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Turkcell Iletisim Hizmetleri A.S. (TKC)

Q4 2018 Earnings Conference Call

February 20, 2019 12:00 PM ET

Company Participants

Korhan Bilek – Director-Treasury and Capital Markets Management

Kaan Terzioglu – Chief Executive Officer

Osman Yilmaz – Chief Financial Officer

Conference Call Participants

Cesar Tiron – BAML

Ondrej Cabejsek – UBS

Vyacheslav Degtyarev – Goldman Sachs

Atinc Ozkan – Wood & Company

Cemal Demirtas – Ata Invest

Presentation

Operator

Good day, and welcome to the Fourth Quarter and Full Year 2018 Results Conference Call and Webcast. For your information, today's conference is being recorded. At this time, I'd like to turn the call over to Korhan Bilek, Director of Treasury and Capital Markets Management. Please go head, sir.

Korhan Bilek

Thank you, Ian. Hello, everyone. Welcome to Turkcell's Fourth Quarter and Full Year 2018 Results Call. Today's speakers are our CEO Mr. Kaan Terzioglu; and our CFO Mr. Osman Yilmaz.

We have a brief presentation, and afterwards, we will be taking your questions. Before we start, I'd like to remind you to review the disclaimer of our presentation.

Now, I hand over to Mr. Terzioglu.

Kaan Terzioglu

Thank you, Korhan. Good afternoon, and good evening, and welcome to Turkcell's Fourth Quarter and Full Year 2018 Results Call. 2018 was a remarkable year in our digital transformation journey. Our model has passed the stress test of challenging macroeconomic conditions in local and global markets.

Our above industry revenue growth, coupled with increasing profitability, is testament to our success of our digital operator strategy, with TRY 21.3 billion consolidated revenues, up 20.8% year-on-year and up 49% two year-on-year growth, thanks to our revenues generated from new and adjacent products. Our EBITDA grew 90.2% on two year cumulative basis, reaching TRY 8.8 billion with a margin of 41.3%.

In 2018, we sold 169 million, downloads of our digital services, a key pillar of our digital operator transition. About 20% of these downloads were by non-Turkcell customers. Throughout the year, we continued to expand and enrich our digital services with new features.

Accordingly, we have received a higher share of our customers 1,440 minutes in a day and created greater value within those minutes. In texting solutions, we strengthened the foundations of our business, deepened our competencies and increased our customer interaction. Paycell continued its firm progress towards becoming one of the strongest players in mobile payments in the world.

A TRY 5.8 billion transaction volume was created through Paycell in 2018. Thanks to our business model hedging strategy, we generated solid profits as well as TRY 2.8 billion cash through our operations. This year marked another milestone for our asset-light strategy with the divestment of our stake in Fintur. We expect approximately EUR 350 million cash proceeds, and around TRY 650 million profit and loss contribution in the first quarter of 2019.

Next slide. Let's take a closer look to our financial and operational performance in 2018. We generated revenues of TRY 21.3 billion a 20.8% increase year-on-year. This brings the two year cumulative growth rate to 49%. The key driver of our performance was mobile ARPU growth, which came as a result of the successful execution of our 1,440 minutes of valuable customer engagement strategy.

2018 was the third consecutive year of EBITDA margin expansion with 41.1% year-on-year growth, EBITDA reached TRY 8.8 billion, with a margin of 41.3%. Our bottom line performance was delivered through a combination of revenue growth, operational efficiency, prudent foreign currency and interest rate hedging practices. As a consequence, we reported a net income of TRY 2 billion rising above that of 2017.

Reflecting the increasing downloads and user of our digital services, the share of mobile Multiplay customers reached 66.7%. Nearly, one in two fiber residential subscribers now uses our TV+ services. The average data usage amongst 4.5G users has continued to rise, reaching eight gigabytes in December. In 2018, we distributed TRY 1.9 billion dividends corresponding to a yield of 7.2%. That brings us to TRY 8.8 billion dividend distribution since April 2015, reflecting a total yield of 30.3% and bringing the total shareholder return to 53%.

Next slide. Now let's look at our performance in the context of our 2018 guidance. In an exceptional year like 2018, we raised our guidance throughout the year to give the most current picture to our shareholders. The resulting 20.8% top line growth was well within our guidance range. This achievement is due to a higher postpaid ratio, a higher number of 4.5G users, increased Multiplay and higher data usage boosted by our digital services.

In EBITDA margin, we have slightly exceeded the higher end of the guidance range with 41.3%. This is the result of a strong OpEx management in a higher inflationary environment compared to 2017.

Finally, with our disciplined capital spending, coupled with foreign currency risk management practices, we delivered our operational CapEx to sales guidance despite the TRY depreciation.

Next slide. Now some additional details on our quarterly financial performance. With a TRY 5.6 billion top line and TRY 2.2 billion EBITDA, we recorded a 39.8% EBITDA margin. Our quarterly revenue growth of 20.6% would have been 21.4%, excluding the impact of all-out war against inflation campaign.

With our efficient foreign currency and interest rate hedging practices, we have continued to generate net income at a pretty stable quarterly run rate. Accordingly, we printed net income of TRY 864 million in the fourth quarter.

Read the rest of this transcript on seekingalpha.com