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Turkcell Iletisim Hizmetleri AS (TKC)

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Turkcell Iletisim Hizmetleri A.S. (TKC)

Q2 2015 Earnings Conference Call

July 30, 2015 01:00 PM ET

Executives

Nihat Narin - IR

Kaan Terzioğlu - CEO

Murat Erden - CFO

Burak Sevilengül - Chief Consumer Marketing and Sales Officer

İlker Kuruöz - CTO

Serhat Demir - CLO

Seyfettin Sağlam - Chief Business Support Officer

Analysts

Ivan Kim - VTB Capital

Atinc Ozkan - Credit Suisse

Ranjan Sharma - JPMorgan

Koray Pamir - Deutsche Bank

Ondrej Cabejsek - Wood & Company

Presentation

Operator

Good day and welcome to the Second Quarter 2015 Results Announcement Call; for today’s recorded presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Nihat Narin, Director of Investor Relations. Please go ahead sir.

Nihat Narin

Thank you, Julia. Thank you for your participation and I would like to welcome to our call on behalf of the management team here. We will start today with the presentation by our CEO, Kaan Terzioğlu followed by presentation by CFO, Murat Erkan. And then we will go into the Q&A session.

As usual, just before we start the presentation, I would like to remind you of our brief legal notice. In this presentation we will make statements that are forward-looking about our future targets and expectations. These are based on our current views and assumptions, which may, of course, change in the future and our actual results may be different. Mr. Kaan. Please, floor is your sir.

Kaan Terzioğlu

Thank you, Nihat. Good evening and good afternoon everyone and welcome to Turkcell’s results call for the quarter ended June 30, 2015. We are here to present our results together with Turkcell’s executive team, including our Chief Marketing Officer, Burak Sevilengül; Chief Financial Officer, Murat Erkan; Chief Technology Officer, İlker Kuruöz; Chief Legal Officer, Serhat Demir; and Chief Business Support Officer, Seyfettin Sağlam.

Before getting into numbers I would like to address our progress towards meeting some of the commitments that we have made in our first call last quarter. First, we have completed our new organizational structure having eight executive positions instead of 16 has already led to greater operational efficiency through simplification of our business processes. With this structure we have consolidated the management of our mobile and fixed businesses while achieving simplicity, transparency and accountability.

We have also executed on our distribution platform and decided to work with two distributors instead of five, introducing a new channel design for the converged offer. Second, we have adopted a single point of service approach with our converged services. This allows us to focus on customer experience with the new sales channel structure responsive to all customer needs, fixed or mobile, corporate or consumer.

Thirdly, in line with our declaration that we would be evaluating our organic and inorganic growth opportunities to strengthen our position in the countries of operation we have acquired the remaining 44.96% of Eurasia holdings, Astelit the company’s name for $100 million. This allowed us to restructured Astelit’s debt to eliminate foreign currency risk and I will be elaborating on this in my presentation later on as well.

In the same spirit in the upcoming quarters we will be focusing on improving our balance sheet through optimizing capital structure, addressing working capital needs, evaluating existing operations performance and M&A options. We are evaluating our asset portfolio as well in international markets as we go on further in the next couple of months Turkey’s spectrum auction will soon be a key agenda item and we will be looking into this opportunity as well as challenge as we move on. Overall we have done so far is a solid example of how we can work together as a team and create value and I would like to thank to Turkcell’s team, Turkcell family and special thanks to the harmonious relationship with the function moving forward.

Moving onto the next page a few words on the numbers. Turkcell Turkey accounting for 92% of our group revenues recorded 9.2% top-line and 11.9% EBITDA growth driven by strong mobile and fixed broadband and mobile services growth. The EBITDA margin reached 32.3% underlining the strong quarterly operational performance. Turkcell International and other subsidiaries generating 8% of total revenues heavily impacted by the devolution in certain markets has declined in terms of revenues by 21.2% to 282 million yet the quarterly improvements in Hryvnia led to TRY109 million net income for the international business.

Overall consolidated revenues rose 5.8% to TRY3.1 billion and EBITDA climbed to TRY995 million with a 9.7% increase. The EBITDA margin rose 120 basis points to 32.2% due to better operational expense management and the vibrant broadband market. In this quarter consolidated net income ranked up 44.6% underlying the operational strength of Turkcell Turkey and the positive impact of foreign currency movements in international markets. As a result of this performance we have recorded our highest second quarter revenue EBITDA and net income growth for Turkcell Turkey and Turkcell Group.

Moving on to next page. As we announced in the first quarter we report Turkcell Turkey business under three segments; consumer and corporate segments were the main growth drivers for the growth. Consumer segment generating 78% of Turkcell Turkey grew 9.9% year-over-year to TRY2.2 billion. This is a result of strong growth in mobile and fix broadband and services business reflecting ever rising demand coupled with higher assumption. Corporate business posted 8.6% growth while wholesale revenue remained almost stabilize at 92 million. Overall, this has resulted in continued solid performance in Turkcell Turkey with 9.2% growth. I will mention the performance of key revenue drivers. Data generating over 30% of business in Turkey continued to grow rising 42.2%. This was on the back of a 47.2% rise in mobile broadband and 31% rise -- increase in fixed broadband.

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