Turkcell Iletisim Hizmetleri AS

Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your course call operator. Welcome and thank you for joining the Turkcell conference call and live webcast to present and discuss the Turkcell fourth quarter and full year 2020 FANASA results conference call. 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. Alistair Daryagdi, Investor Relations and Corporate Finance Director. Please go ahead.

Thank you, Konstantinos. Hello, everyone. Welcome to Trixas' fourth quarter and full year 2020 results call. Today's speakers are our CEO, Mr. Murat Erkan, and our CFO, Mr. Osman Yilmaz. We have a brief presentation, and afterwards, we will be taking your questions. Before we kick off, 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, Serdar. Good morning and good afternoon. Welcome to the Turkcell fourth quarter and 2020 result calls. We have concluded a year marked by challenges and uncertainties resulting in permanent change in everyone's life. Our results confirm that we have successfully weathered the storm. This was possible due to our diversified business model filled by our core competencies. Accordingly, we concluded the year on 15.8% revenue growth, generating 19.1 billion TL. With our 42.2% margin, we exceeded our guidance level. Overall, we generated 3.4 billion Turkish lira free cash flow in 2020 mainly through strong operational performance. All this was possible on the back of solid growth in subscriber base of 1.1 million strong ARPU growth and the rising contribution of our strategic focus area. It's also worth to highlight that we exceeded our target of 1 million net subscriber addition for 2020, despite the pandemic. I am glad to see that the focus on our digital strategy is paying off, both for our results and for the benefit of our customers. Next slide. Let's take a closer look at our fourth quarter performance. With good execution of our customer-centric strategy, We delivered our best quarterly revenue growth for the year 2020 at 17.8%. This corresponds to revenue of 7.9 billion TL. EBITDA growth later was similar, resulting in a 41.2% EBITDA margin. Our mobile subscriber base continued to grow in favor of postpaid with 464,000 addition. We have seen solid momentum in our fiber business with all-time high net addition in a quarter with 65,000. Our digital channels gain wider use. This quarter, over 14% of customer sales of Turkcell Turkey were generated through our website and digital operator application. Overall, we generated 780 million Turkish lira free cash flow during the quarter, confirming continuous solid performance. Next slide. I am glad to see that we delivered full-year results that are in line with our initial guidance in February, beating our revised guidance as well. As was the case with many companies, we had to revise our guidance in April with a more cautious approach as the pandemic brought about significant uncertainties. Yet, by November, we had greater visibility for the year-end, revising our guidance upwards, having displayed a healthy performance. We owe this performance to our diversified business model, built on where the future lies. Our readiness to capture the rising demand for digital services and our ability to swiftly adapt to changing dynamics were integral to this success. Next slide. Let's look at our operational performance. On the mobile front, in the fourth quarter, post-batch subscriber rose by 464,000. Yearly, 1.6 million additions marked the record level of past 11 years. We continue to shift into a more valuable portfolio with 66% post-paid share, 4 points higher than last year. Good momentum for our fixed wireless access product Superbox has continued. Accordingly, subscriber nearly doubled in a year to 591,000. Superbox stands out as a preferred alternative to fiber. Where there is no fiber, Superbox subscribers enjoy the fiber-like space delivered to our mobile network. This year, ICTA requires all operators to deactivate the lines of decreased customers. We have disconnected 194,000 lines in the fourth quarter. Excluding this, our churn rate has been nearly flat over the past three years at around 2.8%. Blended mobile ARPU rose to 51.2 Turkish lira on a 11.3% increase with positive change in subscriber mix. Ups held to higher tariffs and rising data and digital service usage. Moving to next slide. More time at home facilitated a good momentum for our fix broadband business. Our fiber subscriber base grew by 180,000 net addition in 2020, $65,000 which was gained in the fourth quarter. This fourth quarter performance marked a historic high. Including the net addition ADSL and cable, our fixed broadband subscriber base expanded by 187,000 in 2020. The trend was similar in our IPTV business. Our customer rose 152,000 to 871,000, again with a remarkable performance in the last quarter with 60,000 net addition. Residential fiber art to grow was 8.6% in the fourth quarter, impacted partially by the strong base effect in the same period of 2019. Average monthly fixed churn rate decreased to 1.6%. Next slide. An update on data usage and 4.5G subscription trends. Average mobile data usage rose 44% in a year to 13 GB per user. The main driver were the rising share of 4.5G users and SuperVox subscribers. Out of 31.8 million customers signed up for Foreign House G services. 21.5 million have Foreign House G compatible smartphones, still indicating room for growth. As of year end, smartphone penetration was at 81%, with 91% being Foreign House G compatible. On a yearly basis, There were 2.3 million net edition of Foreign House G compatible smartphones. Next slide. This year confirmed the importance of telecom industry in our lives. And our motto continued to be that we are here for our customers. With this in mind, we addressed the changing customer needs via our offering with rich value proposition and innovative campaign. Our well invested high quality network made it possible for us to meet the rising demand also with the help of the smart capacity management. Further, our digital sales channels help us serve our customer even under the pandemic restrictions. Overall, These key differentiated fundamentals of our company have played an important role in widening the large gap in net promoter score even to the second best. Next slide. Let me further elaborate our digital channel strategy. We have been determined to increase our sales through our digital channels even before the pandemic struck. Indeed, The pandemic has provided a tailwind, triggered a change in the customer behavior. The number of visitors to our website reached 30 million, and there were 23 million 3-month active users of our mobile application. The conversion rate doubled annually. Data plan purchase and Turkish Lira top-up transaction volume over this platform have tripled on an annual basis. Accordingly, 14% of consumer sales of Turkcell Turkey was realized on these digital channels. To leverage our expert capabilities in this arena, in December we launched Turkcell Pasaj, Turkey's tech and electronic marketplace. At Turkcell Pasaj, a wide range of electronic goods, from smart devices to new generation technologies are offered from several leading suppliers with Turkcell assurance. We plan to differentiate with a focus on customer experience, promising best after-sales services. Moving to next slide. The next three slides, we will discuss our strategic focus area. Firstly, our digital services. We have seen accelerated demand for our BIP application with rising concern over personal data security among the competition. BIP differentiates from peers acting on its data only with the user's permission. Also, data at BIP is kept at our certified data centers in Turkey. These facts have increased BIP's popularity not only in Turkey, but also in certain countries of high population like India and Pakistan. We plan to monetize this demand via collaboration with operators through BIP multi-cloud, enabling them to integrate BIP so as to digitize their own customers. In addition, we'll launch a complementary product for our communication portfolio called BIPMeet. to meet video conferencing demand. In our TV business, we are now focused on expanding our presence on large screen. With our partnership with TV Producer and our TV Plus Ready products, this is one of our priorities for this year. This year also marked as a milestone in our digital service strategy as we have established individual companies for Lifebox, Fizi, and TV+. This means management flexibility and marks a step towards considering strategic moves in the medium run. To sum up this year, the standalone revenue from digital services rose 26% year-on-year to 1.3 billion Turkish Lira. The next initiative is our digital business services. The revenue from digital business services rose 30% year-on-year in 2020 to 1.8 billion TL. The pandemic has clearly accelerated the digitalization of the business world. We see a strong demand across the whole spectrum of corporates from the public sector to SMEs. We took the lead in corporate digital transformation by being awarded over 2,300 projects with a total contract value of 1 billion TL in 2020. Of these, 420 were system integration projects for which we provided end-to-end solutions. We have a backlog in the amount of 967 million TL from the system integration projects signed today. Also this year, we increased the number of global vendors partnership to 21 to strengthen cooperation. On healthcare front, we have reached a bed capacity of over 8,000 at 9 hospitals in total, continuing our market leadership of this sector. Next focus area is Techfin. The total Techfin business revenue corresponded to 3% of our consolidated revenue. As PayCell, we pursue a dual growth strategy, capturing the huge business potential at both consumer and merchant fronts. For that, we take bold steps in 2020, introducing new offerings for member, merchant, and customer new offerings. Besides the popular mobile payment solution, ready-to-use limit, and 24x7 money transfer were amongst the new initiatives over this platform. For merchant, we offer Pacer Android POS, a smart operating system enabling the process of collection, inventory tracking, and e-invoice over a single platform. It offers cost advantages to merchants, especially for SMEs. Going forward, we aim to diversify pay cell services and focus on commercial enterprises via our post-solution. Next slide. Now, let's take a look at our performance in the international markets. The Turkcell International grew by 33% year-on-year basis in the fourth quarter, mainly on rising voice and data demand, plus the positive impact of currency movements. Full-year growth was at 27%. Lifestyle Ukraine revenue grew by 22.8% in local currency term in the fourth quarter. This was mainly from subscriber-based growth and the rise in voice and data despite the decline in roaming business. Lifestyle Ukraine registered a full-year operational net income for the first time. Life Belarus registered 11.5% revenue growth with the rising voice, data, and handset sales revenue. Life is the first and only company to offer digital remote subscription in Belarus. Introduced in the third quarter, such subscriptions have reached 9% of the total. Next slide. We have also strengthened our sustainability credentials this year through important initiatives. I will discuss a few here. According to the result for our carbon disclosure project, we are the industry leader in Turkey. We reflect our preference by securing a green loan amounting to 50 million euro. We will use this proceeds for financing of green investments. We reaffirmed our commitment by announcing the Turkish environmental policy as well as our human rights policy and domestic violence procedures. On the government side, we put into practice the Integrated Value Creation Committee and Sustainability Committee inspired by international practices. These committees are responsible for determining medium to long-term action plans and overseeing their efficient implementation. Last but not least, comes to the exempt of having almost finalized our first integrated annual report. This reporting model enables us to present the environmental, social, and corporate information in a more holistic and transparent way. Moving to next slide. I would like to say a few words about our focus on e-mobility. As Turkcell, we continuously invest in future technologies to grow our business. In this regard, opportunities that the e-mobility arena offers are so immense. That is the potential to become another strategic focus area for Turkcell. Our investment in Turkcell Electrical Vehicle Initiative is a solid step towards realizing this potential. This investment offers several opportunities including integration of smart living solution into the mobility ecosystem, end-to-end mobility services and creation of smart charging system network. Turkcell will now only contribute to realizing TORQ's ambition of being relevant to the 70% of Turkey's and Europe's car market with its product portfolio by 2030, but also aimed to be among the leading e-mobility players and take its share from the already trillion-dollar market in revenue. Initially, our focus is on charging infrastructure. AI-based in-car solution and integration of our digital services into vehicle software next. We believe that this EV initiative has the potential to be very accurate for Turkcell Group through value creation arising from synergies. Before I end my presentation with our guidance, I would like to share some insight into our top agenda task in 2021. In our core business, as the integrated telecom player, we will further grow our subscriber base by adding another million of subscribers. We will be more active in fixed broadband, where we aim to increase home paths with fiber by another half a million. We will be more ambitious on our digital platforms and offer further customized value propositions supported by the use of artificial intelligence. In digital services, as well as growing the paid user base of existing portfolio, we will be more vocal in gaming business. Further, we believe we can do more by pursuing more B2B collaborations, as well as taking BIP into the next level. In digital business services, we will further increase our competency to strengthen our position as a digital transformation partner of cooperation. We trust that we can become the leader in information technology services market by the end of 2021. In Techwin, we will pursue dual growth strategy. We will expand service portfolio with wealth management solution, enabling trade of cryptocurrencies, local and global stocks, as well as innovative customer finance solutions. Financial will also grow through a more diverse portfolio with new products as well as new customer segments such as residential, SMEs, and corporates for their digital infrastructure needs. InsurTech is another area where we intend to increase our presence in 2021. Next slide. This is my last slide. I want to share our full year guidance for 2021. Obviously, uncertainty continues as to when the pandemic environment will end. We have built our business plan, assuming a gradual normalization in the second half. Expecting another year of subscriber and ARPA growth, and the rising contribution of our focus areas, we target a top-line growth within the range of 14-16%. With that, we aim to generate around 14 billion TL EBITDA, maintaining our effective cost management. We will continue to invest our infrastructure at around 20% of sales, driven mainly by capacity and software investment upgrades, as well as expansion of fiber infrastructure. I now give the floor to our CFO, Osman. Hope you see all stay safe.