Turkcell Iletisim Hizmetleri: Fourth Quarter and Full Year 2021 Results

“STRONG PERFORMANCE WITH A DIVERSIFIED BUSINESS MODEL”

ISTANBUL–(BUSINESS WIRE)– 

Contents

HIGHLIGHTS

QUARTER HIGHLIGHTS, 3

COMMENTS BY CEO, MURAT ERKAN, 5

FINANCIAL AND OPERATIONAL REVIEW

FINANCIAL REVIEW OF TURKCELL GROUP, 8

OPERATIONAL REVIEW OF TURKCELL TURKEY, 12

TURKCELL INTERNATIONAL

lifecell, 14

BeST, 15

Kuzey Kıbrıs Turkcell, 15

TECHFIN

Paycell, 16

Financell, 16

TURKCELL GROUP SUBSCRIBERS, 17

OVERVIEW OF THE MACROECONOMIC ENVIRONMENT, 17

RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS, 18

Appendix A – Tables, 20

• Please note that all financial data is consolidated and comprises that of Turkcell Iletisim Hizmetleri A.S. (the “Company”, or “Turkcell”) (NYSE:TKC) (BIST:TCELL) 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 December 31, 2021 refer to the same item as at December 31, 2020. For further details, please refer to our consolidated financial statements and notes as at and for December 31, 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 fourth quarter and for the full 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

FULL YEAR HIGHLIGHTS

• Robust financial performance:

  • Group revenues up 23.4% supported by upsell efforts, price adjustments and subscriber growth as well as the contribution of the techfin business, international operations and equipment sales.

  • EBITDA up 22.4% leading to an EBITDA margin of 41.8%; EBIT up 22.7% resulting in an EBIT margin of 21.5%
  • Net income up 18.7% mainly on the back of robust operational performance and prudent financial risk management as well as the deferred tax income impact that resulted from revaluation of assets
  • TRY2.6 billion dividends distributed
  • Free cash flow ³ generation of TRY1.1 billion; leverage ⁴ at 1.1x, despite FX fluctuations
  • Short FX position of US$191 million (in line with our FX neutral definition, which is between -US$200 million and +US$200 million)

• Strong operational momentum continued:
  • Turkcell Turkey subscriber base up by 2.7 million net additions; the highest performance since 2007
  • 1.7 million mobile postpaid net additions; 0.5 million mobile prepaid net additions
  • 258 thousand fixed subscriber net additions, highest since 2017; 223 thousand fiber net additions
  • 653 thousand new fiber homepasses
  • Mobile ARPU ⁵ growth of 13.4%; residential fiber ARPU growth of 10.6%

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

FOURTH QUARTER HIGHLIGHTS

• Strong financial results:
  • Group revenues up 29.5% year-on-year on the back of strong performance of Turkcell Turkey, the robust contribution from international operations and boost in techfin segment revenues

  • EBITDA up 29.9% year-on-year resulting in an EBITDA margin of 41.3%; EBIT up 32.8% year-on-year leading to an EBIT margin of 21.0%

  • Group net income at TRY1.4 billion, which resulted from sustained operational performance, disciplined financial risk management in a volatile currency environment and the positive impact of deferred tax income relating to the revaluation of assets

• Robust operational performance maintained:

  • Quarterly mobile postpaid subscriber net additions of 330 thousand; postpaid subscriber share at 66.4% of mobile subscriber base

  • Quarterly fixed subscriber net additions of 84 thousand; all-time high quarterly fiber net additions of 74 thousand

  • Year-on-year mobile ARPU⁵ growth accelerated to 17.8% mainly driven by upsell to higher tariffs, price adjustments and higher postpaid share

  • Residential fiber ARPU growth of 12.8% year-on-year mainly on upsell efforts

  • Average monthly data usage of 4.5G subscribers at 14.7 GB in Q421; smartphone penetration at 86%

  • Digital channels’ share ⁸ in sales at 22.1%

(1) EBITDA is a non-GAAP financial measure. See page 18 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) 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.

(5) Excluding M2M

(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

(8) 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. Beginning from this quarter, the data has been revised to include the revenues from postpaid subscriber acquisitions, switches, tariff revisions from digital channels.

For further details, please refer to our consolidated financial statements and notes as at December 31, 2021 via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY CEO, MURAT ERKAN

With an accelerated robust performance, we again exceeded our guidance

2021 was a year of recovery for the whole world after 2020 when social and economic challenges arising from the COVID-19 pandemic prevailed. The first half of the year, overshadowed by variants of COVID-19 and the measures taken against them continued to impact social life and business activities. Thanks to widespread vaccination programs in the second half of the year, rapid normalization has begun in our country, as in most parts of the world. Those changes throughout the year have re-shaped our lives and consumer behavior alike. Meanwhile, two prevailing basic needs, which do not change but rise in importance, were namely “communication” and “digitalization”. As Turkcell, we believe that we are the leading brand that addresses these needs with our competencies and comprehensive ecosystem realizing a well-positioned strategy.

Thanks to the robust operational performance in all of our services that meet changing customer needs, we achieved strong financial results in 2021 and exceeded our guidance, which we have upgraded each quarter. Rising 23.4% year-on-year, consolidated revenues reached TRY35.9 billion and EBITDA¹ rose by 22.4% to TRY15.0 billion. Thanks to our solid balance sheet, prudent risk management approach and robust performance in all of our operations, net income reached TRY5.0 billion rising 18.7% year-on-year. Despite the depreciation of the Turkish lira, we managed to keep our operational capex² to sales ratio at 21.2% as planned.

Record net additions of the past 14 years

The consumer habits that changed during the pandemic period have strengthened in 2021. The first half of the year that saw pandemic restrictions, including a 3-week full lockdown, increased remote education and working practices, which highlighted the need for high speed and capacity in fixed broadband services. In the second half of the year, increased mobility and tourist activity, especially over the summer months, boosted the demand for our mobile services. The smart investments we made in our network by thinking ahead of our peers over many years have enabled us to continue delivering the fastest high-quality communication services. As part of our customer-focused approach, we have taken actions at the right time by analyzing customer behavior using AI, that has allowed us to manage churn at a reasonable level. Changing consumer habits have revealed the need for higher capacity and greater internet speed, which in turn have enabled us to upsell to higher tariffs. Thanks to these factors, we recorded 2.7 million yearly net additions, marking a record high of the past 14 years. We recorded 1.7 million postpaid and 503 thousand prepaid subscribers, making for a net of 2.2 million mobile subscribers. The share of our postpaid subscribers in the total mobile base rose to 66.4%. Accelerating towards the end of the year, mobile blended ARPU (excluding M2M) increased 17.8% in the fourth quarter and 13.4% in 2021 overall mainly on upsell to higher packages, an expanding postpaid subscriber base and rising data and digital services usage.

Fiber penetration in Turkey lags that of the OECD countries and fixed broadband services provided by outdated technology solutions of low capacity and speed fail to meet user needs. This also interrupts the development of new generation communication technologies that will pave the way for the future of Turkey. Keeping this in mind, at the end of 2020 we announced our aim of increasing our national fiber roll out. Exceeding our target, we have reached 653 new homes with our fiber infrastructure, adding 5 cities to our service area in 2021. Accordingly, the fiber subscriber base expanded by 223 thousand net additions to 1.9 million in total. We have added a net 258 thousand fixed broadband subscribers, reaching 2.7 million. We also delivered a robust performance in IPTV services, which plays a significant role in keeping the fiber churn rate low. Our IPTV subscriber base reached 1.1 million with a net 211 thousand additions. The residential fiber ARPU rose 10.6% and 12.8% year-on-year in 2021 and Q421, respectively.

The mobility restrictions of 2021 once again underlined the significance of our digital channels, where a customer can top-up, purchase additional packages, subscribe to a digital service, or even purchase electronic devices from a wide product range. The digital channel’s share³ in sales reached 22% at the year-end.

We continue to create value for our customers and meet their needs with our strategic focus areas

The users of our digital services, which add value to our customers’ lives with a wide product portfolio, continue to increase day by day. The total downloads of BiP, Turkey’s communication platform, exceeded 90 million in 2021. 3-month active users of BiP are 2.5 times that of the previous year, at 26 million. Having rapidly increased its worldwide recognition, BiP has continued to attract attention, especially in densely populated countries such as Indonesia, Bangladesh, India, Pakistan and Malaysia. As of the year end, one in four active BiP users were from abroad. Considering our customers’ needs, we’ve continued to add new features to BiP throughout the year to improve the user experience. We aim to make BiP a widely used global application with international operator cooperation that we plan to realize in the upcoming periods.

TV+ has been the only TV service provider to have continued to grow its market share steadily each quarter since 2017. With its rich content, TV+’s IPTV customer base increased by 24% to 1.1 million, while OTT TV users exceeded 800 thousand users, rising 40% year-on-year. Meanwhile, by surpassing its 1 million milestone in June, our cloud storage service lifebox’s paid users rose 45% to 1.3 million. Aiming to reach more users in 2021, we offer BiP Meet, lifebox business and YaaniMail to our corporate customers in the B2B business model. All in all, the stand-alone revenues of our digital services increased by 31% to TRY1.7 billion in 2021.

Offering tailored services to meet the needs of the enterprises, Turkcell Digital Business Services, has contributed to the digital transformation of its customers with new generation technologies such as data center, cloud, cyber security, systems integration, managed services, artificial intelligence, IoT, big data and business applications, in addition to traditional fixed broadband services. With its various business partners and strong infrastructure, we have achieved leadership in the IT service market two years ahead of schedule. In this period, we signed over 2,700 projects with a total contract value of TRY1.7 billion. The total revenues of Digital Business Services rose 29% to TRY2.3 billion. We have a contract value (backlog) from system integration projects of TRY1.4 billion to be realized beyond 2022.

Our techfin business grew by 27% with the contribution of Financell and Paycell. Financell, providing financial solutions not only for consumers but also for the technological needs of corporates, has increased its revenues by 32% in the fourth quarter of 2021, as its loan portfolio reached TRY2.1 billion. Turkey’s leading payment platform Paycell, continued to stand by our customers in a period of rapid change in payment habits. Reaching 6.6 million users with an annual increase of 41%, Paycell’s transaction volume across all services rose 49% to TRY14 billion. Pay Later, is the main revenue generator of Paycell with a 72% share, has reached 4.1 million active users, rising 81%, while its transaction volume almost doubled on a year-on-year basis. At the same time, the transaction volume over Paycell card has increased to sixfold of last year. Paycell Android POS, offering a cost advantage by eliminating the need for corporates to make several agreements with banks, reached 6 thousand devices and thereby we had exceeded 17 thousand merchants at the end of the year. Thanks to the strong performance in all verticals, Paycell has managed to increase its revenues by 64% in 2021. This year we have also initiated a partial stake sale in Paycell. We aim to work with a strategic partner who will contribute to the growth of Paycell in existing and new markets with its know-how in techfin, and help us elevate Paycell to the next level.

We are taking bold steps towards our sustainability goals

As Turkcell, we are developing our technology for a better world with our human-oriented and environmentally friendly business approach. Considering the importance of digitalization that enables us to reduce carbon emissions and use energy efficiently, we offer digital services that contribute to the environment. An important sustainability initiative of 2021 was the acquisition of the İzmir Karadağ Wind Power Plant. By acquiring this plant, which has the capacity to meet the electricity needs of 2,500 base stations with its 18 MW installed capacity, we took an important step towards becoming a company not only generating 100% renewable energy but also aiming to produce renewable energy. Indeed, we once again underlined our commitment to become carbon neutral by 2050. By turning the competition element of the “Women Developers of the Future” project into a “Climathon,” we supported the equal presence of women in technology and nurtured ideas that seek solutions to climate change through technology. With our “Recycle into Education” project, we have ensured the efficient use of resources by recycling electronic waste. Our steady performance within the framework of these initiatives has also increased our access to sustainable financing sources. Thanks to the agreement we signed with BNP Paribas in December, we increased the amount of the sustainability linked loan we received in 2019 to EUR70 million, extending its term to 5 years.

As Turkcell, we attach great importance to making our technology accessible and thereby ensuring the equal participation of everyone in daily life. We strive for the equal participation of all segments of society through technology with our digital inclusivity projects such as Whiz Kids, Digital Spring, and No Barriers. By signing the GSMA’s Principles for Driving the Digital Inclusion of Persons with Disabilities, we have become the first company in Turkey, and among the first eight in the world.

With a focus on being a good corporate citizen, we announced the Principles of Sustainable Governance in June, a guide to the way we undertake social and environmental work in all business processes. Our company, which has been listed on Borsa İstanbul and the NYSE since 2000, adopted the corporate governance regulations applicable to it according to the legislation of both countries within the framework of best practices. We are among the companies with the strongest corporate governance structure in Turkey. The fact that the Board of Directors evaluates its own performance on an annual basis in line with specified criteria has begun to be discussed this year in terms of improving corporate governance in our Company.

We are extending the accelerated momentum of our financial performance to 2022

2022 bears many social and economic uncertainties. Although COVID-19 variants seem to have been brought under control with widespread vaccination programs, they remain on our watch-list. Increasing raw material and labor costs, the energy and chip crisis, disruptions in the supply chain, and inflation, which has become a global threat, make it difficult for us to clearly see the path ahead. Therefore, we are required to stress that we may update our financial and operational targets throughout the year in light of prevailing macroeconomic fluctuations. At this stage, we target⁴ revenue growth of around 30% and EBITDA of around TRY19 billion for 2022. For this year, in which we aim to add a million subscribers, we forecast an operational capex over revenues ratio² in the range of 20% – 21%.

We are planning to share our strategy and 3-year targets with you at the Turkcell Investor & Analyst Day, which we will hold in Istanbul on April 12.

In short, we have left a challenging year behind us where, as a society, we have again seen clearly that communication and digitalization are unwavering, but transforming needs. I would like to extend my thanks to all our employees for their dedicated efforts that cement our achievements, despite the weather and burden of the pandemic. Additionally, I thank our management team for making our success permanent, and our Board of Directors for their confidence and support. I also express my gratitude towards our customers and business partners who honor us with their trust.

(1) EBITDA is a non-GAAP financial measure. See page 18 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

(2) Excluding license fee

(3) 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. Beginning from this quarter, the data has been revised to include the revenues from postpaid subscriber acquisitions, switches, tariff revisions from digital channels.

(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.

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 18 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 29.5% year-on-year in Q421.

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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