Turkcell Iletisim Hizmetleri AS

Ladies and gentlemen, thank you for standing by. I am Maria, your course call operator. Welcome and thank you for joining the TurkSales conference call and live webcast to present and discuss the fourth quarter and full year 2022 financial results conference call. At this time, I would like to turn the conference over to Mr. Ali Serdar Yace, Investor Relations and Corporate Finance Director. Mr. Yace, you may now proceed.

Thank you, Maria. Hello, everyone. Welcome to Turkcell's fourth quarter and full year 2022 results call. Today, our CEO, Mr. Murat Erkan, and Acting CFO, Mr. Kamil Kalyon, will deliver a brief presentation covering operational and financial results, and afterwards, we'll be doing Q&A. Before we start, I'd like to remind you of our safe harbor statement at the end of the presentation. Now, handing over to Mr. Erkan. Thank you, Serdar.

Good morning and good afternoon, everyone. Thank you for joining us. We are devastated by the earthquake that struck southeastern Turkey on February 6th. We offer heartfelt condolences to families of those who lost their lives at this catastrophic event. We trust in the solidarity of the nation to overcome this massive tragedy. The past year presented many challenges and opportunities, not only to the Turkish economy, but also to the global. The war in Ukraine draw up food and energy prices, also elevated supply chain disruption, further worsened pricing behavior across all markets. Easing inflation towards the year end provided some relief to the markets, yet it will continue to impact this year's economic growth. In Turkey, inflation was a major concern during the year despite cooling off in the year end. On the other hand, strong domestic demand and robust tourist inflow reaching pre-pandemic levels supported overall economic activity. As telcos, we saw continued mobile and fixed broadband demand, enabling us to make more frequent price adjustments to beat inflationary pressures. Our revenue growth continued to accelerate in Turkey. But mainly with the impact of Ukrainian operation, Group top line growth in the fourth quarter was just over 57%, slightly above third quarter growth. This Q4 performance brought our 2022 revenue growth to 50%. Enlarging subscriber base by 2.3 million and accelerating ARPU growth were the main drivers of this performance. Solid demand for digital business and tech and services were also supported. Despite the heavy inflationary pressure on the cost base, our EBITDA grew by 46% to 22 billion TL, bringing the margin to 40.8%, implying just 1% contraction year-on-year, thanks to the disciplined cost management. At the bottom line level, we registered 11 billion TL net income 4.6 billion of which comes as a net deferred tax income from revaluation of the asset. Even without the tax income, our bottom line continued to be strong thanks to our solid operational performance as well as proactive financial management. With the strong EBITDA generation and successful working capital management, we generated 1.7 billion TL of free cash flow in the year. despite the challenging macro environments. To the next slide. I would like to compare our full year result with the most recent guidance. On the revenue growth front, we were dedicated to timely price adjustment to protect our top line and profitability. Our diversified business model, which includes growth business based on digital services and tech also continued to support the growth. Consequently, an accelerating top-line growth from 37% in the first quarter to 57% in the fourth quarter brought our full-year 2022 growth to 50%, clearly above the guidance. Pricing discipline coupled with the prudent OPEX management allowed us to deliver 22 billion Turkish Lira EBITDA exceeding our expectation. On the capex front, we managed to stick the plan and close the year with around 20% capex to sales ratio. Next page. Let's take a look at our operational performance in mobile. During the year, the market grew on the back of increased population, tourist arrivals, and demand from the corporate segment. With valuable customer focus and switching to postpaid plans, we gained net 1.9 million postpaid subscribers, marking the record of the past 13 years. As the leaders of mobile market, we made sequential price increase during the years in order to reflect inflation. The market was most rational as operators followed our increases. However, It is worth noting that some year-end aggressiveness in the market and a lack in competitor pricing action were also observed. This triggered some increase in the mobile network portability market, which had contracted over the previous fourth quarter. Blended mobile ARPU growth ramped up to 56% year-on-year. The main reasons behind the acceleration were five consecutive pricing adjustments since December last year, continued upsell performance, and a higher postbank share reaching 68%. A slight increase in the mobile churn level compared to the same quarter of last year is mainly due to much higher tourism activity during the year, which brings in short-term mobile users. This churn level is in line with our expectation, and as declared before, we are focused on timely price adjustment. All in all, in our flagship service, we continue to lead the market with higher ARPA growth levels, sustained pricing premium as high as 30% versus the competition, and most importantly, this was achieved whilst maintaining our leadership in Net Mobile Subscriber Edition. To the next slide. On the fixed business, this year, we reaped the fruits of expansion strategy in fiber outreach. With this effort, we gained a record net 234,000 fiber subscribers. Customer demand for high-speed packages was quite strong, with more than one-third of new subscribers preferring 100 megabits or higher packages. We made significant price adjustment to our fixed broadband services in November following the long-awaited repricing of the incumbent. Coupled with this upsell to higher speed packages and increased IPTV penetration supported ARPA growth of 33% in Q4. On the IPTV side, we are pleased to see continued interest in our TVPlus services. with 200,000 yearly net additions. Of note, our IPTV platform continues to be the only player steadily increasing its share in the pay TV market in the past eight years. Given the accelerated expansion in our fiber footprint, our take-up rate decreased to 41%, yet remains well ahead of the competition. We believe that past two years, fiber rollout provides us with a strong outreach. Accordingly, we set our annual HomePass target to 300,000 for 2023. Our aim will be monetizing our strong base while steering new fiber HomePass investment into the place in need. Next slide. And now a few words on our strategic focus areas. In the fourth quarter, the revenue of digital OTT service rose 71% year-on-year, driven mainly by price adjustment in TV, cloud storage, and music streaming services, as well as 28% overall growth in the standalone paid user base. With its rich content and the paid subscriber base of our TV streaming platform continues to grow at a speed of almost 20% year-on-year. Our cloud storage platform Lifebox was instrumental in the growth of the paid user base, which reached 1.8 million paid subscribers on a solid rise of 38% year-on-year. We continued to monetize the digitalization trend in digital business services, where revenues were up 87% year-on-year. The growth drivers in particular were tailor-made and 10 digital transformation projects, data center, and cloud business services. Doubling year on year, the backlog from the system integration project totaled 2.8 billion TL, which is set to contribute to the top line over the upcoming quarters. Third is our Techfin focus. Our Techfin business had yet another strong quarter, with revenues up 77% year-on-year. PayCell, Turkey's leading payment platform, almost doubled its revenue year-on-year. The shift to digital payment prevails, as evident in doubling transaction volume generated by 7.7 million active users. The Paylater business remained the key driver of the growth. with the user expansion of 20% year-on-year and a doubling transaction volume. PoS solutions strongly supported to top line as PoS device tripled in the market along with the increased usage of virtual payment solution. With the focus of diversifying its service across the fintech ecosystem, PayCell launched stock trading services on the New York Stock, New York and Nasdaq exchanges. On the consumer financial side, finance cell revenue rose 64% on a larger loan portfolio, but still a 1% cost of risk. Next slide. Now, let's take a look at our performance in the international market. The revenue of Turkish cell international segment grew by 41% year-on-year. Excluding the currency impact, organic growth was 13%. Despite the ongoing war in Ukraine, lifestyle remained the key driver of the performance. Lifestyle revenue grew by 8% yearly in local currency terms, mainly with an increasing ARPU driven by price adjustment and increasing data usage. Next slide. On February 6th, two devastating orc extract 11 cities in southeastern Turkey, where around 14 million people reside. The twin quake caused huge destruction of five cities in particular, destroying thousands of buildings. As Turkcell, our first and foremost reaction was to ensure continuity of communication services, as well as to help and protect our people and those affected in the region. which I will elaborate on in the next slide. Let me start with what the Quake region means for us in terms of subscriber and infrastructure. We have around 6.5 million total subscribers in the region, representing 16% of our mobile subscriber base and 10% of each of our fixed broadband and IPTV subscriber base. These subscribers roughly generated 10% of our overall revenues in consolidated terms. However, I do have to underline that not all of these subscribers have faced the same level of damage from the disaster. Next page. Now, I would like to provide some information about the impact of the earthquakes on our business. 3,000 sites in the region, and in the first place, we lost around half of them mainly due to the power outage. With more than 1,200 personnel deployed, and we achieved more than 90% active site rate within four days. In the aftermath of disaster, we lost one tower and around 150 base stations. We have deployed mobile base stations to meet increased communication needs as well as electric generators and batteries to sustain seamless operation. Around 13% of our exclusive stores are in the region. Of those, 68% are still available. We continue to support our stores with the containers we place in the region and digital channels are up and running for all types of services. We started to provide additional packages for subscriber, healthcare, and emergency teams in the region. With the state of emergency announcement, we have provided one month free communication in the region. We also lifted additional fees such as for activation, cancellation, or late payment. Based on our initial impact assessment, we estimate the revenue impact of around 1.5 Turkish Lira and OPEX impact of around 400 million Turkish Lira and the CAPEX impact of around 900 million Turkish Lira in 2023. Once again, these numbers reflect our early analysis using currently available information and are fully incorporated to the guidance. We are continuously working on determining the full scale of the disaster with updated data. Further revisions will be shared in the upcoming quarters. To the next slide. I would like to end my part by sharing our guidance for 2023, taking into account our plans for the years as well as the initial assessment of the earthquake impact. We set our revenue growth target to 55% to 57%. EBITDA guidance to around 34 billion Turkish Lira. And expect a capex intensity around 22%. I will now leave the floor to our acting CFO, Mr. Kamil Kalyan.