Turkcell Iletisim Hizmetleri: Third Quarter 2024 Results

“Resuming the real growth path”

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 Türkiye,” which comprises our telecom, digital services, and digital business services related businesses in Türkiye (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 Türkiye only figures unless otherwise stated. The terms “we,” “us,” and “our” in this press release refer only to Turkcell Türkiye, 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 Türkiye (BeST and KKTCELL).
  • As per Turkcell Group’s announcement on September 9, 2024, the transfer of shares, along with all rights and liabilities in Lifecell LLC, LLC Global Bilgi, and LLC Ukrtower, was completed. As of Q324, Turkcell Group no longer holds any shares in these companies. These operations have been classified as assets held for sale and as discontinued operations.

• “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.

• This press release provides a year-on-year comparison of our key indicators and figures in parentheses following the operational and financial results for September 30, 2024 refer to the same item as at and for the three months ended September 30, 2023. For further details, please refer to our consolidated financial statements and notes as at and for September 30, 2024, 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 third quarter and nine months of 2023 and 2024 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 percentage comparisons appearing in this press release reflect mathematical calculation.

NOTICE

This press release contains the Company’s financial information for the period ended September 30, 2024, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). This press release contains the Company’s financial information prepared in accordance with International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies (“IAS29”). Therefore, the financial statement information included in this press release for the periods presented is expressed in terms of the purchasing power of the Turkish Lira as of September 30, 2024. The Company restated all non-monetary items in order to reflect the impact of the inflation restatement reporting in terms of the measuring unit current as of September 30, 2024. Comparative financial information has also been restated using the general price index of the current period.

This release includes forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, Section 21E of the U.S. Securities Exchange Act of 1934, and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. This includes, in particular, and without limitation, our targets for revenue growth, EBITDA margin, and operational capex over sales ratio for the full year 2024. In establishing such guidance and outlooks, the Company has used a certain number of assumptions regarding factors beyond its control, in particular in relation to macro-economic indicators, such as expected inflation levels, that may not be realized or achieved. More generally, all statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding our operations, financial position, and business strategy, may constitute forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as, among others, “will,” “expect,” “intend,” “estimate,” “believe,” “continue,” and “guidance.”

Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. In addition, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by forward-looking statements. Should one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned, or projected.

These forward-looking statements are based upon a number of assumptions and other important factors that could cause our actual results, performance, or achievements to differ materially from our future results, performance, or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. For a discussion of certain factors that may affect the outcome of such forward- looking statements, see our Annual Report on Form 20-F for 2023 filed with the U.S. Securities and Exchange Commission, and in particular, the risk factor section therein. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this press release. All forward-looking statements in this press release are based on information currently available to the Company, and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

The Company makes no representation as to the accuracy or completeness of the information contained in this press release, which remains subject to verification, completion, and change. No responsibility or liability is or will be accepted by the Company or any of its subsidiaries, board members, officers, employees, or agents as to or in relation to the accuracy or completeness of the information contained in this press release or any other written or oral information made available to any interested party or its advisers.

FINANCIAL HIGHLIGHTS

THIRD QUARTER HIGHLIGHTS

• As per our announcement on September 9, 2024, we completed the transfer of shares, along with all rights and liabilities in Lifecell LLC, LLC Global Bilgi, and LLC Ukrtower operating in Ukraine. Turkcell Group no longer holds any shares in these companies.

• Solid operational profitability:

• Group revenues up 6.9% year-on-year, with Turkcell Türkiye’s strong ARPU and subscriber net add performance primarily driven by postpaid and techfin segment contribution

• Robust performance by Techfin segment; Paycell revenues up 19.6%; Financell revenues up 38.1%

• EBITDA rose 10.4%, leading to an EBITDA margin of 44.2%; EBIT up 13.1%, resulting in an EBIT margin of 16.3%.

• Net income was positive at TRY 14.3 billion, including the sale of subsidiaries in Ukraine

• Net leverage level at 0.1x; long FX position of US$228 million

• Profitability-centric operational performance:

• Turkcell Türkiye subscriber base³ up by 322 thousand quarterly net additions

• 515 thousand quarterly mobile postpaid net additions; 1.5 million net additions in the first nine months of the year

• 47 thousand quarterly fiber net additions

• 67 thousand new fiber homepasses in Q324

• Mobile ARPU⁴ growth of 6.9%; residential fiber ARPU growth of 15.1%

• Data usage of 4.5G users at 19.5 GB in Q324

• Since inflation exceeded expectations in the second half of the year, we have revised our revenue growth guidance⁵ for 2024 to around 7%. We maintain our EBITDA margin target of around 42%, and operational capex over sales ratio⁶ guidance at around 23%.

(1) EBITDA is a non-GAAP financial measure. See page 14 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) Including mobile, fixed broadband, IPTV, and wholesale (MVNO&FVNO) subscribers

(4) Excluding M2M

(5) The guidance for the year 2024 includes the effects of implementing inflation accounting in accordance with IAS 29. Our 2024 guidance has been established using a certain number of assumptions regarding factors beyond our control, including in relation to macroeconomic indicators such as expected inflation levels. In particular, our 2024 guidance is based on an assumed annual inflation rate of 43% (previously 37%), applied on a monthly basis. 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 2023 filed with the U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(6) Excluding license fees

For further details, please refer to our consolidated financial statements and notes as at September 30, 2024, via our website in the Investor Relations section (www.turkcell.com.tr).

COMMENTS BY CEO, ALİ TAHA KOÇ, PhD

Resuming the Real Growth Path

As we celebrate our 30^th anniversary at Turkcell Group, we remain committed to creating value for our stakeholders through strong foundations and an innovative vision. In line with our strategic goals, we took a significant step by completing the sale of our assets in Ukraine on September 9, 2024. The proceeds from this transaction have been reflected in our third-quarter financial results.

We have proudly led Türkiye’s digitalization journey for over 30 years. We will now share our expertise and vision on the global stage. With my recent election to the board of directors of GSMA, the global GSM association, I am honored to represent not just the Turkcell brand but also Türkiye. We will continue to make significant contributions to the mobile communications sector and the broader digital landscape under the GSMA umbrella.

We continue the renewable energy investments in line with our plans. Recently, we completed the first phase of our solar energy investments, installing 54 MW of power, with 6.4 MW already activated in the third quarter. Following the acquisition of the necessary permits, we will progressively bring the remaining capacity online.

We delivered a strong quarter, driven by a robust ARPU performance of Turkcell Türkiye, an expanding postpaid subscriber base, and contributions from our Techfin business. In the third quarter of 2024, our group revenues rose by 6.9% on an annual basis to TRY 40.2 billion, while our EBITDA¹ margin increased by 1.4 points to 44.2% despite the wage increase we made to protect the purchasing power of our employees, who are our focus of value. Our net income reached TRY 14.3 billion, with our strong operations, which contributed TRY 3.1 billion, along with the proceeds from the asset sale in Ukraine. In the third quarter, Turkcell Türkiye’s subscriber base increased by 322 thousand to 43.5 million.

Despite the aggressive competition, we achieved strong operational results

In the third quarter, we continued to deliver a strong operational performance. We gained a net of 515 thousand postpaid subscribers, bringing our total net additions in the last 12 months to 1.9 million. As a result, the share of our postpaid subscriber base grew by 4 percentage points year-on-year, reaching 74%. Thanks to our expanding postpaid subscriber base, price adjustments, and successful upsell, our Mobile ARPU² growth increased to 6.9% year-over-year. Since May, we have observed increased activity in the Mobile Number Portability (MNP) market due to the aggressive pricing actions of competitors. This trend intensified further in the third quarter as competition heightened. Increased competition, along with seasonality, resulted in a mobile churn rate of 2.2% for the third quarter.

In line with our customer-focused approach, we introduced our ’30^th Year 1000 Mbps Speed ​​Campaign’ to our fixed broadband customers in September. In the fixed broadband segment, we remain focused on fiber subscribers, having gained 47 thousand net subscribers thanks to the strong demand for our high-speed and end-to-end fiber service, while our subscriber base exceeded 2.4 million. The share of our 12-month contract packages, implemented to mitigate the effects of inflation, increased by 23 percentage points year-on-year among our residential fiber subscribers, reaching 82%. In the third quarter of 2024, our residential fiber ARPU rose 15.1% year-on-year thanks to the increasing 12-month contract subscriber share, upsell strategy and price adjustments in fixed broadband services and IPTV.

Our Techfin business continues to support financial performance

Our strategic focus area, Techfin, which includes our Financell³ and Paycell brands, continued to support group revenue strongly in the third quarter. Financell grew by 38.1% on an annual basis, recording a revenue of TRY 1.1 billion, supported by the increase in average interest rates, while the net interest margin of 4.1% continued to improve. On the other hand, Paycell revenues grew by 19.6%, reaching TRY 970 million, driven by the high demand for our POS solutions and the increasing volume of Paycell Card. The transaction volume of the “Pay Later” mobile payment service, which has the largest share in Paycell revenues, increased by 24% (non-group) to TRY 3.1 billion. Since its launch, our POS solutions have exceeded demand expectations, maintaining a strong performance with an 86% increase in transaction volume.

The number of standalone paid users of our digital services⁴ decreased by 14% year-on-year, reaching 5.0 million, in line with our expectations as we prioritized profitability. Meanwhile, our TV+ platform, which has consistently expanded its market share since its launch, has now become the second-largest player in the market, according to the ICTA’s second-quarter report.

In our Digital Business Services portfolio, the revenues from our four next-generation data centers, with a total IT capacity of 55 MW –33 MW of which is active—and cloud services offering value-added services, grew by 43% in the third quarter, reaching TRY 639 million. We are committed to expanding the capacity of our data centers, which will remain a key strategic priority in the years ahead.

We revise our guidance

Due to higher-than-expected inflation in the second half of the year, we have revised our year-end inflation forecast upwards. Accordingly, we are updating our revenue growth target⁵ for 2024 to approximately 7%. We maintain our EBITDA margin expectation at approximately 42% and our operational capex to sales⁶ ratio target at approximately 23%.

I extend my heartfelt thanks to all our employees for their contributions to our success and express my gratitude to our Board of Directors for their continued support.

(1) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income

(2) Excluding M2M

(3) Following the change in organizational structure, the revenues of Turkcell Sigorta Aracılık Hizmetleri A.Ş. (Insurance Agency), which was previously managed under Financell, are now classified as “Other” in the Techfin segment as of the first quarter of 2023.

(4) Including IPTV, OTT TV, fizy, lifebox and GAME+

(5) Our expectations for 2024 incorporate the effects of inflation accounting under IAS 29. These projections are based on assumptions regarding factors beyond our control, including key macroeconomic indicators such as inflation. Specifically, we are assuming an annual inflation rate of 43%, applied on a monthly basis, (previous estimate: 37%). This paragraph contains forward-looking statements that reflect our current estimates and expectations regarding market conditions across all of our businesses. However, there can be no assurance that these forward-looking statements will occur as anticipated. For a discussion of the various factors that could impact the outcome of these forward-looking statements, please refer to our 2023 annual report on Form 20-F filed with the SEC, specifically the risk factors section.

(6) Excluding license fees

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 14 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 6.9% year-on-year in Q324. This was mainly driven by Turkcell Türkiye’s strong performance supported by a larger postpaid subscriber base that generates more ARPU than prepaid subscribers, upsell efforts and a solid increase in fixed segment ARPU. The Techfin segment’s solid revenue growth of 30.9% also supported the Group revenue increase.

Turkcell Türkiye revenues, comprising 87% of Group revenues, rose 7.1% year-on-year to TRY34,854 million (TRY32,550 million).

– Consumer segment⁴ revenues grew 10.8% year-on-year on the back of rising postpaid subscriber share, price adjustments, and upsell efforts.

– Corporate segment⁴ revenues declined by 1.4% year-on-year. Constrained demand in the tightening economic environment negatively impacted the hardware revenues of digital business services, which declined by 44.1% year-on-year. Recurring service revenues rose 18% year on year.

(4) Following the change in organizational structure, the revenues from sole proprietorship subscribers that we define as Merchant, which were previously managed under the Corporate segment, are being reported under the Consumer segment as of and from the third quarter of 2023. Within this scope, past data has been revised for comparative purposes.

– Standalone digital services revenues across consumer and corporate segments rose 4% year-on-year, primarily attributed to price adjustments, despite the continued shrinkage of the paid user base in consequence of our profitability-focused strategy.

– Wholesale revenues were down 9.9% year-on-year to TRY2,378 million (TRY2,639 million), resulting from alternative data solutions in the market.

Turkcell International¹ revenues, comprising 2% of Group revenues, rose 20.6% to TRY935 million (TRY775 million).

Techfin segment revenues, comprising 5% of Group revenues, were up 30.9% year-on-year to TRY2,132 million (TRY1,629 million). Financell’s revenue grew 38.1%, and Paycell’s revenues increased 19.6% year-on-year. Please refer to the Techfin section for details.

Other segment revenues, at 6% of Group revenues, which mostly include non-group call center and energy business revenues and consumer electronics sales revenues, declined 14.6% year-on-year to TRY2,251 million (TRY2,636 million). This was primarily caused by weak demand for consumer electronics.

Cost of revenue (excluding depreciation and amortization) decreased to 44.8% (47.8%) as a percentage of revenues in Q324. The decline in the cost of goods sold (2.2pp), interconnection cost (1.1pp), and other cost items (1.2pp) outweighed the rise in personnel expenses (0.9pp) and funding cost (0.6pp) as a percentage of revenues.

Administrative Expenses increased to 4.1% (3.2%) as a percentage of revenues in Q324. This was mainly led by higher employee expenses (0.7pp) as a percentage of revenues.

Selling and Marketing Expenses increased to 6.3% (5.4%) as a percentage of revenues in Q324, due mainly to the rise in personnel expenses (0.6pp) as a percentage of revenues.

Net impairment losses on financial and contract assets decreased to 0.6% (0.8%) as a percentage of revenues in Q324.

EBITDA² grew 10.4% year-on-year in Q324, leading to an EBITDA margin of 44.2% (42.8%).

– Turkcell Türkiye’s EBITDA rose 12.6% year-on-year to TRY16,739 million (TRY14,865 million) with an EBITDA margin of 48.0% (45.7%). The primary contributors to margin improvement were lower interconnection costs and a reduction in cost of goods sold as a percentage of revenues.

– Turkcell International EBITDA declined 1.2% year-on-year to TRY365 million (TRY369 million), leading to an EBITDA margin of 39.

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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