Turkcell Iletisim Hizmetleri AS

Actually, we prefer not to give a precise number for free cash flow generation, but you can roughly say 20 percent of the EBITDA, nominal EBITDA, 22 to 25 percent of the nominal EBITDA can be expected as our free cash flow generated for this year.

Thank you. The next question is from the line of Jouret Herve with HSBC. Please go ahead.

Yes, good afternoon. Two questions as well on my side. Firstly, in terms of date for the AGM, do you have a date for the AGM? And do you believe there could be – what is your view on the potential payouts on earnings that you may give to shareholders? And the second question is, did you see in the beginning of Q2 an impact in terms of bad debt increasing, and especially as well as you underlined the portfolio, your loan portfolio on consumer financing? Do you see an increased portion of difficulties of payment from some of your consumers? Thank you.

Thank you very much. For the General Assembly, you know, along with many other listed companies, we are on hold regarding a call for General Assembly. Please also note that our government introduced 25% cap on dividends, which will be effective till end of September. So, this is one side. Also, this cap overrides our official dividend policy of distribution minimum 50% of distribution net income. Yet, in practice, any prudent company would wait and see the normalization of this crisis before a dividend decision. As Turkcell, we also believe that it will be reasonable to wait until the removal of this cap. With this normalization of the condition and removal of this gap, our board can make a dividend proposal in line with our policy, and we can hold our general assembly in the later months of this year. This is regarding the AGM. For the BATTAB, I think Osman can respond for the BATTAB side as well.

Actually, until March, we had a very strong collection performance, not only in consumer finance business, but also in all business segments. And cost of risk in consumer finance declined from 3.2% to 2.8%, despite a contracting portfolio. Inevitably, a pandemic will have negative consequences on our collection performance. For example, due to regulatory restrictions, we will not be able to make a legal follow-up for our late payments in consumer finance business. Similarly, banks in Turkey cannot conduct legal follow-up actions for their receivables, and we will not be able to do this until mid-June. This will have some negative impact on our cost of risk. We expect cost of risk to rise to 4 to 5% in the coming quarters. It's about 1% higher than our initial assumptions in the beginning of this year. Also, please note that more than 90% of the loans that we granted are insured. And these insurances protect us against unemployment, which is expected to rise rapidly in coming months. So we are partially hedged against macroeconomic downturn.

And just a follow-up question on those 90% insured. Does it cover external events such as COVID-19?

It covers only unemployment. It doesn't cover natural diseases or pandemics. It's not a health insurance. It's against debt and also unemployment. Unemployment, yes. And we are not insuring customers above age 65, so we see very few fatalities throughout the year. Most of the compensation comes from unemployment claims.

Okay, I understand.

All right, thank you. As a reminder, if you would like to ask a question, please press Char and 1 on your telephone. The next question is from the line of with Unlook Securities. Please go ahead.

Hi. Thank you very much for the presentation. I have three questions. One is about the mobile art growth trend going forward. If I'm not mistaken, you mentioned that the art growth should converge to inflation at some point. So when do you expect such a convergence to happen? I believe that in April, you still have the effect of the upselling and probably that might be higher ARPU growth, particularly in post-paid segment. And on a standalone basis, we are seeing a slower growth compared to previous quarters, but still there is a transition, as you have noted, from pre-paid to post-paid, which also has an effect in the branded ARPU. So combining all those, how much percentage growth we should expect for our pool for the second quarter and the third quarter? This is my first question in detail. And the second question is about the corporate segment revenues, which represent like 16% of your total consolidated revenues. We have seen 30% growth in this segment in the first quarter. But you are seeing slower sales. Should we expect sharp contraction or slight growth or still high-teens growth in the segment for the second quarter? How we should make assumptions for that segment specifically? And thirdly, you highlighted the working capital requirement, an increase in working capital requirement for the whole year, given this SME business. I think it has a low 10% share in your total revenues. Why do you consider this? effects, would you still expect an improvement in your net debt over EBITDA ratio, leverage ratios for 2020? Thank you.

Okay. Thank you for the questions. First of all, let me start on ARPU's side. And let me give you a little bit broader answer on ARPU's side, because ARPU impact on fixed and also mobile front. On the mobile side, our mobile ARPU rose 21.5% driven by large force-based subscriber base and upset effort on the back of increased data consumption. Inflationary pricing is a key pillar of our business model. Due to contracted nature of our business, our price actions are reflected in ARPU with a lag. Please note that Turkey has been in a declining inflation path since last year and this trend is to be accelerated with the falling commodity prices as well as drop in demand in various industries as a result of COVID-19 pandemics. Declining inflation together with our aim to support our customers in these difficult times puts a limit on pricing. Hence, it was reasonable to expect our ARPU growth to converge to a reasonable range around inflation level in the upcoming quarters. On the fixed side, we registered fiber ARPA growth of 13.4% in Q1. The slowdown in fiber ARPA growth is also a reflection of declining inflationary environment. Please also note that we renewed our offering portfolio with a removal of fair usage policy at the beginning of 2019 and increased our pricing. As we have longer-term contracts in fixed segment and as the base effects diminished, This also impacts ARPA growth. Regarding corporate revenue side, obviously we don't expect sharp contraction, but we will see business slowdown because there are, especially in the SME side, the shops are closed. The SMEs are not working at this point of time. So this impacts our revenue side. On the other hand, roaming also has a big revenue declining position since our corporate customers are not going abroad and doing business with the abroad companies. So that's why our corporate segments will hit more than the consumer side in this COVID-19. But to be honest, I would expect the corporate business will recover sooner than the other business because the demand is not canceled, it's just postponed.

For the working capital side, Osman will take care of the question. Thank you very much. First, let us clearly state that rather than being rigid on collections with a short-sighted vision, we rather believe that we should be providing the flexibility to our customers during these difficult times, and thus we can build stronger bonds with them. In the corporate segment, certain industries, and in particular SMEs, have been directly impacted by the pandemic. We see lower risk for large enterprises and public accounts, but we see high risk for SME segments. We have been extending the payment terms for several customers in the industries that are directly impacted. At this point, the number of these requests are limited and insignificant given the total number of clients. Yet if we have a prolonged scenario, we can expect additional deferral on payments. As I tried to figure in the previous questions, we don't expect a significant impact in terms of net working capital requirements. And this will be more than offset by the flexibility in our consumer finance business. There will be additional release from the slowdown in this business. And this will more than offset the working capital requirements in SME segment. For your question on net debt to EBITDA, unless we see a further depreciation in lira, we expect our leverage ratio to remain below 1.0 times throughout this year. And if the currency stays stable at these levels, potentially we will see lower net debt to EBITDA figures approaching to 0.7 times.

Thank you. Ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to Mr. Bilek for webcast questions. Thank you.

So we have a list of questions coming from the web. We are going to touch on a couple of them and try to address the rest at one-to-one. Some of them have already been answered. So one is related with the impact of prepaid top-ups. So what is the COVID and social mobility impact on the prepaid top-ups?

Let me take care of this question. The use of online channels has an increased trend in the last couple of months. As people spend more time in their homes, we have seen a decrease in our top-up revenue from our stores. But since our top-up rate has increased significantly through our digital channel, we don't see a negative effect on prepaid top-ups in total. So to give you some information, our digital share increased from 6% to 13% in terms of top-up.

Thank you, Murat Bey. And one last question regarding our credit lines. How much do you have in committed and uncommitted credit lines?

Actually, we have utilized almost all of our committed lines, but we are working on additional committed lines, and we are planning to announce it very soon. In addition to that, we have $50 million left from an ECA facility with AKN, and in the beginning of April, we have utilized $50 million from this facility. Moreover, we have around 4.5 billion credit lines from various banks, both in Turkey and outside Turkey.

Thank you, Osman Bey. So this brings us to the end of the call. We thank Murat Bey and Osman Bey for their presentations and everyone for their participation.

Have a safe and healthy day.

Thank you. Thank you. Thank you. Bye-bye.

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