Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome and thank you for joining the Turkcell Conference Call and Live Webcast to present and discuss Turkcell's Second Quarter 2024 Financial Results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed.

[Technical Difficulty] earnings calls. Today, our CEO, Ali Taha Koc; and CFO, Kamil Kalyon will be delivering a brief presentation covering operational and financial results, which will be followed by a Q&A session. Before we begin, I would like to kindly remind you to review our Safe Harbor statements available at the end of our presentation. Now I'm handing the meeting over to Mr. Ali Taha.

Thank you, Ozlem. Good afternoon, everyone, and thank you for joining us today. This year marks a special milestone for us, our 30-year anniversary, which we proudly celebrated with all our stakeholders. On July 8, I had the honor of hosting a closing bell ceremony at New York Stock Exchange, the world's largest financial center, to commemorate this occasion. What stands out over the past 30 years is, what has remained constant, our core value of placing technology at the center of our business, leading innovation in Turkiye and nurturing the expertise of our people. We are committed to growing our business and meeting the needs of our customers across all the sectors we serve. Our commitment has made Turkcell resilient during extraordinary times. In the second quarter of 2024, annual inflation peaked in May, exerting pressure on the financial performance of leading Turkish companies. However, Turkcell, with its diversified business portfolio and disciplined management demonstrated financial resilience. Our top line reached TRY35 billion, reflecting a strong focus on profitability, we delivered an EBITDA of TRY15 billion and a solid 42.6% EBITDA margin. This is enabled by the Turkcell Turkiye segment, mainly due to our rational pricing strategy and successive upsell campaigns which allow us to sustain real ARPU growth. On the other hand, macroeconomic pressure impacted equipment revenues for both consumer and corporate segments. Our focus on value-generating postpaid and fiber customer acquisition resulted in 346,000 net additions. Supported by operational profitability and strategic financial risk management, we delivered a net income of TRY2.9 billion. Next slide, please. Let's take a look at our operational performance. On the mobile front, as the market leader, we focus on market rationalization. During the second quarter, we faced the aggressive pricing actions of our peers, starting in May, which triggered mobile number…

Thank you very much, Ali Taha. Now let's move on to our financial results. Despite the inflationary headwinds, our revenues have remained in line with last year, with only a modest decline, amounting to TRY35 billion. The Turkcell Turkiye and Techfin segments were supportive of the group top line growth. Turkcell Turkiye revenues rose 1.5% year-on-year, driven mainly by an expanding subscriber base, higher postpaid share in mobile segment and real ARPU growth. It's worth noting that the segment's growth was also pressured by a decline in large projects including hardware sales within the digital business services. The Techfin segment contributed TRY333 million to the top line, bolstered by the performances of Paycell and Financell, which grew by 34% and 16% respectively. Conversely, the other segment faced challenges due to reduced demand in consumer electronics sales. Next slide, please. EBITDA grew by 0.3% year-over-year, reaching TRY14.9 million. Lower equipment sales costs more than compensates higher G&A and S&M expenses. Our EBITDA margin reached 42.6%. While wage increases and higher funding costs in financial services put pressure on profitability, the stabilization of electricity prices, reduced demand for equipment and a decline in MTR had a positive impact on EBITDA margin. As a reminder, we implemented a wage increase in the third quarter to mitigate inflationary pressures and ensure that our employees, who are invaluable assets to our business are well supported. However, we expect the ongoing MTR decline support profitability through 2024. Next slide, please. Let's take a close look at our CapEx management. The CapEx to sales ratio for the second quarter of 2024 increased to 22.5% aligning with our plans. Investments in both mobile and fixed infrastructure were balanced each representing 31%. We anticipate an acceleration in tower fiberization during the second half of the year, aiming to achieve…

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Tiron Cesar with Bank of America. Please go ahead.

Yes. Hi. Good evening, everyone. Thanks for the call and the opportunity to ask questions. I have two, if that's okay. Just wanted to understand better what will drive a reacceleration of the top line growth in the second part of the year? And then second, do you have an update on what you intend to do with the proceeds from the Ukrainian asset sale? Thank you so much.

Yes. In real terms, our revenues remained flat at TRY34.9 billion in the second quarter. Please keep in mind that last year, we had the earthquake in Southeastern Turkiye, which resulted in a positive base impact in the first quarter's growth. This positive base impacted is absent in the second quarter. Moreover, the economic contractor is suppressing our equipment sales on the consumer and corporate segments. Accordingly, there were fewer large budget projects within our digital business services compared to last year. The negative impact of these large budget projects on our revenue growth in Q2 '24 is around four percentage points. And for the second question regarding the sale of Ukraine assets, we expect the sales process to be fully completed within this year. The final sales value will be determined based on the closing adjustments to be made based on the level of net cash debt on financial statements to be prepared as of the closing date. Although we do not have a Board decision regarding the proceeds we will obtain from the sale of our assets in Ukraine, prospectively, we might have important investments, some of them depending on regulatory authorities decisions to come such as 5G tender and its rollout plan or any other big scale business initiatives creating value for our shareholders in the upcoming years. Although we are diligently exploring a range of competitive and rational alternatives, we have the redemption of our Eurobond in 2025. It should also be noted that the sales value will have an impact on our net income. Our company's dividend policy allows a payout of at least 50% of distributable net income as cash once conditions contained in the sale policy are made.

Great. Thank you so much.

Thank you.

The next question comes from the line of Mandaci Ece with UNLU Securities. Please go ahead.

Hi. Thank you for taking my question. I was going to ask about your -- more about your revenue growth prospects for the rest of the year. For first half, we are seeing a 5% revenue growth and a 5% ARPU growth. So after your price adjustments in July, should we expect a better real ARPU growth performance on the mobile side or should it stay around 5% or single-digit maybe? And you have mentioned about your, within your guidance that, within your potential guidance to view that the macro assumptions had effect, but also we are seeing a decline in your corporate revenues. Maybe could that be also reason why you will -- review your revenue guidance for the rest of the year? So could that be a downside risk compared to your low double-digit real revenue growth estimate? By the way, when even I look at your revenue growth of only 5%, there is a significant 10% growth as of first half in your EBITDA number. So could it be due to do better cost management and ARPU growth, sustainable ARPU growth, real ARPU growth? And will this be sustainable also this EBITDA growth? Thank you very much.

Ece, thank you very much for your question. When we look at our first half performance, as you know, the inflation trend is going over the expectations. Therefore, the government, as you know, revised the year-end inflation rate in the midterm program of 2024. This actually affects our revenue growth in half two. But I would like to say, yes, I would like to say that, yes, inflation rates are going more than expected, but in 2023, we have really -- we have big mega projects, single one-off projects in, as far as I remember, in April and May. Therefore, since these one-off projects are not done this year, this also affects the revenue growth in half two. Our real ARPU growth is going well, but I would like to remind you that we had the tragic earthquake issue, as you know, last year. Therefore, when you look at the base effect in the first quarter, our ARPU and the revenue growth are going very well. But in the second quarter, we see the base effect, therefore, is coming from this one. From our perspective, we do not expect any erosion in the EBITDA level because, as I mentioned in my speech, when we look at the EBITDA side, the MTR prices are going in favor of our company. Also the energy electricity prices are going very disciplined and stabilization. Therefore, it really had a positive effect to our cost -- efficient cost base. And the other one, the significant important EBITDA effect is, as I said, last year we had a lot of terminal sales and hardware sales in the corporate side. This year, due to the government policies, these such kind of projects are going very low level. Therefore, it affects our EBITDA level very positively in the EBITDA level side. When we look at our ARPU side, in the half two, yes, we are currently doing, as you know, inflation pricing we can easily apply. In Q2, we couldn't make any price increases, but in July, we had a price increase in the mobile side and August side in the fixed side. Therefore, we will see the effects of these increases in the remaining period of the 2024 in the remaining part. As I would like to repeat that the one-off big projects of last year in Q2 affects our growth levels right now, but we will try to do our best to catch our guidance. We would like to be clear to mention or to declare a certain amount regarding the especially in the growth side, we will wait and see the results of Q3, most probably we will be giving, how can I say, exact picture or a good understanding at the end of the Q3 regarding the growth rate.

Thank you very much for your answers. Could you also please speak about the -- talk about the growth trend in your subscriber base as well July and August?

In July and August, our churn rates are going down since the competition had some aggressive campaigns and but when we look at -- we give some answers to response to their aggressive campaigns in August and July, when you look at July and August levels, we have net adds in both months. Therefore the subscriber base going very well especially in the July and August also.

Thank you very much.

The next question comes from the line of Singh Madhvendra with HSBC. Please go ahead.

Yes. Hi. Thanks. I have a first question, actually on the revenue growth still. I mean, it is slightly confusing to me that you are having regular price increases. So year-on-year basis, your prices in second quarter should have been higher than last year, which is also reflected in your ARPU growth. But overall revenue growth is still flat quarter-on-quarter. I understand your point about 1Q '23 being a weak quarter because of earthquake. But second quarter '23 would also have been, on a pricing perspective, much lower than where we are right now. So just break it down for me, what really drove the revenues down? Your ARPU grew 6%. Your prepaid sorry postpaid subscriber base grew, but your prepaid subscriber base seems to have been lower. So is that the reason why you have some pressure on the revenues? And I understand the part about your equipment side. So excluding that if you could discuss. And then with that, I was also wondering about if you could give us a base like the restated number for third quarter '23 and fourth quarter '23 quarterly revenue base because otherwise, it becomes quite a difficult guess work trying to get historical number as well as then forecasting next quarter. Thank you.

Yes. Thank you very much for your question. First of all, I would like to say that when you look at the results of the other best companies, for example, you will see the growth rates less than the inflation rates. Currently, we have, for example, flat. We are not under the inflation rate. Therefore, we are keeping at least we make the pricing or we grant development in the growth side at the amount of the inflation. But as you said that the hardware sales is very important because in the same period, if we do not have one-off projects, for example, in 2023, our growth rate would be around 4% or 5% right now. Therefore, since the economic tight monetary policies are tightening the market, if you do not make such kind of one-off projects or one-off hardware sales in 2024, it really affects our growth rate. As I said, if you do not have one-off projects, for example, in 2023 in April and May, our growth rate would be around 4% level. Therefore, it seems that we are making a growth rate over the inflation. But I would like to remind you that our figures are not negative at least we keep on the increase in the inflation rate.

And what about the previous quarter?

On the other hand, as you know, we have some tight economical policies right now regarding or minimizing the consumption in Turkey. This also affects the consumer handset deals right now. Also when we compare the sales of handsets, for example, with last year, we have a significant decrease this year. This also affects our growth rate. But our main business for the recurrent income, we do not have any problem regarding the inflationary pricing mechanism. Regarding the Q3, for Q3 '23 and Q4 '23 inflated base revenue, we cannot say anything as we do not know the monthly inflation rates for the upcoming months. Therefore, unfortunately, I cannot give any color about this issue. Sorry for this inconvenience.

Okay. And just going back on the pricing part. I understand that you raised prices in July. Before that I mean when was the previous price hike done? And how frequently do you actually undertake the price hikes?

In February, we had a price increase right now and we did it in the mobile side in July. And in the fixed side we made a price increase in the August side. We will chase the competition and the economic environment in the coming period. If we can do, we would like to, if needs, if it's necessary, we may need a price increase in the coming period, but we do not have any plan about this issue right now.

Okay. Great. Thank you.

[Technical Difficulty] conditions because sometimes the competitors can be a little bit aggressive campaigns about this issue. We do not want to erode our base.

We are definitely closely following the market and then we are closely following the competition. If they have a very huge campaign discounts. So we are just hesitant to do the price increases, but we are just very closely following the market. If there is a need and rationale, that's the reason that we are calling this a rationalization of the market. As Turkcell, we are trying to rationalize the market and then we are trying to figure out the perfect time and perfect amount if there's a need for the increase in the tariffs.

That makes sense. And if you could just inform which is the operator being most aggressive right now?

I think it would not be useful to provide such kind of name, a brand name in this call, but we have two competitors.

In Turkiye, there are three operators, one of them is Turkcell and the other is two. So it is going to -- it's not going to be that hard for you to guess.

No, sure. Okay. Thank you.

The next question comes from the line of [indiscernible] with Stratus. Please go ahead.

Hello, can you hear me?

Yes. Thank you.

Yes, loud and clear.

Hello. Thanks for taking my question for the presentation today. My question is if the Eurobond that you already mentioned on this call, I think, the reissuance window for Turkish corporates in the dollar market have been wide open throughout the year. So I was trying to understand what's keeping you from coming to market thus far? And what are the parameters that you're looking at?

Yes. Thank you very much for your question, Teal. Now we have adequate cash reserves to fulfill our bond reduction. As I mentioned in my speech, we have around US$1.5 billion equivalent cash in our hands. But as Ali Taha said that we have some developments in the sector like 5G and the other big investment side maybe we are looking for the alternatives to encompass potential solutions such as launching a fresh bond sukuk offering or securing a bank loan. By closely monitoring economic condition and interest rates, we can proceed with issuance and Eurobond, for example, at an opportune time. We are looking at the windows for additions.

Okay. Well, I hope the reissuance window stays open while you consider all of these aspects. Can you walk me a bit more through your 5G spending plans, both in terms of auctions and regular CapEx associated with the rollout? Let's say, for example, calling what kind of ballpark CapEx to sales are we talking about for 2025 and 2026?

Okay. Thank you very much. We are just closely following the regulatory bodies and we are just talking to them as well. And lately we have lots of meetings with the Ministry of Transport as well. And then we are expecting that through 2025, there's going to be a tender in auction for the 5G frequency. And 2026 we're going to be live on 5G that's what we heard from the government entities. And there is no official timeline yet, but this is just a ballpark timelines in 2025 and 2026. However, the recent state indicated the 5G transition will be at some time in 2026. And also, let me tell, we are just still doing some investment on the 4.5G, but when we're doing this 4.5G investment, we are just closely getting the equipments, which is the latest equipment, which is comparable with 5G as well. So we are just doing an extra investment for our base stations and towers to the fiberization of our towers. So as Turkcell, we are determined to establish our 5G infrastructure with local and national technologies as much as possible and we will continue our ongoing efforts to support the development of these technologies. But to say the truth that the auction, the amount and the preconstruction terms are not set yet, so it is going to be, it's not going to be that clear for us right now because to 2025, when we discuss the auction terms maybe we can tell you a little bit much more information because it's going to be totally different. But we are expecting that this is going to be a full frequency auction, both 700 megahertz and 3.5 gigahertz. And then the amount that they're going to ask for is going to be different, but we are talking to them, and we are doing most of meetings with them to convince them to make it as much profitable and much better for the future investment. Because if you pay too much money for the frequencies, you're going to have less money for doing the infrastructure investments. So we are just talking to them. And hopefully we are going to be fine on that respect and then government is going to understand that the 5G infrastructure investment is much more valuable than getting a lump sum of money for the frequency.

Okay. Thank you. And remind me of one thing, you still own all the towers or would you have to pay for the lease amendments and upgrades to external tower operators?

No. In Turkcell, we own all of our towers and then we don't need to do any lease and we're just going to put extra equipment, 5G equipment, and then they're just going to dig more fiber connections to our towers, but all towers are belong to us.

Yes. But we are providing lease service to our competitors.

Yes. Also we just share our towers with our competitors as well, though, and we are making money out of those tower leases.

Okay. Thank you.

The next question comes from the line of Campos Gustavo with Jefferies. Please go ahead.

Hello. Thank you very much for taking my questions. Just very briefly on my side. Would you mind providing a quick review on your mobile contract structure in terms of like tenure, CPI adjustments that you may make? How is the situation looking as of this moment? That would be my first question. Thank you.

So it's all of our contracts are 12-month period. And then we are just, on the CPI adjustments, like around 73% year-on-year. And then lately we did some increments and then the change in the price and tariffs. Last, one month ago, last July, 25% increase on the tariffs. So overall, we are closely following the CPI and year-on-year it is 73%.

Okay. So my understanding is that this is -- the 25% adjustment is a bit below the inflation rate during the year. Is that correct?

No, not at all, because we just did it at a similar kind of increase in February. So this is the second time that we are increasing the tariffs. So if you look at the year-on-year, so it's going to be, we did it one in February and then one in July. So if you look at the year-on-year increase, it's around 90%.

Okay. I see. Thank you for the clarification. So they're 12 months in tenure and then maybe like semiannually you could make like a tariff adjustment. You have that option.

That is our postpaid customers. So but we have a strategy to move back to all of our postpaid customers to -- prepaid customers to postpaid. So we have a huge margin and then the percentage rate of our customers are postpaid customers. So because competition is a little bit different in prepaid, but postpaid customers are 12 months.

Understood. 12 months for the postpaid. Great. Thank you. That is very clear. I appreciate it. And then secondly the base case is for you to refinance the Eurobond. Is that -- would that be correct?

Sorry, I could not catch the question. Again please?

Refinance Eurobond in 2025.

Hello? Yes, we can hear you. Yes, refinancing the Eurobond, you asked right?

Yes. If that's your base case coming back to the market and issuing again.

As I mentioned in the previous question, we are thinking to be in the market for the refinancing of the Eurobond, which will expire in October 2025. Most probably you will be seeing us in the market in the near future.

Okay. Great. Thank you. And in light last question for me. Thanks a lot again. Where do you see net leverage going? Because you might increase some of your investments in 5G, as you mentioned. Would that provide you make some pressure in your capital structure or is that not something that will budge your credit profile?

Our net leverage rate is around 0.66. When you compare it with the market level, it's under the market level. Therefore, as I said, we would have some, maybe reissuance and we would have some cash from Ukraine sales will come to our treasury. Therefore, regarding the leverage rate, we are keeping our leverage rate in these levels because making operations in Turkey is a little bit, how can I say, makes us or force us to be careful about this issue. We are confident about this issue, most probably at the end of year, we will be keeping these levels. But in next year, we will be looking at our financing mode, how can I say, a financing structure. And the money, the cash that will come from the Ukraine sales will also help us to keep the leverage levels in the, how can I say, logical levels.

Okay, perfect. Thanks a lot. I appreciate it.

You're welcome.

[Operator Instructions] The next question comes from the line of Bystrova Evgeniya with Barclays. Please go ahead.

Yes, hello. Thank you very much for the presentation and for all the colors that you're providing. I just have one quick question regarding 5G. Do you already understand how it's going to be rolled out in terms of do you target to first roll it out for corporate clients or it will be immediately rolled to retail clients as well? Yeah, thank you.

So if you look at around the world, there are different models, and it depends on how the auction is going to happen. But if you think about it, as you may know that the 4G is the last technology that's built for the human being, 5G is built for the things and for the industry. So we are expecting that the digitalization of the industry is going to be very a huge market for the 5G technologies. But currently it's going to be most probably a hybrid version of in Turkiye, that's what we are expecting. So we are just going to provide the 5G services for the customers as well as the industry. And then there are lots of big industry firms and we are just keep on talking to about like private LTE, private 4G networks. Most probably, they're going to have the similar kind of structure in when the 5G happens. But it's going to be -- easy answer is just going to be a hybrid model. Both of them, yeah.

Okay. Thank you very much. And also one quick follow-up on the cash position. You mentioned it's TRY1.5 billion, that does not include Ukraine process, right?

Yes, you're right.

Okay. Thank you.

You're welcome.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you.

Thank you very much for listening us and it's a great pleasure. So it was a very strong quarter. And then we just grew close to the inflation rate. And then with the inflation and we are just following our management and then the cost structure, our EBITDA is growing very nicely. And our net cash is also growing nicely. So overall, we are expecting that the third quarter and fourth quarter is going to be much, much better. And then hopefully, in the future, we are going to see the results and we're going to share our results. But, overall, what I want to say is in Turkiye nowadays, as you may know that because of the inflationary pricing and inflationary regulations, the every month inflation ratios are so important, so that's the reason that even the government entities are changing their midyear plans. So that's the reason that we are closely following the future trends and we will inform you when the time is needed.

Thank you for your participation.

Thank you very much for your valuable time. Have a good evening.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling and have a pleasant evening.