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Turkcell Iletisim Hizmetleri AS (TKC)

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Turkcell Iletisim Hizmetleri A.S. (TKC)

Q4 2016 Earnings Conference Call

February 15, 2017 12:00 PM ET

Executives

Korhan Bilek - Director of IR

Kaan Terzioglu - CEO

Bulent Aksu - CFO

Ismail Butun - Chief Marketing Officer

Analysts

Roman Arbuzov - UBS

Ivan Kim - VTB Capital

Herve Drouet - HSBC

Vyacheslav Degtyarev - Goldman Sachs

Ondrej Cabejsek - Berenberg

Presentation

Operator

Good day and welcome to the fourth quarter and full year 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. Korhan Bilek, Director of Investor Relations. Please go ahead, sir.

Korhan Bilek

Thank you, Kevin. Hello, everyone. Welcome to Turkcell's fourth quarter and full year 2016 results call. Today's speakers are our CEO, Mr. Kaan Terzioglu and our CFO, Mr. Bulent Aksu. Our C-level executives and IR team are also participating in the call. We have a brief presentation and afterwards we will be taking your questions. Before we start, I would like to remind you to review the disclaimer of our presentation.

Now, I hand over to Mr. Terzioglu.

Kaan Terzioglu

Thank you very much, Korhan. Good afternoon and good evening, everyone and welcome to Turkcell's fourth quarter and full year 2016 results call. This is Kaan, Chief Executive Officer of Turkcell. Today, I'm excited to share with you the fourth quarter performance of Turkcell Group. We generated all-time high revenue and EBITDA level based on record breaking performance in many areas of our businesses such as highest customer gains, both in mobile and fixed, surpassing million subscriber threshold in fiber-to-the-home business, surpassing million subscriber threshold on TV business, significant growth in our digital services penetration, more than doubling the share of multi-play customers in mobile, increased consumption of data and services via upsell strategy and attractive digital services enabled by 4.5G, doubling the data usage versus 3G to reach 5 gigabytes in December.

Combination of all these factors resulted in record mobile ARPU of TRY30.9 on 18% yearly growth, all-time high revenue and EBITDA growth of the past 10 years, up revenues 21% and EBITDA 30% respectively. Looking at the operational figures, behind this remarkable performance, we have registered our highest customer retention level in mobile and in the last quarter, we saw 291,000 net adds, the highest level since 2013. On the fixed side, the quarterly gain of 147,000 subscribers was the highest ever, while fiber subscribers exceeded 1 million. The great interest in our digital services continued to rise this quarter as well. Our TV subscriber base exceeded 1 million, while customers who downloaded our core digital applications reached 44.2 million from 21.4 million in the previous year. Overall, I must say that our 4.5G investment generated the highest growth of the past 10 years.

Moving on to the next page, briefly summarizing where we stand in terms of our guidance, given this robust performance, allow me to note that for revenues, we promised 10% to 12% growth to the investor community and we delivered 11.9%, reaching the higher end of our guidance. On the EBITDA front, we promised a margin between 32% to 33% and we realized 32.3%. For CapEx over sales ratio, we provided guidance of 22% to 24% and we recorded 23%. And please also note that these guidances I refer to are the revised guidances, which were upwards adjusted in December 2016. Further details on the contributors to our 2016 performance, I would like to continue saying that 4.5G was one of the key developments of 2016 in our home country Turkey and we have achieved population coverage of around 82.5% in 81 cities, reaching 23 million customers.

The pickup rate of our digital services proved the validity of our digital services based approach. On the mobile side, 42% of our mobile subscribers signed up one of our triple play offers and 36% of our fiber customers migrated to multi-play with TV. With our global all user approach, we also made our digital services available to the customers to all operators around the world as well. Our consumer finance company launched in the first quarter of 2016 made great progress within a short period of time. As of the year-end, we have reached almost 2 million customers and extended its loan portfolio to TRY2.4 billion. In Q4, total of 741,000 contracts were signed fueling the growth of our multi-play customers. Another important development of 2016 was the initiation of talks with sector players towards establishing common infrastructure for efficient use of resources and ensuring fair competition within the scope of Turkey's fiber mobilization.

Moving to the next page. Let me start getting into the details with a brief evaluation of fourth quarter results. In Q4, Turkcell Group recorded 21% revenue and 30% EBITDA growth, the highest of the past 10 years. Our figures also correspond to all-time high quarterly revenue and EBITDA in nominal terms, both at the Group and Turkcell Turkey level. Coming to our annual performance in 2016, our Group revenues grew by 11.9% to reach TRY14.3 billion. We recorded 11.6% growth in our EBITDA, which reached TRY4.6 billion. Our pro forma net income rose by 7.4% year-on-year and reached TRY2.5 billion, while net income according to IFRS, was recorded as TRY1.5 billion. We consider our pro forma net income as excluding the impact of interest foreign currency Fintur, 4.5G license amortization, expenses related to tax amnesty, and free emergency packages given after the Coup attempt of July 15. Previously we have stated that we were exploring our strategic alternatives regarding Fintur. In accordance with our strategic approach, and IFRS requirements, we have classified Fintur as an asset held for sale and we are reporting it as discontinued operations as of October 2016.

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