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Turkcell Iletisim Hizmetleri AS (TKC)

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Turkcell Iletisim Hizmetleri A.S. (TKC)

Q3 2016 Results Earnings Conference Call

November 2, 2016, 01:00 PM ET

Executives

Nihat Narin - Director, IR & Business Development

Kaan Terzioglu - CEO

Bülent Aksu - CFO

Analysts

Roman Aberazoff - UBS

Hervé Drouet - HSBC

Mamet Aguse - Yappi Credit

Ivan Kim from - VTB Capital

Presentation

Operator

Good day and welcome to the Third Quarter 2016 Results Conference Call. For your information today's conference is being recorded.

At this time, I would like to turn the call over to Mr. Nihat Narin, Director of Investor Relations and Business Developments. Please go ahead, sir.

Nihat Narin

Thank you, Kale. Good morning and good afternoon. I would like to say welcome to our call on behalf of the management team here. We will start today with the presentation by our CEO, Kaan Terzioglu, then will followed by CFO, Bülent Aksu. And our last session will be the Q&A session.

Before we start the presentation, I would like to remind you of the 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 change in the future and our actual results may be different.

Mr. Terzioglu, please go ahead sir.

Kaan Terzioglu

Thank you, Nihat. Good afternoon, good evening everyone. Welcome to Turkcell's third quarter 2016 results call. Before I start I want to thank Nihat for his role as the Investments Relations Director for so many years as he takes on the new challenge as the CEO of Global Tower our new regional tower company and I want to welcome [indiscernible] as our new leader or Investor Relations.

I am joined by our full executive team and I would like to basically start by telling you, how happy I am that the first results of the Q3 and first nine months we have closed this quarter and the first nine months on record high revenue and EBITDA both at Turkcell Turkey and group levels despite the fact that Turkey has overcame a major challenge to its democracy by successfully working a coup attempt and during these worrying times we have fulfilled as telecom's industry our duty of enabling the general public, the accurate and timely information platform. We have also provided free emergency communication packages to our customers during this time and I will elaborate on its financial implications as well shortly.

Looking to our numbers. Our group revenues rose 8.8% to TRY3.7 billion and our EBITDA by 4.9% year-on-year to TRY1.2 billion. While the EBITDA margin was at 33.3% in the third quarter both of these figures are all-time high third quarter figures for the group.

Excluding the impact of the aforementioned emergency packages of this quarter, group revenues would have risen by 10.4% and the EBITDA margin would have been 34.4%. Group net income as per IFRS was TRY163 million mainly due to several one off items which Bülent, our CFO will expand on later. Excluding these impacts our pro forma net income rose 4.2% year-on-year to TRY705 million.

For the first nine months we have performed in line with our expectations. Group revenues rose by 8.6% and EBITDA by 5.4% resulting in a 31.7% EBITDA margin. Group net income as per IFRS was down to TRY1.1 billion while pro forma net income rose to TRY1.8 billion.

In the first nine months, we continued our 4.5G investments at full speed. Our operational CapEx to sales ratio was at 21.5 percentage points. We have achieved our targets over the past nine months and are quite confident of maintaining our full-year guidance despite prevailing macroeconomic and geopolitical challenges as they are. Indeed we are set for a strong start to 2017.

In this regards as part of our focus on maximizing the value of our strategic assets, we’re evaluating all our options accordingly among these assets Fintur in which we own a 41.45 percentage stake is currently evaluated for numerous options among which is its potential sale following the inconclusive negotiations with earlier company.

Global Tower is another strategic asset on our balance sheet with view to a more focused management of Global Tower and transforming it to a regional tower company, the first plan step was its initial public offering now postponed to 2017. Investor interest shown has already strengthened our confidence in our tower business model.

Moving on the next page. Turkcell Turkey remain our key growth driver. Revenues rose 7.9% and EBITDA increased by 3.2% year-on-year with a margin of 33.4%. Excluding the impact of three emergency communication packages, revenue and EBITDA growth would have been 9.7% and 8.9% respectively with an EBITDA margin of 34.7%.

Turkcell Turkey's pro forma net income rose 1.9% year-on-year to TRY662 million. In the first nine months, Turkcell Turkey revenues rose 8.6% to TRY9.2 billion and EBITDA ramped up 4.7% with an EBITDA margin of 31.9%. Pro forma net income for the first nine months reached TRY1.7 billion on a 1.6% year-on-year increase.

I am happy to say that 8.8% growth in group revenues marked the highest revenue growth of the past three years with increasing pace every month and quarter. For instance in September the pipeline growth further accelerated to 12% and EBITDA margin to 36%.

Turkcell Turkey which accounts for 90% of our group revenues increased by 7.9% due to our value focus customer acquisition and conversion strategy. Including Turkcell consumer finance company, Turkcell Turkey revenues increased 10% year-on-year.

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