Turkcell Iletisim Hizmetleri: Fourth Quarter and Full Year 2019 Results

“VALUE FOCUS DRIVES PROFITABLE GROWTH”

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 information and entertainment services, call center business revenues, financial services revenues, energy business revenues and inter-business eliminations. Turkcell Ödeme ve Elektronik Para Hizmetleri A.Ş., our subsidiary responsible for payment services, was previously reported under Turkcell Turkey but with effect from the first quarter of 2019 is now included in “Other Subsidiaries”. We made this change due to the fact that its non-group revenues, which are not telco related, and consumer finance business related revenues now comprise the majority of its total revenues. All figures presented in this document for prior periods have been restated to reflect this change.
  • 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, 2019 refer to the same item as at December 31, 2018. For further details, please refer to our consolidated financial statements and notes as at and for December 31, 2019, 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 2018 and 2019 is based on IFRS figures in TRY terms unless otherwise stated.
  • In accordance with our strategic approach and IFRS requirements, Fintur is classified as ‘held for sale’ and reported as discontinued operations as of October 2016. On December 12, 2018, Turkcell signed a binding agreement and on April 2, 2019 completed the transfer of its shares in Fintur to Sonera Holding B.V., the majority shareholder of Fintur.
  • 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

Q418

Q419

y/y%

FY18

FY19

y/y%

Revenue

5,626

6,684

18.8%

21,292

25,137

18.1%

EBITDA1

2,239

2,754

23.0%

8,788

10,426

18.6%

EBITDA Margin (%)

39.8%

41.2%

1.4pp

41.3%

41.5%

0.2pp

EBIT2

952

1,349

41.7%

4,500

5,380

19.6%

EBIT Margin (%)

16.9%

20.2%

3.3pp

21.1%

21.4%

0.3pp

Net Income

864

756

(12.5%)

2,021

3,246

60.6%

FULL YEAR HIGHLIGHTS

  • Solid financial performance:

    • Revenues up 18% on the back of the strong ARPU performance of Turkcell Turkey
    • EBITDA up 19% leading to an EBITDA margin of 41.5%; EBIT up 20% resulting in an EBIT margin of 21.4%
    • Record high net income on 61% growth driven by solid operational performance, prudent financial risk management and Fintur sale
    • TRY1.01 billion dividends distributed
    • Leverage at 1.0x on 0.4x year-on-year improvement
  • Operational momentum continued:

    • Mobile postpaid subscriber net additions of 1.5 million in 2019, the highest print of the past decade
    • Superbox3 subscribers at 323 thousand, on 290 thousand annual net additions
  • Strong free cash flow4 generation of TRY2.4 billion; this rises to TRY4.6 billion including Fintur sale proceeds
  • 2020 guidance5; revenue growth target of 13% – 16%, EBITDA margin target of 39% – 42%, EBIT margin target of 18% – 21% and operational capex over sales ratio6 target of 16% – 18%

FOURTH QUARTER HIGHLIGHTS

  • Remarkable financial performance achieved:

    • Group revenues up 19% on record high Turkcell Turkey ARPU performance
    • EBITDA up 23% resulting in an EBITDA margin of 41.2%; EBIT up 42% leading to an EBIT margin of 20.2%
    • Group net income at TRY756 million including one-off negative impact of TRY199 million
  • Solid operational performance continued:

    • Record high quarterly mobile postpaid customer net additions of 984 thousand; 62% postpaid share
    • Record high mobile ARPU7 and residential fiber ARPU growth of 22.7% and 21.0%, respectively
    • Average monthly data usage of 4.5G subscribers at 10.8 GB in Q419
    • Multiplay with TV subscriber ratio8 at 53.3% on 4.7pp year-on-year rise

(1) EBITDA is a non-GAAP financial measure. See page 15 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) Superbox subscribers are included in mobile subscribers.

(4) 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

(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 2018 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(6) Excluding license fee

(7) Excluding M2M

(8) Multiplay subscribers with TV: Fiber internet + IPTV users & fiber internet + IPTV + fixed voice users

For further details, please refer to our consolidated financial statements and notes as at and for December 31, 2019 which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY MURAT ERKAN, CEO

As Turkcell Group, we end another year of delivering solutions that add value to our customers’ lives. This continues to support our vision of providing superior digital services for a better future. Thanks to our infrastructure investments that enable us to offer the latest technologies, we continued to play a leading role in the digital transformation of Turkey, and of other countries in which we operate. As 2019 was our 25th anniversary, it held special importance for us. In the quarter century behind us, we have achieved countless successes, while having pioneered numerous innovations. And in the upcoming period, we will continue our customer-oriented strategy with the responsibility that comes with these achievements, and that encourages us to achieve our goals.

We are the leader among integrated telecom sector players in Turkey.

2019 was a year of global uncertainties and cost increases due to trade wars and geopolitical tension, and yet one where a macroeconomic rebalancing occurred in our domestic market. The steps we took to strengthen the bond with our customers produced strong operational and financial results. Thanks to our actions in strategic focus areas determined by our customer orientation and effective balance sheet management, we achieved strong financial results and met our targets. In 2019, Turkcell Group consolidated revenues increased by 18.1% year-on-year, reaching TRY25.1 billion. Consolidated EBITDA1 rose by 18.6% to TRY10.4 billion and the EBITDA margin was at 41.5%. Our EBIT2 margin was 21.4%. Net income rose yearly by 61% to a record-high TRY3.2 billion. Our operational capital expenditures3 to sales ratio was 18%. With these results, we are proud to be the leader in Turkey in both total turnover and growth, as well as in net profit among integrated telecom sector players.

We increased the number of postpaid subscribers by a record level.

In 2019, where we comprehensively renewed our customer approach, we registered a net total of 1.5 million mobile postpaid subscriber additions, the highest level of the past decade. We have strengthened our customer base with this increase in the postpaid base that generates triple the ARPU of the prepaid subscriber base. Excluding the impact of mandatory line closings for all telecom operators, our total mobile subscriber base rose by 0.7 million this year. The analysis of big data and use of AI with our advanced analytical capabilities enable us to make the right offer to the right customer at the right time. In our telecom business, which we manage with a micro-segment approach, we can diversify our offers and extend dynamic pricing. Leveraging these capabilities, we registered record high mobile blended ARPU4 growth of 22.7% year-on-year in Q419, which is crucial for sustainable growth.

With the increased 4.5G user and smart phone penetration, and the use of our innovative digital services, average mobile data consumption continued its uptrend this year. Average mobile data usage was 9 GB in the fourth quarter up 53%, while the internet usage of our 4.5G subscribers reached 10.8 GB. Thanks to the increasing use of data and digital services, the preference of packages offering higher benefits and the rise in postpaid subscribers, we recorded nearly double the mobile ARPU growth of our competitors.

Our strong infrastructure underpins the unique services that meet the needs of our customers.

Thanks to our wide frequency bands and investments, we are among the few operators worldwide to provide the fastest 4.5G service with 1.2 Gbps speed. Superbox5, which offers fiber-speed home internet service over this robust mobile infrastructure, is among our stand-out innovative products of the year. Superbox, Turkey’s first and most wide-spread FWA product, has reached 323 thousand subscribers. This technology, set to become widespread with 5G networks worldwide, also confirmed the readiness of our strong infrastructure for the 5G era. Moreover, with our strong fiber infrastructure, we are one of the few operators worldwide to offer 10 Gbps speed. As of the end of 2019, our fiber subscribers had reached 1.5 million, while IPTV subscribers had reached approximately 720 thousand. In fiber residential ARPU, record growth of 21% in the last quarter resulted from our offers renewed at the start of the year plus the demand for packages offering more capacity, and the impact of rising IPTV users.

We generated 1 billion TL revenue from digital services on a stand-alone basis.

Our digital services, one of our strategic focus areas, allow us to provide solutions that enrich our customers’ lives. And while these services contribute to higher ARPU, they also strengthen customer loyalty.

BiP, fizy, TV+, Dergilik and lifebox were the most preferred Turkcell applications this year. We have recently added an “emergency button” to our locally-developed communication and life platform BiP, which registers average daily traffic of 274 million messages. This function offers the ability to automatically send location and a message to predetermined contacts in an emergency. We began to use AI-enabled personalized content on our Dergilik, fizy and TV+ platforms, while also entering into advertising collaborations. Stand-alone digital service revenues that we aim to increase 2.5 times over the next 3 years scaled TRY1 billion in 2019.

We are the sole supplier for our corporate customers for end-to-end digital transformation.

We support the digital transformation of private sector and public institutions with our digital business solutions, another strategic focus area. Capable of providing tailor-made solutions, we offer services ranging from cloud technologies, data center services and cyber security to information technologies, and the Internet of Things, thereby supporting digitalization and differentiation. Thanks to our extensive sales network, strong partner ecosystem and superior infrastructure, we rank among the top three IT solution providers in Turkey, and aim to lead the market within 3 years.

We have conducted over 1,000 projects in which we analyzed the digital transformation needs of our customers operating in various sectors, offering the right solution and service. In this context, in 2019 we inaugurated the fifth city hospital where we established integrated information system infrastructure.

Given the importance of data in digital age, and with the conviction that Turkey’s data should remain in Turkey, we continue to increase our data storage and processing capacity. On a datacenter investment of approximately 1 billion TL to date, we own a total of 33,500 sqm of white space at eight locations, including Turkey’s largest data center.

Paycell is accepted at 7 thousand points of sale.

We continue to improve the capabilities of Paycell, our techfin payment platform, expanding both customer base and merchant number. Thanks to multiple services and solutions in different verticals, access to Turkcell’s extensive sales network, strong customer base and technology expertise, we see strong growth potential for Paycell, especially in an environment with attractive dynamics and supportive regulation. Paycell makes life easier for our customers by offering direct carrier billing, money transfer, payment services and wallet, plus cash top-up for the Turkcell prepaid line and the public transportation card IstanbulKart as well as Paycell card. We also provide merchants a QR based payment alternative and mobile POS solutions. As of end-2019, the Paycell has approximately 4.5 million active users, with Paycell accepted as a means of payment at 7 thousand points. While Paycell cards reached 2.4 million, the number of credit cards registered on the application has exceeded 4.4 million.

Our preparation for 5G continues at full speed.

A key issue of the coming period is the transition to 5G. Given the speed and capacity increase it offers, we believe that 5G technology, the infrastructure of Industry 4.0, will lead to a rapid transformation across all sectors, playing a vital role in Turkey’s digital transformation. As Turkcell, we continue our preparations for the transition to 5G without let up in pace, realizing industry firsts. In this context, in the speed test conducted on the 3.5GHz band allocated for testing purposes, in August we recorded the world’s highest speed of 2.283 Gbps on the 5G pilot network with a commercial 5G handset.

We are aware that joint infrastructure will play a vital role in the transition to 5G, ensuring the efficient use of national resources to the benefit of all participants. We continue related efforts accordingly. In this context, with the infrastructure sharing agreements signed with Turksat and Vodafone Turkey, we share our fiber infrastructure and offer fixed internet services to more households. We also participate in initiatives to develop local 5G technologies.

We attach importance to sustainability and introduce pioneering initiatives.

Our efforts to offer customers environmentally friendly and sustainable product alternatives continue to receive global recognition. We are one of the founding members of the CFO Taskforce initiative created by the United Nations Global Compact. We are proud to take part in efforts to develop corporate finance models and tools in step with the United Nations Sustainable Development Goals. While producing the technologies of the future, we will maintain our focus on sustainability across all our digital products and services, corporate collaborations and processes. In addition, we support the electronic waste recycling campaign, launched as a sustainability initiative, with resulting revenues funding local education.

We announced our three-year goals in November.

Confidence based on positive macroeconomic developments, our stronger organization and pursuit of our strategic priorities, we disclosed our targets for the 2020-2022 period to all our stakeholders at meetings in London and in Istanbul. In this three-year period, we target6 13% – 16% revenue growth (CAGR), 39% – 42% EBITDA margin and an 18% – 21% EBIT margin. We expect an operational capex3 to sales ratio of 16% – 18%. We confirm these goals for 2020. We continue to work at full strength to create value for all our stakeholders to achieve these goals and more.

Our innovative services and solutions will continue to bring value to our customers.

The year of 2019 was one of success in many areas, as we continued to bring value to our customers’ lives through innovation and quality services. In 2020, with our innovative approach and leading position, we target sustainable and profitable growth.

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 our 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 15 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 license fee

(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 2018 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

Profit & Loss Statement (million TRY)

Quarter

Year

Q418

Q419

y/y%

FY18

FY19

y/y%

Revenue

5,626.3

6,683.8

18.8%

21,292.5

25,137.1

18.1%

Cost of revenue1

(2,607.5)

(3,206.3)

23.0%

(9,858.0)

(12,036.9)

22.1%

Cost of revenue1/Revenue

(46.3%)

(48.0%)

(1.7pp)

(46.3%)

(47.9%)

(1.6pp)

Gross Margin1

53.7%

52.0%

(1.7pp)

53.7%

52.1%

(1.6pp)

Administrative expenses

(198.2)

(217.4)

9.7%

(673.4)

(779.8)

15.8%

Administrative expenses/Revenue

(3.5%)

(3.3%)

0.2pp

(3.2%)

(3.1%)

0.1pp

Selling and marketing expenses

(500.7)

(384.9)

(23.1%)

(1,626.7)

(1,555.2)

(4.4%)

Selling and marketing expenses/Revenue

(8.9%)

(5.8%)

3.1pp

(7.6%)

(6.2%)

1.4pp

Net impairment losses on financial and contract assets

(81.0)

(121.3)

49.8%

(346.4)

(338.9)

(2.2%)

EBITDA2

2,239.0

2,753.8

23.0%

8,788.0

10,426.4

18.6%

EBITDA Margin

39.8%

41.2%

1.4pp

41.3%

41.5%

0.2pp

Depreciation and amortization

(1,287.0)

(1,404.9)

9.2%

(4,288.0)

(5,046.6)

17.7%

EBIT3

952.0

1,348.9

41.7%

4,500.0

5,379.9

19.6%

EBIT Margin

16.9%

20.2%

3.3pp

21.1%

21.4%

0.3pp

Net finance income / (costs)

(18.5)

(214.3)

n.m

(1,687.0)

(1,727.7)

2.4%

Finance income4

(1,361.0)

44.9

n.m

1,677.1

297.5

(82.3%)

Finance costs4

1,342.5

(259.2)

(119.3%)

(3,364.1)

(2,025.1)

(39.8%)

Other income / (expense)

46.5

(128.2)

(375.7%)

(140.1)

(346.6)

147.4%

Non-controlling interests

(77.7)

2.0

n.m

(156.3)

(30.2)

(80.7%)

Share of profit of equity accounted investees

0.3

(19.1)

n.m

(0.1)

(15.7)

n.m

Income tax expense

(38.7)

(233.7)

503.9%

(495.5)

(785.6)

58.5%

Discontinued operations

772.4

n.a

Net Income

863.9

755.6

(12.5%)

2,021.1

3,246.5

60.6%

(1) Excluding depreciation and amortization expenses.

(2) EBITDA is a non-GAAP financial measure. See page 15 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 grew 18.8% year-on-year in Q419 driven mainly by the strong ARPU performance of Turkcell Turkey, supported by upsell efforts, increased data usage as well as larger postpaid subscriber base. This solid performance is a result of our microsegment layered approach enabled by strong data analytics capabilities.

Turkcell Turkey revenues, comprising 86% of Group revenues, rose 20.9% to TRY5,741 million (TRY4,747 million).

– Consumer business grew by 21.8% on the back of solid ARPU performance driven by increased data consumption, rising postpaid subscribers and upsell efforts.

– Corporate revenues rose by 29.4% supported by the solid performance of digital business solution that grew 32% year-on-year.

  • Standalone digital services revenues from consumer and corporate businesses were TRY275 million in Q419.

– Wholesale revenues rose 39.5% to TRY305 million (TRY219 million) on the back of increased carrier traffic and the positive impact of currency movements.

Turkcell International revenues, at 8% of Group revenues, rose 33.0% to TRY561 million (TRY422 million), mainly with the continued ARPU growth of lifecell and positive impact of currency movements.

Other subsidiaries’ revenues, comprising 6% of Group revenues, which includes information and entertainment services, call center revenues, revenues from financial services and energy business revenues were at TRY382 million (TRY457 million).

– We completed the sale of our shares in Azerinteltek, our sports betting business in Azerbaijan, as of January 11, 2019. We received the transfer of proceeds on December 27, 2018 and transferred control of the subsidiary. We did not report any revenues in 2019 in relation to Azerinteltek operations.

– Our contract with Spor Toto to carry out sports betting operations in Turkey has ended as of August 28, 2019.

– Our consumer finance company’s revenues were at TRY201 million (TRY247 million) in Q419. Revenues were impacted by the decline in the consumer loan portfolio, from TRY4.2 billion as of Q418 to TRY2.4 billion as of Q419, due mainly to the installment limitation on consumer loans for telecom devices.

For the full year, Turkcell Group revenues rose by 18.1%.

Turkcell Turkey revenues grew by 18.8% to TRY21,487 million (TRY18,093 million).

– Consumer business grew by 17.0% driven by strong ARPU performance.

– Corporate revenues rose by 32.4% supported by digital business solutions revenue growth of 44%.

  • Standalone digital services revenues from consumer and corporate businesses reached TRY1 billion in FY19.

– Wholesale revenues grew by 26.0% to TRY1,154 million (TRY916 million).

Turkcell International revenues rose by 37.5% to TRY2,003 million (TRY1,457 million).

Other subsidiaries’ revenues were at TRY1,647 million (TRY1,743 million).

Cost of revenue (excluding depreciation and amortization) increased to 48.0% (46.3%) as a percentage of revenues in Q419. This was driven mainly by increased cost of goods sold (3.

Contacts

Investor Relations

Korhan Bilek, Tel: + 90 212 313 1888

investor.relations@turkcell.com.tr

Corporate Communications:

Tel: + 90 212 313 2321

Turkcell-Kurumsal-Iletisim@turkcell.com.tr

Read full story here

error: Content is protected !!