Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) Q1 2023 Earnings Name Transcript Could 9, 2023

Operator: Girls and gents, thanks for standing by. I’m Gaily your Refrain Name operator. Welcome and thanks for becoming a member of the Turkcell’s convention name and dwell webcast to current and talk about the Turkcell First Quarter 2023 Monetary Outcomes Convention Name. All contributors will likely be in listen-only mode and the convention is being recorded. There will likely be a presentation, adopted by a question-and-answer session. [Operator Instructions] Right now, I wish to flip the convention over to Mr. Ali Serdar Yağcı, Investor Relations and Company Finance Director. Mr. Yağcı you could now proceed.

Ali Serdar Yağcı: Thanks Gaily. Whats up everybody. Welcome to Turkcell’s first quarter 2023 outcomes name. In the present day our CEO, Mr. Murat Erkan; and Appearing CFO, Mr. Kamil Kalyon will likely be delivering a quick presentation on operational and monetary outcomes. And afterwards we will likely be doing Q&A. Earlier than we begin, I wish to kindly remind you to learn our protected harbor assertion, which is positioned on the finish of the presentation. Now I’m handing over to Mr. Erkan.

Murat Erkan: Thanks, Ali Yağcı. Good morning and good afternoon everybody. Thanks for becoming a member of us. We’ve got been therapeutic the heat of the current Earthquake, which occurred to be one of many worst catastrophe of our historical past. We’ve got taken sure actions to verify folks do seamlessly talk within the area. Turkcell additionally stays dedicated to assist the local people via initiatives that goal to extend employment and we will even make our digital channel out there for native producers and suppliers. Shifting onto Q1 highlights. Our income development continued to speed up from 37% of Q1 2023 and reached to a exceptional 61.5%. Due to the increasing subscriber base and rising ARPU regardless of the destructive influence of the earthquake in the course of the half of the quarters.

Excluding the earthquake influence, the expansion would have been round 65%. The strategic focus space primarily digital enterprise companies and technical segments additionally supported prime line development with a robust efficiency. We’re completely satisfied to see our cell ARPU development, which achieved 68%, exceeding the headline inflation as we reap the advantages of sequential worth improve we started on the finish of 2021. On the profitability facet, our EBITDA reached TRY6.8 billion with a 57% improve. And regardless of the continued inflationary stress, we achieved a margin of simply over 39%, consistent with our expectation, which accounts for the influence of the catastrophe on our OpEx. Excluding the earthquake influence, the margin would have been 41%. Final however not least, we recorded a strong internet revenue of TRY2.8 million primarily on the again of the sturdy operational efficiency in addition to decrease FX losses.

Subsequent slide. Let’s take a better have a look at our cell operational efficiency. As part of our technique we’ve been centered on attracting premium subscriber, which led to a internet further 342,000 postpaid subscribers in Q1, bringing postpaid share to 69%. Pay as you go internet addition have been impacted by decrease new subscriber demand within the earthquake area and from the aggressive affords, in addition to greater involuntary churn resulting from important vacationer arrival in Q3 final 12 months. Whereas we noticed the persevering with influence of year-end campaigns at first of the 12 months, the market rationalized after the earthquake and total the MNP market contracted in Q1, assist the victims of the earthquake, all operators frozen worth actions. We additionally handed telesales to respect our nationwide settlement.

We resumed each cell worth changes and telesales by April. Regardless of the influence of the earthquake blended cell ARPU development accelerated to 68% year-on-year. Our pacing to 54% common annual inflation inside the quarter. With out the earthquake influence, we will notice that the ARPU development would have been round 75%. Our cell churn charge of 1.7%, within reason beneath 2%, regardless of a slight improve year-on-year as a result of greater pay as you go churn. The month-to-month knowledge utilization of 4.5G customers have reached 17.4 gigabytes pushed by 88% smartphone penetration, up 1.5 factors year-on-year. Subsequent slide, please. As anticipated, the earthquake additionally had a destructive influence on our mounted broadband enterprise. Nonetheless, we noticed a big demand for our companies in March resulting from location within the impacted space.

Our concentrate on fiber subscriber, continued leading to a internet further 38,000 fiber subscribers in Q1. Our IPTV platform, additionally noticed a internet further 28,000 subscribers in the identical interval. After the lengthy rated notable worth adjustment in This fall final 12 months, and as a result of earthquake there have been virtually no important worth adjustment within the mounted broadband market. Nonetheless, we launched uncommitted providing normally, which have been appreciated by prospects. We additionally noticed continued traction in high-speed packages, with 4% of recent subscribers choosing 100 megabits or greater packages. Our annual residential fiber ARPU development in Q1, barely decreased to 31% in comparison with earlier quarter, primarily as a result of motion we’ve taken for earthquake victims. Excluding this influence, the ARPU development would have been 36%.

The slight improve in mounted churn can also be triggered by the distraction within the earthquake areas. As we introduced beforehand, our goal is to achieve 300,000 homepass this 12 months, and we’ve already exceeded half of that in Q1. We then goal to extend return on funding. We are going to concentrate on rising our take-up charge by addressing potential subscribers, within the related homepass areas. Subsequent slide. And now within the subsequent two slides I will likely be offering an replace on our strategic focus areas. Let’s begin with the Digital Providers and Options. In Q1, stand-alone income of digital companies and options grew by 65% year-on-year. This was enabled by digital OTT service income, rising 72% year-on-year. Our flagship digital OTT companies, primarily cloud storage, TV and music streaming platforms, have been the principle pillar software program development on the again of worth adjustment and paid person enlargement collectively stand-alone paid person quantity grew 24% year-on-year reaching 5.2 million, regardless of this decline outreach resulting from suspension of selling campaigns after the earthquake.

Our second focus space digital enterprise companies addressing digital transformational enterprises, posted a robust development of 104% year-on-year. The primary drivers of development are system integration initiatives knowledge middle and cloud enterprise. Exceeding 11% of whole DBS income knowledge middle and cloud companies greater than double the highest line with sturdy demand from each native and worldwide shoppers. On this quarter we gained greater than 1,100 new contracts. The backlog from system integration initiatives reached TRY2.5 billion which is able to contribute to the highest line over the upcoming quarters. Subsequent slide please. Our third focus space techfin. In Q1 Paycell Turkey’s main fee platform elevated income by 79% year-on-year. Virtually tripling transaction quantity was enabled because of an ongoing shift into digital funds.

Pay Later which is the main product of the Paycell maintained its sturdy income development and double its transaction quantity primarily supported by the transactional fee in Apple and on Android shops. POS Resolution transaction in sized rose greater than 4 instances. Given the elevated penetration within the bodily value gadgets out there and our unique function within the joint electrical automobile initiatives to prime gross sales undertaking. On the buyer financing facet, finance gross sales income grew by 65% on rising rates of interest and increasing mortgage portfolio. Finance’s mortgage portfolio develop 7% year-on-year, primarily reflecting the elevated machine costs out there, in addition to company phase initiatives. Because of the diversification within the portfolio, in addition to motion taken after the earthquake value of danger elevated to 2.7%.

Subsequent slide, please. Now, let’s have a look at the efficiency of our worldwide subsidiaries. Turkcell Worldwide income grew by 31% year-on-year in Q1. Excluding the foreign money influence the natural development was 20%. Way of life income rose 16% year-on-year in its native turns. EBITDA margin expanded by 4 share factors in comparison with the final 12 months reaching 60%. Due to greater income development and decrease worldwide interconnection bills. Finest income rose 15% year-on-year in its native foreign money. EBITDA margin expanded by a exceptional 15 share level in comparison with final 12 months. Due to the not too long ago revised MTR charge, which led to decrease interconnection bills. Subsequent slide, I wish to say a couple of phrases about Togg, our e-mobility initiative.

Our funding in Turkey’s electrical automobile initiative is a strong steps in direction of realizing alternative within the e-mobility ecosystem. In a promise to ship Turkey’s first good mobility gadgets as you could recall the omni expertise compass had turn out to be prepared for mass manufacturing in October final 12 months. In March, speak started costs of its first good mobility gadgets and acquired a robust demand of 9 instances. Electrical automobile deliveries began in April. As Turkey’s main fee platform, Paycell offered the fee infrastructure for the method via Turk’s owned app. Paycell managed to course of round TRY 11 billion transaction easily and its very first firm on this planet to attain such a big transaction quantity via a rolled up in a short while.

Within the meantime, Turk has led the foundational growth and manufacturing issue adjoining to its expertise compass along with battery big [indiscernible] Power. The power is deliberate to be accomplished by 2024. Now, I wish to go away the ground to our appearing CFO, Mr. Kamil Kalyon.

Kamil Kalyon: Thanks, Murat. Now let’s take a better look into the financials. Group revenues grew by 62% year-on-year akin to an incremental rise of TRY 6.6 billion. This quarter was one other interval the place we noticed the outcomes of our devoted worth changes leading to strong ARPU development. Turkcell rose 70% on this quarter. Due to an increasing subscriber base and an ARPU development that exceeds inflation. Our digital enterprise companies was one other income driver with its settling efficiency. The income contribution of Worldwide phase was restricted to TRY 442 million on this quarter, reflecting the easing inflation in our worldwide markets, in addition to the slowdown in foreign money depreciation. Section added TRY 253 million to the highest line on the again of Paycell tripling transactional quantity and finance gross sales, greater mortgage portfolio and common rates of interest.

Enchancment of the opposite phase’s contribution on a yearly foundation is principally because of an increase in gross sales from digital channels and better gear revenues. Subsequent slide please. Now some highlights on EBITDA growth. Sturdy income development has been the important thing driver of the 57% rise in EBITDA. On this quarter, EBITDA margin contracted by 1.1% year-on-year, declining the interconnection bills as a share of revenues partially compensated the rise in personnel bills. Please recall that, we had made a secondary rise to attend in July final 12 months on prime of the January rise, following the minimal web page improve. Power bills had a restricted influence on the EBITDA margin, as final 12 months’s power worth hikes have been exceptionally excessive. Final, I wish to point out about Turkcell Worldwide profitability.

On this quarter, EBITDA margin of the phase improved by 3.8% year-on-year. Likewise enhancing margin efficiency in Ukraine was joined by Finest in Belarus. Due to the not too long ago introduced MTR change in favor of us. Subsequent slide please. Let’s take a better have a look at our CapEx administration. As we start the 12 months, we’re implementing a disciplined CapEx plan which brings our final 12-month CapEx depth ratio to twenty.6% consistent with our steerage. Trying on the CapEx breakdown, cell and glued investments every account for one-third of the entire CapEx. On the cell CapEx facet, our non-discretionary method remains to be intact as evidenced by a single-digit cell CapEx depth. Of notice, we needed to make round TRY 350 million one-off CapEx as a result of earthquake.

On the mounted facet, having realized 1.5 million fiber homepasses in previous two years. We’ve got determined to decelerate the given compelling value atmosphere. Subsequently, this 12 months we are going to concentrate on monetizing these current homepasses. This quarter we added 160,000 new homepasses to our portfolio. We’re continuing with increasing our white area capability in our knowledge facilities. Due to modular construction of our current knowledge facilities, we’re simply including new modules to fulfill rising demand. Subsequent slide please. On the finish of Q1, our gross debt place elevated by 4.62 TRY 59 million [ph], due in to new borrowings and foreign money depreciation influence of TRY 1.4 billion. Our money place elevated by TRY 1.4 billion to only over TRY 27 billion in Q1. FX actions had TRY 0.5 billion constructive influence within the money place.

To notice, TRY 1.4 billion wi-fi utilization tax fee in Q1 negatively affected our money place. As of first quarter of the 12 months, group internet debt was round TRY 23 billion with a 0.9 instances internet leverage. Excluding the Techfin enterprise, this was at 0.8 instances consistent with the earlier quarter. We’re far beneath from our long-term threshold of 1.5 instances internet debt to EBITDA. Of notice, 10% depreciation in our foreign money results in a 0.1 instances improve in our internet leverage. Nearly all of our money continues to stay in laborious currencies. Excluding FX swaps, 57% of our money is in US greenback and 15% in euros. This money is enough to cowl our debt service till 2025. The FX debt service is round US$280 million this 12 months, which we consider within reason manageable given our sturdy money place and dedicated long-term credit score strains.

Subsequent slide, please. Lastly, I’ll go into the administration of overseas foreign money danger in Q1. We’ve got continued to maintain majority of our money in FX and in addition make the most of hedging devices as a part of our prudent monetary danger administration method. Trying on the FX place composition, we had US$1.9 billion equal of FX debt on our steadiness sheet. On the asset facet we had US$1.4 million equal FX money and a US$600 million by-product portfolio primarily comprised of proxy hit identify with futures and forwards. Total, we ended up with a brief FX place of simply US$21 million, which is inside our impartial FX place definition of plus and minus US$200 million. We could nevertheless see the next brief FX place once in a while throughout the remainder of the 12 months resulting from proof of liquidity as greater prices for hedging as nicely because of 2G license price of round €140 million.

This concludes our presentation and we are able to now open the road for questions. Thanks.

Q&A Session

Operator: Girls and gents, we are going to start the question-and-answer session. [Operator Instructions] The primary query is from the road of Kennedy-Good Jonathan with JPMorgan. Please go forward.

Operator: The following query is from the road of Mark Cho [ph] with Schroders. Please go forward.

Operator: [Operator Instructions] Our subsequent query is from the road of Mandaci Ece with Unlu Securities. Please go forward.

.:

Operator: And Mandaci, you end together with your query?

Operator: [Operator Instructions] Girls and gents, there are not any additional questions at the moment. I’ll now flip the convention over to Turkcell administration for any closing feedback. Thanks.

Operator: Sure sir. The following query is from the road of Demirtas Cermal with Ata Make investments. Please go forward.

Operator: Girls and gents, there are not any additional audio questions at the moment. I’ll now flip the convention over to Turkcell administration for any closing feedback. Thanks.

Ali Serdar Yağcı: Thanks very a lot for being with us on this Q1 outcomes. We hope to see you within the subsequent one. Thanks very a lot. Thanks bye-bye.

Murat Erkan: Thanks very a lot. Bye.

Operator: Girls and gents, the convention has now concluded and you could disconnect your phone. Thanks for calling and have a nice night.