Turkcell Iletisim Hizmetleri AS

Ladies and gentlemen, thank you for standing by. I am Yota Yokoro's call operator. Welcome and thank you for joining the DERCS Health Conference call to present and discuss the third quarter 2020 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. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Kohan Bilek, Treasury and Capital Markets Director. Please, Mr. Bilek, you may now proceed.

Thank you, Yuta. Hello, everyone. Welcome to TurkSat's third quarter 2020 results call. These speakers are our CEO, Mr. Murat Erkan, and our CFO, Mr. Osman Yılmaz. We will have a brief presentation, and afterwards, we'll be taking your questions. Before we start, I would like to kindly remind you to review the last page of this presentation for our safe harbor statement. Now I hand over to Mr. Erkan.

Thank you, Korhan. Good afternoon and good evening, everyone. Welcome to Turkcell's third quarter 2020 results call. Before we go into the results, I would like to extend my condolences to those who have lost their loved ones in last week's earthquake disaster in Izmir and in Greece, and wish a speedy recovery to the injured. As Chuck said, we did our best to support the search and rescue efforts by extending free voice and data plans to those in the region and by making sure our network operates at maximum capacity. Now, as to our performance, we had a strong quarter that beat our expectations. While the business world got used to the circumstances of the pandemic, our customers have gradually regained their mobility. Hence, the reopening of the economy has helped our strong performance. We registered 16% top-line growth with over a 44% EBITDA margin. The ARPA trend remained robust at 14% on the mobile sites. and the closest double digit on the fixed side. Meanwhile, our customer base grew by 382,000 net addition, 370,000 of which were post-paid. Trends driven by digitalization in the COVID period become permanent, such as the share of digital channels in our sales at 12% in the third quarter. We recorded solid growth all our strategy focus areas, we continue to launch new products and services and enhance existing ones. Overall, we generated 1 billion Turkish lira free cash flow during the quarter, marking a continuous solid performance. Our leverage ratio remained at 0.8 times. Moving to next slide. As international travel was not possible, our roaming revenue remained under pressure. On a year-on-year basis, the decline was around 33%. Please consider that we realized a strong growth performance despite this headwind. Given the current state of pandemic, we expect a similar trend in roaming revenue in the fourth quarter as well. We observed the shift to e-commerce in Turkey accelerated by the pandemic has continued as users enjoyed the convenience. As such, transactions through our online channels as well as through PayCell have displayed promising trends. Furthermore, demand for our digital services, particularly TV platform, remains strong, motivating us to further enhance our digital services and solutions. Now, some further details on our financial performance. We recorded a 7.6 billion Turkish lira top line with an increase of 16% year-on-year. The first nine-month growth reached 15%. Such a performance was possible with our resilient and flexible business model. Our EBITDA reach 3.4 billion TL on a 19.6% increase with a 44.4% margin. The third quarter is seasonally a strong period. Moreover, operationally, cost savings triggered by the pandemic have contributed to a higher profitability. Net income was solid at 1.2 billion TL, marking 51% yearly growth. This is the highest quarterly revenue we generated organically. We are pleased with our performance, which exceeded our expectation. Next slide. Let's take a look at our operational performance. Our total subscriber base expanded by 382,000 net addition this quarter. In the mobile business, with our continued focus on post-pay segment, the base grew by 317,000. With this post-pay share in a total mobile subscriber reach 64%. The average monthly mobile share rate was at around the same level as last year. We believe that 2% monthly share rate to be a healthy level in this market. Blended mobile output rose to 52 Turkish lira on a 14% increase. This growth was a result of rising data and digital services usage, the shift to higher data plans, and our new offers and tariffs designed to meet customer expectations. In the fixed broadband business, demand for our services has continued. We gained a net 45,000 fiber subscriber with new tariff choices. Residential fiber output growth was at 9.4% on a year-on-year basis. Further, we registered some 39,000 IPTV subscriptions during the quarter. Next slide. Now, some highlights on the performance of SuperBucks, our fixed wireless access product. SuperBucks is the pioneer product in its market. With SuperBucks, we have addressed the rising demand for fiber-speed home internet. Our well-invested LTE network has proven its ability to provide this service without interruption. SuperBucks subscribers reach 551,000 with a net add of 60,000 this quarter. With this, Superbox subscriber base was 2.5 times that of a year ago. Strong demand has triggered price adjustment in our Superbox tariff. Today, the minimum Superbox plan on shelf is 159 Turkish Lira, up from 99 Turkish Lira a year ago. This increase should gradually reflect to its output level. Next slide. We are ever focused on how to improve the lives of our customers and better serve their needs. This mindset leads us to create innovative offers. As such, this quarter we launched two tariff plans with a new value proposition. Under mega plans, our customers are offered the flexibility to buy large data plans that they can consume through a year. Under family and friends plan, our customers can form a team of up to five with whom they can share their data quota. Additionally, we continue to please our customers with our legendary Shake and Win campaign through our digital connection platform. Overall, we have recorded by far the highest MPS score in the sector with our key slang in value proposition, network quality, and brand loyalty. Next slide. Digital channels play an integral part in our distribution network model. We serve our customers through our website and our digital operator application. During the quarter, we remain focused on how to continue diverting customer demand towards these platforms. By doing so, we register savings, particularly in sales expenses. As the visitors to these digital channels reach 28 million in a month, our conversion to sales ratio has doubled on an annual basis. The additional data plan purchases and TR top-up transaction volume over this platform have tripled on an annual basis. Accordingly, 12% of consumer sales of Tuxel Turkey was registered over these digital channels. Even though mobility limitations were lifted in third quarter, digitalization trend and behavior driven by the COVID period had become permanent. Next slide. Let's take a look at our performance in our strategic focus areas. First, the digital services. Stand-alone digital services revenue increased 28% year-on-year this quarter. Paid users, a key revenue source, reached 2.7 million, marking 29% year-on-year growth. We introduced our secure and seamless video conference platform Bitmeat, which is well-equipped to compete with its global peers. Moreover, the data generated by Bitmeat is securely stored at our data center located in Turkey. We also introduce our TV Plus Ready products. It is the first Android TV solution in Turkey that is launched by an operator and capable of converting a television into a smart TV with a dongle. By doing so, TV Plus customers can access over 150 live channels and archive 5,000 videos on demand in addition to music and game applications at the Android market. Last but not least, our new service, Lifebox Transfer, is a fast, easy, and secure alternative for data sharing. With this service, we suggest an alternative for those who wish to have their data stored in Turkey. Next slide. As to our second strategy focus, namely digital business solution, our digital business solution registered 40% yearly revenue growth. 938 million TL system integration project backlog is promising for the period ahead. We pursue a strategy of providing our customer an integrated service procurement from a single point. As such, we launched Turkcell Multi-Cloud Service, which offer global cloud service procurement, peer-to-peer management, and consultancy services. Our secure digital signature and Turkcell digital archive solution will enable the digitalization of the process that will require signature and generating operational efficiency. These services also contribute to our sustainable targets by reducing paper usage. Also in the period, we have built new global vendor partnership, increasing the total to 20. All these efforts have encouraged to pursue our ultimate goal of becoming the leader in the integrated solution market. Next slide. Now a few words on our tech team services. PayCell sustains its revenue growth driven by continued demand for contactless payment in the pandemic environment. Accordingly, PayCell non-group revenue grew by 85% year-on-year. This quarter, we have introduced PayCell Android Post in a pilot scheme. This device is the first in the Android POS market to have secured necessary approvals and will become a new business line for PayCell. PayCell Android Post has a smart operating system enabling the process of collection inventory tracking, and e-invoice over a single platform. It offers cost advantage to member merchants, especially for SME. In addition to QR code payment, all bank cards can be used with this device. The portfolio will expand with the inclusion of meal cards. Next slide. And now, an update on data usage and HHG subscription trends. Average mobile data usage rose 51% in a year to 12.2 GB per user. The rise in data consumption was due mainly to higher content consumption boosted by seasonality. The growing share of HHG users and superbug subscribers. Out of 32 million customers sign up for Foreigner House G services, 21.4 million have Foreigner House G compatible smartphones, still indicating room for growth. This quarter, smartphone penetration on our network reached 80%, with 90% Foreigner House G compatible. There were 1.8 million net additional Foreigner House G compatible smartphones on a yearly basis. Next slide. Let's look at our performance in international markets, which generate 9% of the group revenues. Our international operation grew by 25.3% year-on-year. This was mainly on rising voice and data usage and the positive impact of currency movement in these countries. Lifestyle Ukraine revenue grew by 14.2% in local currency terms. Lifestyle's bottom line turned positive in June for the first time, and in Q3, Lifestyle generated net income for the whole quarter. The performance of subsidiary barriers has improved with the partial recovery in voice and data revenues. Year-old top-line growth was at 1.4%, Mobile ARP grew 9.3% in a local currency term. With higher data consumption and demand for digital services, BEST launched postpaid tariffs upon demand for its customers. Our subsidiary in Turkish Republic of Northern Cyprus recorded 18.5% revenue growth on the back of data-enhanced revenues. despite continued pressure in roaming revenue. Going to next slide. A new era for our company begun the 22nd of October. The transactions and share transfer agreed among our major shareholders and Turkey Wealth Fund were completed on that day. As a result, Turkey wealth funds become the largest shareholder with its 26.2% stake. Letter 1 rises its stake in Turkcell to 24.8%. With this change, our company now has a simplified overall structure. Long-standing shareholder disputes are over. We no longer have the uncertainties created by a three-party controlling structure. Looking at the 26-year history of TÜGSEL, I consider this change a milestone. I trust that we will register great results for our company and our country in this new era with Turkey Wealth Fund. Turkey Wealth Fund has already declared its support for our strategy and that it perceives great value at TÜGSEL. I must also add that TÜGSEL's win remains TUSA will remain subject to CMB, SEC, and SOX rules and to other regulations. We will continue to have three independent board members ensuring best in class corporate governance principles. Next slide. I would like to end my presentation by sharing our new guidance for the full year of 2020. Taking into consideration our healthy nine-month performance and our expectation for the remainder of the year, we revise our guidance upwards. Accordingly, we rise our revenue growth to 14 to 15 percent, EBITDA margin to 41 to 42 percent, and EBIT margin to 20 to 21 percent. We expect to register an operational capex over sales ratio of around 19%. With this, we are glad to have come back to the target level we announced before the pandemic hit the world, bringing uncertainties. With all this performance, we are seeing the right strategy with an excellent team and offering the best-in-class service over a well-immersed network. I will now leave the floor to our CFO, Osman.