in selling expenses (0.2pp) as a percentage of revenues.

Net impairment losses on financial and contract assets declined to 0.6% (1.5%) as a percentage of revenues in Q221 mainly on improved collection performance.

EBITDA¹ rose by 22.7% year-on-year in Q221 leading to an EBITDA margin of 40.5% (40.8%).

– Turkcell Turkey’s EBITDA rose 19.2% year-on-year to TRY2,869 million (TRY2,407 million) leading to an EBITDA margin of 44.1% (44.0%).

– Turkcell International EBITDA grew 48.9% year-on-year to TRY405 million (TRY272 million) with an EBITDA margin of 48.2% (47.0%).

– Techfin segment EBITDA rose 31.4% to TRY135 million (TRY103 million) with an EBITDA margin of 56.0% (52.8%).

– The EBITDA of other subsidiaries stood at TRY57 million (TRY43 million).

Depreciation and amortization expenses increased 20.1% year-on-year in Q221.

Net finance expense increased to TRY565 million (TRY234 million) in Q221. Despite higher interest income on time deposits, this was driven by the fair value change of short term fx swap transactions executed to generate TRY funding and higher interest expense relating to financing of working capital.

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

Income tax expense: The current tax expense of TRY224 million was more than offset by TRY460 million deferred tax income reported in Q221.

Please note that in Q221, we made use of the right introduced by Article 11 of the Law No. 7326, which allows the revaluation of properties and depreciable economic assets under certain conditions. As per the law, the respective assets can be revalued with PPI until the year-end and a 2% tax is applied for the revaluation difference.

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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