Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) Q3 2023 Earnings Call Transcript

Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) Q3 2023 Earnings Name Transcript November 7, 2023

Operator: Women and gents, thanks for standing by. I’m [Gaeli], your Refrain Name operator. Welcome, and thanks for becoming a member of the Turkcell’s convention name and reside webcast to current and talk about the Turkcell Third Quarter 2023 Monetary Outcomes Convention Name [Operator Instructions]. At the moment, I want to flip the convention over to Ms. Ozlem Yardim, Investor Relations and Company Finance Director. Ms. Yardim, chances are you’ll now proceed.

Ozlem Yardim: Thanks, [Gaeli]. Good day, everybody. Welcome to Turkcell’s third quarter 2023 earnings name. I’m Ozlem Yardim, and not too long ago appointed because the Head of IR and M&A hit. I’m right here with the corporate greater than a decade and excited to satisfy every of you in individual within the close to future. I’m at all times right here to handle your questions and feedbacks. Right this moment, our CEO, Ali Taha Koc; and CFO, Kamil Kalyon, can be delivering a quick presentation protecting operational and monetary outcomes of third quarter, which can be adopted by a Q&A session. Earlier than we start, I want to kindly remind you to overview our protected harbor statements out there on the finish of our presentation. Now I’m handing the assembly over to Mr. Ali Taha.

Ali Taha Koc: Thanks, Ozlem. Good day, everybody. Thanks for becoming a member of us right now. I’m honored to have been appointed because the CEO of Turkcell, which pioneered cellular telecommunication know-how in Turkiye and stays a flag provider within the international capital markets. With a robust background in telecommunications, know-how and innovation, I’ve contributed to quite a few patents and worldwide tasks throughout my tenure at Intel Company. I’ve additionally held key positions overseeing the digital transformation of Turkiye. With a wealth of expertise in my new function, I’m dedicated to advancing Turkcell’s main place in our nation’s digital sovereignty. We are going to harness our superior technological capabilities to foster innovation and so they create brighter digital imaginative and prescient for all whereas taking Turkcell to the following stage.

As we’re [celebrating] the centennial of the Republic, I’m assured in Turkcell’s management in know-how and innovation will additional carry our nation to the second century. Turkcell’s efficiency within the third quarter improved the success of this firm, which is levered by a sturdy enterprise mannequin, state-of-art capabilities that improve buyer satisfaction and a workforce of extremely expert people. My preliminary analysis of the corporate has reaffirmed my notion of Turkcell. My major mission is to bolster Turkcell’s place within the telecommunication and know-how market. To realize this, I plan to put a larger emphasis on technological developments and innovation. To unlock the total potential that lies throughout the Turkcell capabilities, I intention to attain sustainable progress and create worth for Turkcell shareholders.

Let me dive into financials. We delivered a strong set of leads to the third quarter. Persevering with to outpace inflation, our income progress accelerated to 7%, pushed by document ARPU progress and a considerably increasing subscriber base. Our EBITDA exceeded TRY11 billion, marking a powerful 89% annual enhance. This progress is pushed largely by strong prime line efficiency and diminished power costs regardless of elevated personnel bills. Our margin reached 43.5% on a yearly rise of two.6 share factors. We delivered a exceptional web revenue of TRY5.5 billion, due to sturdy operational efficiency supported by energetic danger administration As a reminder, we paid the primary installment of our donation for the earthquake aid in September. This end result enabled us to extend our full 12 months steerage additional.

Subsequent slide, please. Let’s take a better take a look at our cellular operational efficiency. Now we have concluded a dynamic quarter for the cellular market, leveraging strategic pricing actions and its aggressive pressures of greedy summer season seasonality. Within the third quarter, we made the value adjustment in August, responding to the hovering inflation charges of July. Whereas total value stage throughout the market escalated, we additionally noticed aggressive promotional campaigns which have shifted the MMP market away from rationality. Our dedication to cost changes stays intact as we now have already adjusted costs by 20% for This fall in October. Small ARPU sustained its climb, due to sequential value changes aligned with inflationary pricing coverage and bolstered by upsell efforts supported by analytical fashions.

Accordingly, we recorded 87% year-on-year progress. This quarter, we gained a web of 392,000 postpaid and 193,000 pay as you go subscribers. This exceptional end result was pushed by our technique of specializing in postpaid subscribers and summer season season, which had a optimistic impression on pay as you go providers. Nevertheless, elevated competitors from various information options and rising acquisition costs impacted the pay as you go web addition. The cellular churn price ticked as much as 2%, although remaining at a wholesome stage regardless of the aggressive pricing efforts of two opponents. Subsequent slide, please. Within the mounted broadband phase, we had a web achieve of 48,000 fiber subscribers, due to an expanded fiber footprint and elevated demand in the course of the back-to-school interval. The 12 months’s solely value motion by the incumbent befell in July, which we comply with.

Due to our technique targeted on 12 month contract choices, the ratio of these in our fiber portfolio reached 59% within the third quarter. With 88% of our new prospects choosing a 12 month contract in September and the removing of 24 month contract choices on this quarter, it’s honest to anticipate the next 12 month contract ratio within the fiber base in upcoming durations. Consequently, value actions may have a extra instant impression on ARPU. Fiber ARPU ramped up by 63% almost pushed by our value changes, offsetting efforts to increased tariffs, our give attention to 12-month contract choices and better IPTV pricing. It’s honest to anticipate actual progress in fiber ARPU can be sustained for the rest of the 12 months. [Introducing] shorter contract durations and the value adjustment within the mounted phase has led to a slight enhance in churn ranges yearly, we’re happy to register an extra 31,000 web additions to our IPTV subscribers, bringing our complete buyer base to 1.4 million.

We offered IPTV to 66% of our fiber subscriber base. Subsequent slide, please. Concerning our strategic focus areas, let’s start with Digital Providers and Options. The standalone revenues from digital OTT providers rose 103% year-on-year. We launched new value changes throughout most of our digital service portfolio. The standalone paid person base reached 5.8 million, marking a 1 million price on the earlier 12 months. Our TV platform, TV+, expanded its buyer base on each OTT and IPTV platforms, due to its wealthy content material and one of the best pricing technique. It has persistently elevated its market share within the pay TV market for the reason that second quarter of 2014, and most not too long ago reached 17.2% regardless of ongoing value changes all year long. Lifebox, our cloud storage platform, has seen substantial progress, reaching 2.1 million subscribers, rising 29% on a yearly foundation.

Our digital enterprise providers taking part in a pivotal function in supporting the digital transformation of enterprises recorded 76% year-on-year progress. We additionally witnessed sturdy efficiency within the promising verticals, significantly within the information heart and cloud phase, which accounts for 16% of our DBS revenues and posted strong income progress of 152%. This quarter, we had a document stage of recent contracts exceeding 1,500 contracts. Subsequent slide, please. Our techfin corporations as soon as once more delivered a robust efficiency, supporting the group’s prime line within the quarter. Digital monetary providers platform Paycell’s income rose 112%. The flagship product Pay Later sustained its progress — strong progress with greater than doubling transaction worth. Paycell’s division offering options throughout numerous verticals of the Turkish fintech ecosystem has been increasing its attain.

Paycell prospects can now execute Borsa Istanbul Inventory Alternate transactions via the app by way of a [CIMB] licensed brokerage home. Moreover, Paycell provides procuring limits to its prospects via Financell in collaboration with Turkey’s famend pioneering e-commerce platform. Financell revenues grew by 104%. The mortgage ebook has expanded to TRY5.7 billion and 97% progress, due to mortgage portfolio diversification with new merchandise, akin to inexperienced loans for photo voltaic power investments provided to enterprise prospects. Growing funding price has diluted the margins as a result of scarcity of long run funding liquidity. Complementing our techfin technique, our digital insurance coverage firm Wiyo began operations in July 2023 with mortgage manufacturing insurance coverage.

We can be sharing extra details about Wiyo, which stands for with you, together with KPIs and product improvement within the coming quarterly critiques. Subsequent slide, please. Now our worldwide subsidiary. Turkcell Worldwide revenues, comprising 11% of consolidated revenues, grew by 75% year-on-year within the third quarter. The expansion got here primarily from the optimistic impression of foreign money actions and progress in all subsidiaries. Excluding the foreign money impression, the phase has grown 30% organically. Life-style revenues, which account for 76% of this phase, grew by 26% year-on-year in native foreign money phrases. The rising ARPU and increasing subscriber base underpinned the efficiency whereas the impression of conflict throughout the identical interval of final 12 months was the issue curbing the expansion.

Greatest recorded 18% natural income progress on a yearly foundation. And the EBITDA margins reached 46%, marking a considerable 14-point enchancment. Decrease interconnection bills have been the primary driver of this excessive profitability. In September, we launched 4.5G providers within the Turkish Republic of Northern Cyprus, establishing ourselves because the pioneering supplier within the nation. Subsequent slide, please. In accordance with GSMA stories, the telecommunication business consumes 2% to three% of world energy consumption. As operators, power utilization grows each day with rising information demand, so does our carbon footprint. Moreover, contemplating the worldwide power disaster we skilled final 12 months, we could face even increased power value and shortage. In [Technical Difficulty] we’re additionally actively taking associated steps.

We’re implementing numerous tasks for optimum and environment friendly power utilization. Moreover, we make the most of 100% renewable power certificates — licensed sources and intensify give attention to our renewable power funding. As chances are you’ll recall, Turkcell acquired a wind energy plant in Turkiye two years in the past, which presently generates 8% of our power utilization. This acquisition marked an incredible leap in direction of reaching web zero by 2050. This 12 months, we initiated investments in solar energy plant installations to attain a capability of 300 megawatts inside three years. The primary section with an put in capability of 54 megawatts can be accomplished by the top of first half subsequent 12 months. We intention to cowl 65% of Turkcell’s complete power consumption from our personal inexperienced power manufacturing by 2026.

This name shields us towards power value fluctuations and reinforce our dedication to sustainability. Subsequent slide, please. To conclude my presentation, and right here I’m happy to share our up to date steerage for 2023. Constructing on our excellent efficiency within the first 9 months of this 12 months, we now have determined to revise our steerage upwards to align with a extra reasonable expectation. Accordingly, we raised our income progress steerage to round 73%, producing actual income progress. Our nominal EBITDA expectation is now set round TRY39 billion and we anticipated sustaining an operational CapEx over gross sales ratio of round 22%. I firmly imagine that Turkcell has a scope to ship a stronger efficiency over the approaching years. We’re assured in our capability to create worth via developments in synthetic intelligence, improvements and cybersecurity by leveraging our state-of-the-art infrastructure in subsequent technology communication know-how.

Furthermore, we intention to capitalize on the evolving digital habits of our prospects with offering our superior digital providers. I’ll now depart the ground to our CFO, Mr. Kamil Kalyon.

Kamil Kalyon: Thanks very a lot, Ali Taha. Now let’s transfer on to our monetary outcomes. Our group’s income delivered an incremental income of TRY11.3 billion, marking 77% year-on-year progress. The Turkcell Turkiye phase was the primary driver of this efficiency, pushed by an increasing subscriber base, sturdy ARPU progress, due to sequential value changes and profitable upselling efforts. The contribution of the Worldwide phase was TRY1.2 billion. The primary drivers of this rise have been the optimistic impression of foreign money actions and our Ukrainian operations efficiency. Our techfin phase contributed TRY537 million to the highest line with the sturdy efficiency of Paycell and Financell, which grew 112% and 104% respectively.

Subsequent slide, please. Now let’s take a look at our EBITDA efficiency. Within the third quarter, group EBITDA grew 88.9% to TRY11.3 billion on account of strong prime line efficiency. The EBITDA margin expanded by 2.6% on a yearly foundation on this quarter. The rise in personnel bills as a result of wage value that grew to become efficient at first of the quarter was greater than compensated by the decline in the price of items. Power bills sustained the optimistic impression on the margin this quarter as effectively. Please notice that the power market regulatory authority has introduced a 20% value enhance efficient from October 1st, which may have an adversarial impression on our This fall outcomes. Declining NPL charges via 2024 12 months finish will proceed to impression profitability within the upcoming durations positively.

Subsequent slide, please. Now the online earnings efficiency. Group web earnings surged by TRY3.1 billion, reaching a exceptional TRY5.5 billion on 129% year-on-year progress. Our strong operational efficiency boosted EBITDA contribution to TRY5.3 billion, resulted within the strong web earnings. The restricted depreciation of the Turkish lira resulted in decrease international alternate losses in Q3, significantly in comparison with the earlier quarter. The MTM valuation of the spinoff portfolio had a optimistic impression of TRY600 million on the general web FX lack of TRY670 million. The tax impression of the earthquake donation and the change within the company tax price on deferred tax belongings led to a decrease tax expense on this quarter. Subsequent slide, please. Let’s take a better take a look at our CapEx administration.

The CapEx to gross sales ratio was 14.6% for the third quarter, which brings the previous 12 months determine to 19.4%. Due to a entrance loaded funding within the cellular phase, we primarily focused on upkeep CapEx, excluding the earthquake mortgage. Having made the fiber house base goal within the first half, we targeted extra on monetization within the six segments. These enhancements have resulted within the enlargement of different segments within the complete CapEx breakdown. FX actions have been the first cause for the rise in worldwide CapEx somewhat than increased natural funding. We anticipate to see the next CapEx depth within the subsequent quarter on account of seasonality of the enterprise and new funding areas like information facilities and renewable power. Subsequent slide, please.

Now let’s flip our consideration to the stability sheet. On the finish of Q3, our money place elevated by TRY4 billion, supported by FX actions of TRY1.3 billion, whereas money technology totaled TRY1.8 billion. Our gross debt elevated to TRY83.5 billion, primarily on account of TRY2.9 billion foreign money depreciation and new borrowings of TRY2.4 billion. We ended the quarter with a web debt place of TRY28.1 billion. Due to strong EBITDA technology, our web debt decreased to 0.8 instances. Our leverage ratio is sort of wholesome and we’re far forward of our opponents. Along with the sturdy money place, we now have dedicated traces of round EUR175 million equal for the upcoming durations. The vast majority of our money continues to stay in laborious currencies. Excluding FX swaps, 56% of our money is in US {dollars} and 13% in euros.

Subsequent slide, please. Lastly, let’s look into the administration of international foreign money danger in Q3. On the finish of Q3, our stability sheet had round $1.9 billion equal in FX monetary liabilities. Along with the $1.4 billion equal FX denominated monetary money, we now have a $700 million efficient hedging portfolio, the overwhelming majority of which consists of future ahead at NDFs. We ended up with an extended FX place of $145 million, which is inside our impartial FX place definition. This concludes our presentation, and we will now open the road for questions.

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Q&A Session

Operator: [Operator Instructions] The primary query is from the road of [Indiscernible].

Unidentified Analyst: Are you able to please share some ideas about what you’re planning on doing along with your upcoming debt maturities? There’s fairly effectively forward like $2 billion between now and 2025, so it might be nice to get some coloration on that.

Kamil Kalyon: Now we have round $1.4 billion as FX money in hand as of the third quarter. As well as, we now have round $185 million dedicated long run amenities, as I discussed in my presentation. And as of Q3, our money [indiscernible] service our debt till the top of 2024, our FX debt gross sales for this 12 months is round $150 million, which we deem as manageable. As you talked about, concerning our 2025 euro bond to promote processes and to create money reserves to meet the bond redemption as evident from our monetary statements. Nonetheless, we’re diligently exploring a spread of aggressive analysis of alternate options for the reissuance of the 2025 euro bond. These alternate options embody potential options, akin to launching a contemporary bond sukuk providing or securing a financial institution mortgage.

Operator: Subsequent query is from the road of [indiscernible] from Ata Make investments.

Unidentified Analyst: My first query is in regards to the fiber investments in Turkey. What’s the present share of your organization on this space, what are your targets for the long run? I would really like you to elaborate that. And the second query is in regards to the inflation accounting set. What may be the impression of inflation accounting utility in your financials beginning by the next? If you realize that you just additionally introduced the inflation adjusted figures, as a result of as you might be listed in US. However I want to perceive the way it will have an effect on your tax funds or different components, or any impression in your financials?

Ali Taha Koc: Let me reply the primary one, after which I’m going handy over to my CFO. As a part of our CapEx planning this 12 months, we focus extra on our core companies. In comparison with the final 12 months, cellular investments will take a bit extra share given the catastrophe associated damages. On the fiber entrance, every year, we preserve a balanced CapEx technique with a requirement pushed method. Now we have determined to lower homepass funding to 380,000 on account of uncertainties that come up from the present macroeconomic state of affairs and our new monetization technique on the fiber aspect. Consistent with the elevated demand, we accelerated our funding and added a complete of 1.5 million new homepasses in 2021 and 2022. Accordingly, we now slowed down our funding on that aspect and have progressed on the monetization section.

Nevertheless, if a necessity arises, we will additionally think about rising our homepass investments in keeping with our good CapEx technique. Moreover, we now have exceptional power funding plans on the power aspect to satisfy our personal electrical energy demand as effectively.

Kamil Kalyon: In inflation accounting system, we now have revised our 2022 financials as per the IFRS guidelines and we can be beginning the 2023 financials this 12 months concerning the IFRS aspect. Since we’re — because the CapEx or how can I say, the FX aspect are somewhat bit increased, the inflation accounting would have an effect on us somewhat bit positively within the earnings aspect, likely concurrently, the tax aspect may be affected over this situation, however we now have some instruments concerning the tax aspect, particularly for the deferred tax aspect and we might not have affected very negatively about this situation from the tax perspective.

Operator: [Operator Instructions] The subsequent query is from the road of Demirak Kayahan with AK Funding.

Kayahan Demirak: I imply I’ve a query about perhaps for the following 12 months. Would it not be attainable to offer any indication about to anticipate CapEx depth for the following 12 months, given your enlargement plans within the fiber? And in addition, might we assume that the corporate can be dedicated to do inflationary pricing, delivering actual progress like this 12 months?