�Guidance Upgrade on Accelerating Performance
ISTANBUL–(BUSINESS WIRE)–Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) (BIST:TCELL):
NOTICE
We are publishing financial statements as of June 30, 2022 prepared in accordance with Turkish Accounting Standards/Turkish Financial Reporting Standards (TAS/TFRS) only. These standards are issued by the Public Oversight Accounting and Auditing Standards Authority (POA) and are in full compliance with IAS/IFRS Standards. In an announcement published by the POA on January 20, 2022, it is stated that TAS 29 Financial Reporting in Hyperinflationary Economies does not apply to TFRS financial statements as of December 31, 2021. Since then and as of the preparation date of our latest consolidated financial statements, no new statement has been made by the POA about TAS 29 application. Consequently, no TAS 29 adjustment was made to our consolidated financial statements.
Financial statements prepared in accordance with IFRS should apply IAS 29 Financial Reporting in Hyperinflationary Economies as of June 30, 2022. In this context, financial statements prepared in accordance with IFRS and TFRS would have significant differences and would not be comparable as of June 30, 2022. We intend to publish IFRS financial statements, compliant with IAS 29 to the extent that it remains applicable, as of the year ending December 31, 2022.
Although we have not prepared a detailed comparison of differences between IFRS (unadjusted according to IAS 29) and TFRS, we have noted in our past financial statements that the most significant differences have appeared in the lines Other Operating Income/Expense, Finance Income/Expense, and Investment Activity Income/ Expense. In the past, revenue, net income and EBITDA have generally not differed. While no assurance can be given that this will be the case for Q2 2022, we are not at present aware of changes that would cause other significant differences, other than those resulting from the application of IAS 29.
FINANCIAL HIGHLIGHTS
| TRY million | Q221 | Q222 | y/y% | H121 | H122 | y/y% |
| Revenue | 8,548 | 12,477 | 46.0% | 16,375 | 23,172 | 41.5% |
| EBITDA1 | 3,466 | 5,030 | 45.1% | 6,772 | 9,332 | 37.8% |
| EBITDA Margin (%) | 40.5% | 40.3% | (0.2pp) | 41.4% | 40.3% | (1.1pp) |
| EBIT2 | 1,723 | 2,550 | 48.0% | 3,374 | 4,767 | 41.3% |
| EBIT Margin (%) | 20.2% | 20.4% | 0.2pp | 20.6% | 20.6% | – |
| Net Income | 1,113 | 1,858 | 67.0% | 2,217 | 2,661 | 20.0% |
SECOND QUARTER HIGHLIGHTS
(1) EBITDA is a non-GAAP financial measure. See page 17 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(2) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.
(3) Starting from Q421, we have revised the definition of our net debt calculation to include “financial assets reported under current and non-current assets. We believe that these assets are highly liquid and can be easily converted to cash without significant change in value.
(4) Excluding M2M
(5) Share of all sales from digital channels (including voice, data, services & smart devices) in Turkcell Turkey consumer sales (excluding fixed business) and equipment related revenues in other segment.
(6) Please note that this paragraph contains forward-looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2021 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
(6) 2022 guidance figures are based on TFRS, and do not include the effects of a likely adoption of inflationary accounting in accordance with IAS 29.
(7) Excluding license fee
For further details, please refer to our consolidated financial statements and notes as at June 30, 2022 via our website in the investor relations section (www.turkcell.com.tr).
COMMENTS BY CEO, MURAT ERKAN
Accelerating growth thanks to subscriber base expansion and price adjustments
In the second quarter of the year, while inflation remained at the forefront of the global conjuncture, the tightening policies of the central banks and the increasing risk of recession stood out. Additionally, the markets closely followed the global effects of the Russia-Ukraine war, the grain crisis, and oil, energy and commodity prices. Reaching 80% level in Turkey, inflation triggered the second increase in the minimum wage in a year, whereby a rise in general personnel costs has been observed. Being directly related to foreign exchange rates, energy prices have also risen. Duly, companies have had to reflect the rise in their cost base to their prices.
On the other hand, although the COVID-19 cases, still on agenda, were low at the beginning of the quarter, they started to rise again with the new variants and increased mobility at the beginning of the summer. Nevertheless, we see that the mobility in the tourism sector in Turkey is quite strong compared to the pandemic period, in the absence of international travel restrictions.
It has been a tough and uncertain period in which challenging macroeconomic conditions shaped global and local markets, global trade slowed down and the Turkish Lira depreciated against foreign currencies. And yet we have managed our operations effectively and growth accelerated thanks to our diversified business strategy and proactive risk management. While our consolidated revenues increased by 46.0% year-on-year to TRY12.5 billion, EBITDA1 reached TRY5.0 billion with an increase of 45.1% thanks to timely price adjustments and focused cost management. In addition to operational profitability, with the contribution of our successful risk management, net profit increased by 67.0% year-on-year to TRY1.9 billion. Despite the depreciation in the exchange rate, thanks to the investments that we made at the right time and with the right plan, we managed to keep capital expenditures under control. The operational capex (excluding license fees) to sales ratio over the past 12 months was 18.6%.
Thanks to our customer-centricity, strong brand perception that surpasses our competitors, superior service quality and the value propositions that we offer, we have gained 579 thousand subscribers in this quarter, totaling to a net of 1.2 million in the first half of the year. With increasing mobility and tourist visits in the post-pandemic period, we have recorded 482 thousand net mobile additions, with 437 thousand being postpaid, whereby total mobile subscribers reached 36.6 million. While the decline in the MNP market also continued with the prevailing rationalization in the market, we managed to keep our subscriber churn rate at a healthy level of 1.8% on a monthly basis, thanks to the value propositions that we offer to meet our customers’ needs and our effective analytical approach. Thanks to our expanding postpaid subscriber base and sustained price adjustments, mobile blended ARPU (excluding M2M) continued to accelerate, increasing by 16.2% quarterly and 32.9% yearly.
Even though customer demand on the fixed side eased in the post-pandemic period, we continued to expand our real fiber product at full speed with a focus on superior customer experience and speed. Accordingly, we delivered our fiber service to 284 thousand new fiber homepasses in the second quarter of the year, and improving quarterly, had 55 thousand net fiber subscriber additions. The subscriber base of IPTV, which offers our customers great entertainment with its rich content, playing an active role in customer retention, reached 1.2 million with an increase of 60 thousand in this quarter. Again, in this period, while leading the sector by offering fiber internet packages with 1000 Mbps speed with an increasing focus, we have also taken a big step in the widespread use and experience of high-speed fiber internet.
We continue to grow with our strategic focus areas
The stand-alone revenues of our digital services, the first of the three main strategic focus areas, increased by 23% year-on-year in this quarter, and its stand-alone paid subscribers increased by 1.1 million to 4.5 million. BiP, which has 23.4 million users2, signed a new cooperation with Trendyol, Turkey’s leading e-commerce platform, in July. Accordingly, Trendyol started to communicate with its business partners through the Closed Group Communication Channels of BiP. TV+, which increased its OTT TV subscriber base by 24%, stood out from its competitors with its rich content and effective price positioning, while Lifebox, over which we provide cloud-based storage service, continued its strong performance and increased the stand-alone paid user base by 51% year-on-year. Our digital business services, developed by Turkish engineers, are also appreciated by our corporate customers. In July we launched the “??te Suit” package, which includes Lifebox Business, BiP Meet and YaaniMail services, for corporate users keen to keep their data in Turkey and in accordance with the personal data protection law.
The revenues of Turkcell Digital Business Services, which is the pioneer in digital transformation, increased by 85% year-on-year to TRY1.1 billion. While we signed 840 new projects this quarter, we have a TRY1.7 billion backlog, which will turn into revenue beyond the second quarter of 2022.
In order to meet the high demand for data center and cloud storage services, we increased the capacity of the Gebze data center and opened a new area of 1,000 square meters. Data center, cloud, cyber security and business applications verticals, which serve the digital transformation of our corporate customers, doubled their revenues in this quarter.
We diversify our portfolio by making new initiatives in techfin, which we serve with our Financell and Paycell brands, and we continue to provide innovative solutions with our technology that meet the needs of our customers. This quarter, by leveraging our experience in the insurance agency business, we established the Turkcell Digital Insurance company, where we aim to serve our customers with data-driven products and a focus on the digital experience. Moreover, we have applied to the regulator to incorporate a digital banking company, which will complement our existing services.
In the second quarter, financial payments platform Paycells revenues increased by 77.5% year-on-year to TRY199 million, where EBITDA rose 79.6% to TRY89 million. Paycell users2 reached 7 million as of the end of the quarter, and its transaction volume through all services nearly tripled year-on-year to TRY8 billion. The users2 of ‘Pay Later’, which allows customers to reflect their spending on their Turkcell invoices, increased by 1.2 million year-on-year to 4.5 million. We continued to see great traction of our virtual and Android POS products that are offered for the needs of SMEs, even exceeding our expectations. The transaction volume of total POS solutions reached TRY2.9 billion with a quarterly increase of 39% thanks to Android POS devices reaching almost 12 thousand and the use of virtual POS with the new cooperation with e-commerce companies. Paycell, strengthens its position in the market day-by-day by offering new services. Through the platform, Paycell enables customers to trade in precious metals such as gold, silver and platinum, and through cooperation arrangements, offers consumer loans with Financell and personal loans of up to TRY50 thousand from Fibabanka.
We clarify our sustainability goals
As Turkcell, we took important steps in environmental, social and governance issues in the first half of the year in line with our goal of creating sustainable value. Reducing our Company’s resource consumption and greenhouse gas emissions are our key environmental focus areas.
In this sense, we made our application to the Science Based Target Initiative (SBTi) by determining our Science Based Targets in order to undertake our role in complying with the terms of the Paris Agreement, which was also ratified by Turkey. In line with Science Based Targets; in Scope 1, we aim to reduce our fossil fuel consumption by 51.5% by 2030, while in Scope 2, we aim to provide 100% of our electricity consumption from renewable sources by 2030. And in Scope 3, we aim to reduce the emissions of products we buy and sell by 25% by 2030. With our Recycle into Education project, we have collected 4 tons of e-waste since the beginning of the year and ensured the efficient use of resources by recycling. We have also made 55.72 GWh of savings with several energy-efficiency projects as of the first half of 2022.
On the social sustainability side, aside from our responsibility to the wider society, we are now in a period where we prioritize our employees. We launched the ‘T.Life’ application to support the employee experience with entertaining and comprehensive content. For every 30,000 steps they take with the ‘Step into the Future’, our employees donate a sapling to the Turkcell Forest, which we intend to plant on August 30, the national Victory Day. We are taking important steps to support women-led initiatives in order to empower women in business life and to increase the employment of women engineers’ in Turkey. Accordingly, we supported 5 innovative ideas that emerged at the Women Developers of the Future Climathon in February. In addition, we are making progress in line with the targets we have set to increase the number of women employees and women managers in our Company.
On the governance side, we implemented the Board Diversity Policy in the first half of 2022. In addition, the sustainability transformation in the supply chain was initiated in the second half of the year, and our sustainability training was also assigned to Turkcell store employees and to our suppliers.
In March, we maintained our stance on sustainability issues by publishing our second integrated report, which we prepared in order to present the environmental, social and governance information requested by all of our stakeholders in a more holistic and transparent manner. Artificial intelligence was used in the preparation of the report, and the summary of the report was also voiced using artificial intelligence. As a result, we prepared the world’s first audio integrated annual report.
We are revising our guidance upwards
Considering our strong half-year performance and our expectations for the remainder of the year, we revise our full year guidance3 upwards. Accordingly, we expect our consolidated revenue growth to be above 40% and EBITDA of around TRY20 billion. In line with the previous quarter, we continue to expect an operational capex (excluding license fees) to sales ratio of 20-21%.
I extend my thanks to our entire team for its contribution to our successes, and to our Board of Directors for their support in realizing our strategy, which is the key to our achievements. We also express our gratitude to our customers and business partners for remaining with us on our journey.
(1) EBITDA is a non-GAAP financial measure. See page 17 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(2) 3-month active
(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 2021 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
(3) 2022 guidance figures are based on TFRS, and do not include the effects of a likely adoption of inflationary accounting in accordance with IAS 29.
FINANCIAL AND OPERATIONAL REVIEW
Financial Review of Turkcell Group
| Profit & Loss Statement (million TRY) |
| Quarter |
|
| Half Year |
|
| Q221 | Q222 | y/y% | H121 | H122 | y/y% | |
| Revenue | 8,548.3 | 12,477.1 | 46.0% | 16,374.8 | 23,172.1 | 41.5% |
| Cost of revenue1 | (4,394.1) | (6,427.4) | 46.3% | (8,307.1) | (11,920.9) | 43.5% |
| Cost of revenue1/Revenue | (51.4%) | (51.5%) | (0.1pp) | (50.7%) | (51.4%) | (0.7pp) |
| Gross Margin1 | 48.6% | 48.5% | (0.1pp) | 49.3% | 48.6% | (0.7pp) |
| Administrative expenses | (223.6) | (348.1) | 55.7% | (423.0) | (651.8) | 54.1% |
| Administrative expenses/Revenue | (2.6%) | (2.8%) | (0.2pp) | (2.6%) | (2.8%) | (0.2pp) |
| Selling and marketing expenses | (413.8) | (575.9) | 39.2% | (772.0) | (1,116.6) | 44.6% |
| Selling and marketing expenses/Revenue | (4.8%) | (4.6%) | 0.2pp | (4.7%) | (4.8%) | (0.1pp) |
| Net impairment losses on financial and contract assets | (50.8) | (95.5) | 88.0% | (100.4) | (150.6) | 50.0% |
| EBITDA2 | 3,465.9 | 5,030.1 | 45.1% | 6,772.4 | 9,332.1 | 37.8% |
| EBITDA Margin | 40.5% | 40.3% | (0.2pp) | 41.4% | 40.3% | (1.1pp) |
| Depreciation and amortization | (1,742.9) | (2,480.1) | 42.3% | (3,398.8) | (4,564.7) | 34.3% |
| EBIT3 | 1,723.0 | 2,550.0 | 48.0% | 3,373.5 | 4,767.4 | 41.3% |
| EBIT Margin | 20.2% | 20.4% | 0.2pp | 20.6% | 20.6% | – |
| Net finance income / (expense) | (1,936.8) | (3,376.7) | 74.3% | (2,857.8) | (6,415.1) | 124.5% |
| Finance income | (721.3) | 776.7 | n.m | 651.8 | 848.9 | 30.2% |
| Finance expense | (1,215.5) | (4,153.4) | 241.7% | (3,509.6) | (7,264.1) | 107.0% |
| Other operating income / (expense) | 1,115.0 | 1,863.1 | 67.1% | 1,813.7 | 3,357.2 | 85.1% |
| Investment activity Income / (expense) | (35.8) | 797.0 | n.m | (32.7) | 1,096.2 | n.m |
| Non-controlling interests | 0.0 | 0.0 | – | 0.0 | 0.0 | – |
| Share of profit of equity accounted investees | 10.9 | (51.1) | (568.8%) | 28.6 | (74.5) | (360.5%) |
| Income tax expense | 236.2 | 75.9 | (67.9%) | (107.9) | (70.1) | (35.0%) |
| Net Income | 1,112.5 | 1,858.2 | 67.0% | 2,217.4 | 2,661.1 | 20.0% |
(1) Excluding depreciation and amortization expenses.
(2) EBITDA is a non-GAAP financial measure. See page 17 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 rose 46.0% year-on-year in Q222. Turkcell Turkey was the main driver of this performance with a solid ARPU growth positively impacted by price adjustments to reflect inflationary impacts and upsell efforts, and a growing customer base. Turkcell International and techfin business also supported topline growth.
Turkcell Turkey revenues, comprising 75% of Group revenues, rose 44.1% year-on-year to TRY9,377 million (TRY6,505 million).
– Consumer segment revenues grew 39.0% year-on-year based on price adjustments to reflect inflationary impacts, upsell efforts, and a larger subscriber base.
– Corporate segment revenues rose 49.9% year-on-year supported by the strong momentum of digital business services, which grew 84.7% year-on-year.
– Standalone digital services revenues registered across consumer and corporate segments grew 22.6% year-on-year. Similar to Q122, the growth of digital services revenues was impacted negatively due to a regulatory decision that amended the usage conditions of our voicemail service, the revenues of which are reported under digital services, as of December 1st, 2021. Excluding this impact, growth would have been 45%.
– Wholesale revenues grew 95.9% year-on year to TRY743 million (TRY379 million), positively impacted by currency movements, customers data capacity upgrades, and increased international carrier traffic.
Turkcell International revenues, comprising 12% of Group revenues, rose 76.1% to TRY1,480 million (TRY840 million) positively impacted by currency movements.
Techfin segment revenues, comprising 3% of Group revenues, increased 71.2% year-on-year to TRY414 million (TRY242 million). Paycell revenues grew 77.5%, while those of our financing business, Financell, rose 64.7% year-on-year. Please refer to the Techfin section for details.
Other subsidiaries’ revenues, at 10% of Group revenues, which include mainly non-group call center and energy business revenues, and consumer electronics sales revenues, rose 25.5% year-on-year to TRY1,206 million (TRY961 million). This was driven mainly by increased equipment revenues.
Cost of revenue (excluding depreciation and amortization) rose to 51.
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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