Turkcell Iletisim Hizmetleri: Fourth Quarter and Full Year 2020 Results

“Robust Performance on Strong Business Plan and Strategy”

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 call center business revenues, financial services revenues, energy business revenues and inter-business eliminations.
• 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, 2020 refer to the same item as at December 31, 2019. For further details, please refer to our consolidated financial statements and notes as at and for December 31, 2020, 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 2019 and 2020 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 and quarter-on-quarter percentage comparisons appearing in this press release reflect mathematical calculation.

FINANCIAL HIGHLIGHTS

FULL YEAR HIGHLIGHTS

• Solid financial performance:
  • Group revenues up 16% with Turkcell Turkey’s topline growth of 17% supported mainly by strong ARPU performance, corporate projects and equipment sales on digital channels
  • EBITDA up 18% leading to an EBITDA margin of 42.2% on 0.7pp improvement; EBIT up 17% resulting in an EBIT margin of 21.6%
  • Net income up 31% positively impacted by TRY689 million deferred tax income registered by lifecell; net income up 39% excluding this impact and other one-off items
  • TRY812 million dividends distributed
  • Leverage down to 0.8x, despite FX fluctuations; long FX position at US$132 million
  • Strong free cash flow⁴ generation of TRY3.4 billion
• Operational momentum continued:
  • Turkcell Turkey subscriber base up by 1.1 million net additions; 1.6 million mobile postpaid net additions
  • Superbox⁵ subscribers at 591 thousand on 268 thousand annual net additions
  • Mobile ARPU⁶ growth of 15.0% driven mainly by higher postpaid share and increased data usage
  • Residential fiber ARPU growth of 9.2%
  • 2021 guidance⁷; revenue target of 14%-16%, EBITDA target of around TRY14 billion, and operational capex over sales ratio⁸ target of around 20%

FOURTH QUARTER HIGHLIGHTS

• Robust financial performance:
  • Group revenues up 18% on the back of strong performance of Turkcell Turkey
  • EBITDA up 18% resulting in an EBITDA margin of 41.2%; EBIT up 19% leading to an EBIT margin of 20.4%
  • Group net income at TRY1,302 million positively impacted by deferred tax income registered by lifecell; healthy net income performance of TRY1 billion excluding this impact and other one-off items
• Solid operational performance continued:
  • Quarterly mobile postpaid customer net additions of 464 thousand; 66% postpaid share
  • Mobile ARPU growth of 11.3% year-on-year; residential fiber ARPU growth of 8.6% year-on-year
  • Average monthly data usage of 4.5G subscribers at 14.9 GB in Q420
  • Digital channels’ share in Turkcell Turkey consumer sales (excluding fixed business) at 14.3%

(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) Please see Appendix A for details of one-off items.

(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) Superbox subscribers are included in mobile subscribers.

(6) Excluding M2M

(7) 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 2019 filed with the U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(8) Excluding license fee

For further details, please refer to our consolidated financial statements and notes as at December 31, 2020 via our website in the investor relations section (www.turkcell.com.tr).

COMMENTS BY MURAT ERKAN, CEO

We concluded the year 2020 successfully thanks to our sound game plan and strategy

The year 2020 will forever be remembered in world history for the COVID-19 pandemic. And having caused significant changes worldwide both of an economic and social dimension, the pandemic brought about the transformation of daily life and the way we do business. While we all became acquainted with the concepts of social distancing, remote working and distance learning, digitalization has left its mark on both our individual lives and the corporate world at an unprecedented rate. This period has indicated that one of the key elements in proceeding swiftly and successfully with digital transformation is a robust telecommunication infrastructure. And by mobilizing our technological infrastructure, know-how and competencies we have continued to provide our customers with an uninterrupted and high-quality communication experience. Indeed, this year we have felt more than ever the value of the systematic investment made in our infrastructure, and of having already adopted a digitalization strategy.

Our investors continued to gain through our strong results

In 2020, we achieved strong operational and financial results thanks to our digital-oriented strategy and sound business model. This was managed in spite of the global economic and political repercussions of the pandemic that impacted our countries of operations and Turkey in general. Consolidated revenues reached TRY29.1 billion with a year-on-year increase of 15.8%. As consolidated EBITDA¹ rose to TRY12.3 billion on an increase of 17.7%, the EBITDA margin printed at 42.2%. Our EBIT² margin was 21.6%. Excluding one-off impacts, net profit was TRY4 billion on a strong annual increase of 39%. The operational capex to revenues ratio was at 18.5% thanks to effective management of investment need. Along with these results that exceeded our guidance in terms of growth and profitability, in 2020 we distributed a dividend to our investors of TRY812 million corresponding to the highest rate permissible by current legislation, and reflecting our effective balance sheet management and cash generation strength.

We broke the record of the past 11 years with a net 1.6 million postpaid mobile subscriber additions. With that, we surpassed our additional 1 million subscriber target in 2020

In a year during which the effects of the pandemic were felt deeply, one of which being limited mobility, we gained a net 1.1 million subscribers, thereby achieving our target, despite the challenging circumstances. This resulted from our customer-driven strategy, innovative and comprehensive offers, broad sales network supported by digital channels and smartly managed strong infrastructure.

As our postpaid mobile subscriber base expanded at the record level of the past 11 years with net 1.6 million additions, its ratio to total mobile subscribers reached 66%. Mobile blended ARPU³ was at TRY49.1 on an annual rise of 15.0% with the effect of the larger postpaid subscriber base, rising data and digital service usage and upsell to higher tariffs.

We gained a net 180 thousand fiber subscribers on increased demand for our fixed broadband offers in 2020 as our customers spent more time at home. At the same time, residential fiber ARPU reached TRY70.9 on a rise of 9.2%. Superbox, through which we offer uninterrupted home internet at fiber speed over our mobile network, has become one of our most successful products. The Superbox subscriber number reached 591 thousand with an additional net 268 thousand subscriptions reflecting accelerating demand. Additionally, we reached 871 thousand IPTV subscribers in total by gaining a net 152 thousand additions this year.

We met the changing needs of our individual and corporate customers with our digital applications and services

In a period of increased time spent at home, we stood by our customers with our digital services portfolio. We enriched this portfolio with many new services, while at the same time, registering the incorporation of individual digital services companies, marking a significant milestone for their competition strategies. Along with new services such as TV+ Ready, Turkcell Digital Security Service, lifebox transfer, individual and corporate YaaniMail e-mail, we also launched the BiP Meet application in response to the rising need for video conferencing. Demand for our BiP application, which does not enforce data share permission or discriminate among its users – topics of considerable public debate amid rising concern over personal data security – has also increased rapidly. In the first two months of 2021, BiP registered 27 million new users. The stand-alone revenue of our digital services had increased by 26% year-on-year in 2020. In 2021, our aim is to increase the number of paid users, accelerate B2B opportunities, gain strength with our large screen strategy in the TV segment and take bold strides in new areas such as cloud gaming and game broadcasting businesses and grow the stand-alone revenue of this strategic focus by 25%.

The institutions of Turkey are being renewed with Turkcell Digital Business Services

The revenue of digital business services, one of our focal points, and with which we accompany private companies and public institutions on their digital transformation journeys increased by 30% in 2020. We successfully met the increased demand for new generation technologies such as data centers, cloud, cyber security, managed services, system integration projects, internet of things, big data and business applications, in addition to the conventional telecom services in our portfolio. We took the lead in corporate digital transformations having been awarded over 2,300 projects with a total contract value of TRY1 billion in 2020. Of these, 420 were system integration projects for which we provided end-to-end solutions. We have a backlog in the amount of TRY967 million from the system integration projects signed to date. As the largest data center operator of Turkey, we offered our more than 1,600 corporate customers the opportunity to manage their data remotely, supporting their business continuity. We put into use the cloud section of Ankara Temelli Data Center, Turkey’s largest data center, launching “Government Cloud” specifically designed for public institutions. Meanwhile, having implemented the technological infrastructure of 4 new hospitals in the health sector, two of which are field hospitals, we have reached a bed capacity of over 8 thousand at 9 hospitals in total, also continuing our market leadership of this sector. Additionally, this year, we increased the number of global vendor partnerships to 21 through strengthened cooperation. By further increasing our competencies in this field over the coming period, we will remain the digital transformation partner of corporations and become the leader in the information technologies services market.

Paycell, our new generation payment platform, sees growth with solutions that make a difference

In techfin, another focal point of ours, the demand for digital payment services increased rapidly in a period of changing payment habits. Duly, our customers were able to realize all their payment transactions swiftly and securely using Paycell, our new generation payment services platform. The annual transaction volume of Paycell reached TRY9.0 billion. We continued our dual strategy throughout the year, introducing member merchants and customers new offerings and taking fresh actions. The 3-month active users of Paycell, hugely popular for its convenience and secure payment infrastructure, reached 4.7 million. Thanks to the “Ready-to-use Limit” offered by Paycell since July, 190 thousand individual users have made purchases by transferring their mobile payment limits to their Paycell cards. Also this year, we enabled 24/7 money transfer service to IBAN numbers at banks party to the program. We also added the mobile POS product this year to the Paycell merchant solutions offered to 12 thousand-member merchants. We provided member merchants cost advantage and efficiency by offering the means of managing processes such as collection, inventory monitoring, and e-invoice over a single platform using the Paycell Android POS device. Going forward, we aim to diversify Paycell’s services with wealth management solutions and focus on commercial enterprises via our POS solutions while achieving 3-month active Paycell users of 6 million by the end of 2021.

Revenues through digital channels rose incrementally; Turkcell Pasaj became the new address of technological shopping

In promoting wider usage of our digital platforms, one of our strategic focus areas, we registered a strong rise in demand that partly reflected changing customer behavior. As the number of visitors to our digital sales channels reached 30 million on a monthly basis in 2020, the conversion (to sales) rate doubled on a year-on-year basis. 14% of Turkcell Turkey consumer sales (excluding fixed broadband) was derived from digital channels in the fourth quarter of 2020. Furthermore, and within the same scope, in December we launched Turkcell Pasaj, Turkey’s technological marketplace. At Turkcell Pasaj, hundreds of electronic goods, including smartphones, new generation technologies, household electrical appliances and personal care products from Turkey’s leading suppliers are offered with Turkcell assurance.

We generated free cash flow of TRY3.4 billion with our effective and successful financial management

Thanks to our strong operational performance, disciplined cost management practices, effective working capital management and efficient capex planning, we generated TRY3.4 billion free cash⁴ flow from our operations in 2020, whereby the leverage ratio declined to 0.8x on a 0.2x year-on-year improvement. Our use of hedging products and foreign currency cash at hand to mitigate foreign currency risk underpinned our strong net income performance.

We also enter the coming investment periods prepared with long term financing secured in the amount of around USD700 million equivalent in total signed this year, and which may be utilized over the next 3 years in EUR, USD and RMB.

We work towards delivering our customers 5G with Turkcell quality

One of the major topics of the upcoming period will be 5G technology. Having commenced use in over 60 countries, 5G technology will play an important role in the digital transformation of institutions and sectors with the novel services it has to offer. While participating in studies both locally and at the international level towards bringing the technology of the future to our customers, we work towards making our infrastructure ready for the 5G transition. Within this framework, we take part in a variety of 5G projects in international technological collaborations such as those of NGMN, GSMA, and ITU. Additionally, this year, we also continued our support for the “End-to-End Domestic and National 5G Communication Network Project” established under the leadership of the Information and Communication Technologies Authority and with the support of TÜBİTAK, together with Communication Technologies Clustering firms.

Sustainability is at the heart of our business strategy

As Turkcell, we attach priority to creating sustainable value, realizing social responsibility projects and leveraging the power of technology and communication to create social benefit. Within this scope, we have also strengthened our sustainability credentials this year through important initiatives on environmental, social and governance matters.

According to the results of our “Carbon Disclosure Project”, one of world’s preeminent sustainability initiatives geared at curbing the environmental impact of climate change, we are Turkey’s industry leader. This year, we reaffirmed our resolve on this matter with the rollout of the Turkcell Environmental Policy. Meanwhile, we also undersigned the longest term corporate green loan agreement in Turkey to date; a green loan finance agreement of EUR50 million with 5-year maturity geared at financing our sustainable investments.

We continue to offer diverse solutions that allow the disabled to participate more fully in daily life through our No Barriers Project. Our support for education has included the rich content of our Whiz Kids Project, while on the environmental front our Recycle to Education Project geared at reducing electronic waste commenced. Additionally, we accepted and implemented our Turkcell Domestic Violence Procedure and Turkcell Human Rights Policy.

On the governance front, we put into practice the Integrated Value Creation Committee and Sustainability Committee to elevate Turkcell to international benchmarks and to implement the preeminent practices in the field. Within the framework of Turkcell’s sustainability policies we determined the duties of these committees as formulating medium and long-term action plans and overseeing their efficient implementation.

We contributed to the drafting of the Finance and Investment Principles for Sustainable Development Objectives of the United Nations Global Compact CFO Taskforce, of which we are a founding member, in an initiative to guide the finance leaders of global companies in the practice of sustainable finance. These principles were disclosed at the 75^th General Assembly meeting of the UN in September.

Within the framework of these focus areas, as of 2020, we have adopted integrated reporting as our primary corporate reporting tool. This reporting model enables us to present the environmental, social and corporate information demanded by key stakeholders, mainly our investors, more holistically and transparently.

We continue to take firm steps towards our goals

The beginning of 2021 was marked with the hope arising from the vaccination against COVID-19, and by the hope that the restrictions introduced during the pandemic would soon be lifted. This year, with a view to increasing value creation for all our stakeholders, joint infrastructure sharing and the delivery of new technologies and applications continues to top our agenda. We also continue to implement our digital strategy set on strong fundamentals, and take solid steps to meet our targets announced for the period of 2020-2022. Within this scope, we target⁵ revenue growth of around 14%-16%, and an EBITDA of around TRY14 billion for 2021. In doing so, our aim will be to add another million of subscribers and pass through additional 500 thousand homes with our fiber. We forecast an operational capex over revenues ratio⁶ of around 20%.

I extend my thanks to all our employees who have made our success possible during a challenging year where we recognized more than ever the indispensable nature of communication and technology for humanity, to our management team cementing our permanent success, and to our Board of Directors for their confidence in us and their invaluable support. I also express gratitude to our customers and business associates who have stood by us at all times on our journey to success.

(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) Excluding M2M

(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 2019 filed with the U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(6) Excluding license fee

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

Contacts

For further information please contact Turkcell

Investor Relations
Ali Serdar Yagci, 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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