Turkcell Iletisim Hizmetleri AS

Ladies and gentlemen, thank you for standing by. I am Gayle, your chorus call operator. Welcome and thank you for joining the Turkcell conference call and live webcast to present and discuss the Turkcell third quarter 2023 financial results conference call. All participants will be in listen-only mode and the conference The session 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 Ms. Audrey Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed.

Thank you, Gili. Hello, everyone. Welcome to Truxel's third quarter 2023 earnings call. I am Özlem Yardım and recently appointed as the head of IR and M&A at Truxel. I have been with the company more than a decade and I'm excited to meet each of you in person in the near future. I'm always here to address your questions and feedback. Today, our CEO, Ali Taha Koç, and CFO, Kamil Kalyon, will be delivering a brief presentation covering operational and financial results of third quarter, 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 am handing the meeting over to Mr. Ali Taha.

Thank you, Özlem. Hello, everyone. Thank you for joining us today. I am honored to have been appointed as the CEO of Turkcell, which pioneered mobile telecommunication technology in Turkey and remains a flag carrier in the global capital markets. With a strong background in telecommunication technology and innovation, I have contributed to numerous patents and international projects during my tenure at Intel Corporation. I have also held key positions overseeing the digital transformation of Turkey. With a wealth of experience in my new role, I am committed to advancing Turkcell's leading position in our nation's digital sovereignty. We will harness our advanced technological capabilities to foster innovation and create a brighter digital future for all while taking Turkcell to the next level. As we are celebrating the Centennial of the Republic, I am confident in Truxell's leadership in technology and innovation will further carry our country to the second century. Truxell's performance in the third quarter proves the success of this company, which is levered by a robust business model, state-of-the-art capabilities that enhance customer satisfaction, and a team of highly skilled individuals. My initial evaluation of the company has reaffirmed my perception of Truxell. My primary mission is to bolster Turkcell's position in the telecommunication and technology market. To achieve this, I plan to place a greater emphasis on technological advancements and innovation. To unlock the full potential that lies within the Turkcell's capabilities, I aim to achieve sustainable growth and create value for Turkcell's shareholders. Let me dive into financials. We delivered a solid set of results in the third quarter. Continuing to outpace inflation, our revenue growth accelerated to 77%, driven by record ARPU growth and a significantly expanding subscriber base. Our EBITDA exceeded 11 billion Turkish Liras, marking an impressive 89% annual increase. This growth is driven mostly by robust top-line performance and reduced energy prices despite increased personal expenses. Our margin reached 43.5% on a yearly rise of 2.6 percentage points. We delivered a remarkable net profit of 5.5 billion Turkish Liras, thanks to strong operational performance supported by active risk management. As a reminder, we paid the first installment of our donation for the earthquake relief in September. This result enabled us to increase our full year guidance further. Next slide, please. Let's take a closer look at our mobile operational performance. We have concluded a dynamic quarter for the mobile market, leveraging strategic pricing actions amidst competitive pressures of grasping summer seasonality. In the third quarter, we made a price adjustment in August, responding to the soaring inflation rates of July. While overall price levels across the market escalated, we also observed aggressive promotional campaigns that have shifted the MMP market away from rationality. Our commitment to price adjustments remains intact, as we have already adjusted prices by 20% for Q4 in October. Small ARPU sustained its climb thanks to sequential price adjustments aligned with inflationary pricing policy and bolstered by upsell efforts supported by analytical models. Accordingly, we recorded 87% year-on-year growth. This quarter, we gained a net of 392,000 postpaid and 193,000 prepaid subscribers. This remarkable result was driven by our strategy of focusing on postpaid subscribers and summer season, which had a positive impact on prepaid services. However, increased competition from alternative data solutions and rising acquisition prices impacted the prepaid net addition. The mobile churn rate ticked up to 2%, though remaining at a healthy level, despite the aggressive pricing efforts of the competitors. Next slide, please. In the fixed broadband segment, we had a net gain of 48,000 fiber subscribers, thanks to an expanded fiber footprint and increased demand during the back-to-school period. The year's only prized action by the incumbent took place in July, which we follow. Thanks to our strategy focused on 12-month contract options, the ratio of those in our Fiber portfolio reached 59% in the third quarter. With 88% of our new customers opting for a 12-month contract in September and the removal of 24-month contract options in this quarter, it is fair to expect a higher 12-month contract ratio in the Fiber base in upcoming periods. Consequently, price actions will have a more immediate impact on ARPU. Fiber ARPU ramped up by 63% yearly driven by our price adjustments, upselling efforts to higher tariffs, our focus on development contract options, and higher IPTV pricing. It is fair to expect real growth in Fiber ARPU will be sustained for the remainder of the year. Introducing shorter contract durations and the price adjustment in the fixed segment has led to a slight increase in churn levels annually. We are pleased to register a further 31,000 net additions to our IPTV subscribers, bringing our total customer base to 1.4 million. We provided IPTV to 66% of our Fiverr subscriber base. Next slide, please. Regarding our strategic focus areas, let's begin with digital services and solutions. The standalone revenues from digital OTT services rose 103% year-on-year. We introduced new price adjustments across most of our digital service portfolio. The standalone paid user base reached 5.8 million, marking a 1 million rise on the previous year. Our TV platform, TV+, expanded its customer base on both OTT and IPTV platforms thanks to its rich content and the best pricing strategy. It has consistently increased its market share in the pay TV market since the second quarter of 2014 and most recently reached 17.2% despite ongoing price adjustment throughout the year. Lifebox, our cloud storage platform, has seen substantial growth, reaching 2.1 million subscribers, rising 29% on a yearly basis. Our digital business services, playing a pivotal role in supporting the digital transformation of enterprises, recorded 76% year-on-year growth. We also witnessed strong performance in the promising verticals, particularly in the data center and cloud segment, which accounts for 16% of our DBS revenues and posted solid revenue growth of 152%. This quarter, we had a record level of new contracts exceeding 1,500 contracts. Next slide, please. Our TechWing companies once again delivered a strong performance, supporting the group's top line in the quarter. Digital financial services platform PayCell's revenue rose 112%. The flagship product, PayLater, sustained its growth, robust growth, with more than doubling transaction value. PayCell, with the vision of providing solution across various verticals of the Turkish fintech ecosystem, has been expanding its reach. PayCell customers can now execute Borsa Istanbul stock exchange transactions through the app via a CMB-licensed brokerage hub. Furthermore, PayCell offers shopping limits to its customers through Financel in collaboration with Turkey's renowned pioneering e-commerce platform. Revenues grew by 104%. The loan book has expanded to 5.7 billion Turkish liras and 97% growth thanks to loan portfolio diversification with new products, such as green laws for solar energy investments offered to enterprise customers. Increasing funding rates have diluted the margins due to the shortage of long-term funding liquidity. Complementing our Techfin strategy, our digital insurance company, Wayo, started operations in July 2023 with loan protection insurance. We will be sharing more information about Wayo, which stands for with you, including KPIs and product development in the coming quarterly reviews. Next slide, please. Now our international subsidiaries. Turkcell international revenues comprising 11% of consolidated revenues grew by 75% year-on-year in the third quarter. The growth came mainly from the positive impact of currency movements and growth in all subsidiaries. Excluding the currency impact, the segment has grown 30% organically. Lifestyle revenues, which account for 76% of this segment, grew by 26% year-on-year in local currency terms. The rise in ARPU and expanding subscriber base underpinned the performance, while the impact of war during the same period of last year was the factor curbing the growth. BEST recorded 18% organic revenue growth on a yearly basis, and the EBITDA margins reached 46%, marking a substantial 14-point improvement. Lower interconnection expenses were the main driver of this high profitability. In September, we introduced 4.5G services in the Turkish Republic of Northern Cyprus, establishing ourselves as the pioneering provider in the country. Next slide, please. According to GSMA reports, the telecommunication industry consumes 2 to 3 percent of global power consumption. As operators' energy usage grows daily with increasing data demand, so does our carbon footprint. Furthermore, considering the global energy crisis we experienced last year, we may face even higher energy costs and scarcity. In Russia, we are also actively taking related steps. We are implementing various projects for optimal and efficient energy usage. Furthermore, we utilize 100% renewable energy certified sources and intensify focus on our renewable energy investment. As you may recall, Turkcell acquired a wind power plant in Turkey two years ago, which currently generates 8% of our energy usage. This acquisition marked a great leap toward achieving net zero by 2050. This year, we initiated investments in solar power plant installations to achieve a capacity of 300 megawatts within three years. The first phase, with an installed capacity of 54 megawatts, will be completed by the end of first half next year. We aim to cover 65% of Turkcell's total energy consumption from our own green energy production by 2026. This goal shields us against energy price fluctuations and reinforce our commitment to sustainability. Next slide, please. To conclude my presentation here, I'm pleased to share our updated guidance for 2023. Building on our outstanding performance in the first nine months of this year, we have decided to revise our guidance upwards to align with a more realistic expectation. Accordingly, we raise our revenue growth guidance to around 73%, generating real revenue growth. Our nominal EBITDA expectation is now set around 39 billion Turkish Liras, and we anticipated maintaining an operational CapEx over sales ratio of around 22%. I firmly believe that TruXell has the scope to deliver a stronger performance over the coming years. We are confident in our ability to create value through advancements in artificial intelligence, innovations, and cybersecurity by leveraging our state-of-the-art infrastructure in next-generation communication technology. Moreover, we aim to capitalize on the evolving digital habits of our customers with providing our superior digital services. I will now leave the floor to our CFO, Mr. Kamil Kalyan. Thank you very much, Ali Tahabey.