Turkcell Iletisim Hizmetleri AS

Ladies and gentlemen, thank you for standing by. I'm Polina, your chorus call operator. Welcome and thank you for joining the Turkcells conference call and live webcast to present and discuss the Turkcells first quarter 2026 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. If anyone needs 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 Mrs. Özlem Yardem, Investor Relations and Corporate Finance Director.

Mrs. Yardem, you may now proceed. Thank you, Polina. Hello, everyone, and welcome to Turkcell's 2026 First Quarter Earnings Call. On the call today, we have our CEO, Ali Taha Koç, and CFO, Kamil Kalyon. They will provide an overview of our operational and financial results for the quarter, followed by a Q&A session. Before we begin, I would like to kindly remind you to review our Safe Harbor Statement, which is available at the end of our presentation. With that, I will now turn the call over to Mr. Ali Taha.

Thank you very much, Özlem. Good afternoon, everyone. We delivered a phenomenal quarter. We successfully launched 5G nationwide on March 31st. This landmark launch reinforced our clear leadership in mobile. We executed with precision at every stage of the 5G deployment, from spectrum acquisition to network rollout, from network rollout to marketing. In all aspects, Truxel is the leader. Our spectrum acquisition was both strategic and efficient. We secured 25% more capacity than our closest competitor, creating a network of superior scale and positioning it for long-term demand. Our launch was supported by a powerful go-to-market strategy. To accelerate 5G adoption, we expanded data package allowances fivefold and introduced compelling smartphone campaigns. Our ads featuring global celebrity Shaquille O'Neal resonate strongly with customers. We proved the real-world power of our network through high-impact use cases. We successfully tested remote driving of a TOG-10F over a 150-kilometer distance. At the same time, we conducted live speed tests across Turkey. Turkey has 81 different cities. Live, from all the cities, we have 5G. And with 5G speeds exceeding 2,000 megabits per second, it means more than 2 gigabits. No one has that kind of capability. No one has that kind of speed other than Turkcell. We secured the best frequencies. delivered superior network quality, and executed the strongest launch campaign. Our market is now more solid and resilient than ever. Next page, please. We started the year with flawless execution across all our domains. We have been the leader in the mobile, we are the leader today, and we will continue to lead the future. By securing 40% of the 5G spectrum in the tender, we further reinforce our long-term capacity dominance. On the fixed side, we are driving value-led growth by promoting multi-gigabit-per-second fiber offerings. Currently, 20% of our customers are on 1 gigabit per second, means 1,000 megabits per second and above plan. Digital business service delivered robust growth through corporate digitization supported by sustained momentum in data center and cloud services. We further strengthened our balance sheet by securing $1 billion in Maraba financing. This preserves our investment capacity while supporting a healthy leverage profile. Finally, we continue to expand our strategy partnership. We introduced up to 50% discounts on Samsung smartphones to support 5G penetration. We also secured a managed service collaboration with Asphalt in the defense industry and a strategy cooperation with HBO Max to strengthen our TV platform strategy. Next page, please. In the first quarter of 2026, our revenues grew by 9% year on year, exceeding 68 billion Turkish Liras. This robust top line performance was driven by combination of operational discipline and strategic execution. Key contributors include a strong momentum in digital business services, the scaling of our tech segment, and high-quality subscriber acquisition across both mobile and fixed segments. Group equity increased to 28 billion Turkish Liras with a margin of 41.4%. Our bottom-line performance strengthened further with net income increasing by 15% to 4.6 billion Turkish Liras with disciplined financial management. On the subscriber side, we have 661,000 post-paid net additions. We achieved a great quarter in the mobile number portability market, driven by targeted and segment-based offers. We continue to prioritize subscriber quality and reach content packages to strengthen our leadership. Our data center and cloud business maintains a strong trajectory, with revenues increased by 20.8% as we continue to scale our digital infrastructure. Overall, these results once again proved our ability to monetize the broader digital ecosystem. Next page, please. Now, let's look at the operational drivers behind our performance this quarter. Market competition remained relatively stable. We have 661,000 post-paid net additions in this quarter, our strongest total mobile net additions in the past 14 quarters. This performance reflects the success of our targeted offers and our focus on high-value subscriber growth. The share of post-paid subscriber rose by 4.6 points year-on-year to 81%. Mobile ARPU remained broadly flat year-on-year. This reflects the lagged impact of last year's competitive pricing, our contract-based structure, as well as the rapid increase in inflation in the first quarter. As we transition to 5G, we are taking a balanced approach. We are carefully managing pricing to protect our subscriber base while sustaining our clear leadership in the revenue market share. Our strategy is also reflected in lower churn rates supported by an effective churn policy. Next page please. Moving on to our fixed broadband operations, we achieved a strong quarter in fixed broadband supported by solid subscriber growth. We recorded 36,000 net fiber subscriber additions, including 21,000 from Turkcell fiber domain. Residential fiber ARPU increased by 9.7% year-on-year, supported by active upselling, pricing actions, and the growing contributions of our IPTV offering. We expanded our Turkcell fiber home press by 138,000 in the first quarter, reaching a total of 6.5 million home passes in 30 different cities. Our take-up rate reached 41.8%, reflecting effective monetization of our infrastructure investments and the strength of our fiber growth strategy. Next page, please. Digital business services had a strong start to 2026, with revenues increased by 64% year-on-year. This performance was driven by higher hardware revenues for a large-scale, end-to-end corporate project. We also delivered robust 21% growth in our data center and cloud business. Our system integration backlog remains strong, exceeding 10 billion Turkish liras. Our cumulative data center investments have reached close to 600 million euros. We are on track to finalize our fifth module in Ankara. Our Google Cloud hyperscale partnership is on track as we planned. Next page, please. PayCell, the growth engine of this segment. In this quarter, PayCell revenues increased by 15%, fueled by stroke momentum in our host and pay later businesses. Active uses of pay later increased by 16%, exceeding 3 million. On the financial side, revenue is declined primarily due to ongoing installment limitations. Looking ahead, we see 5G penetration as a natural growth catalyst. A more supportive regulatory environment for installment limits would unlock the full expansion potential of this business. Despite revenue pressure, financial net interest margin expanded significantly by 3.6 percentage points to 8.3%. supported by lower funding costs. Balance sheet risk management remains disciplined, with cost of risk is at 3.3%. I will now hand over to our CFO, Kamil Kalyan, to walk you through our financial highlights. Thank you.

Thank you very much, Ali Tavish. Let me walk you through our financial results. We are very pleased with our solid first quarter performance. With a 9% increase, our top line exceeded 68 billion TL. This growth was primarily driven by Turkcell Türkiye, which rose 8.6% year-on-year. Our non-tech revenues were instrumental in this performance, particularly digital business services. Accounting for 12% of our revenue this quarter, digital business services delivered strong momentum through managed services. Our extended phosphate base and fixed broadband services also provided a robust foundation for expansion. Additionally, our other segment contributed half a billion TL to the top line, fueled by the robust performance of call centers and Belarus subsidiaries. The RTA margin was 41.4%. The increasing share of hardware sales from large-scale integration projects made a significant contribution to top-line growth, but weighed on the overall margin mix. This impact was partially mitigated by disciplined cost management, favorable energy prices, and reduced funding costs at finances. Next slide, please. Net income rose 15% to $4.6 billion years, primarily supported by strong operational performance and robust EVTA generation. Another key driver was the monetary gain, which benefited from the capitalization of the 5-year license and contributed 4.2 billion TL year-on-year. This year, we are scheduled to make several major payments. We have proactively positioned ourselves to manage them effectively. The payment of the first installment of the 5G license in January amounting to US$653 million, together with the recognition of future installments and higher transactions led to an increase in effect expenses. In addition, the redemption of US$500 million euro bond last October and the license payment in the first quarter resulted in a slight increase in net interest expenses. TOGG delivered a significantly stronger contribution compared to last year. This improvement was supported by effective cost management and pricing policies, while relatively stable Euro TL parity also helped constrain FX funding costs and the cost of goods sold. Finally, the effective tax rate increased this quarter. This was driven by a higher corporate tax expense and deferred tax impact stemming from the absence of inflation accounting in statutory financials. Next slide, please. Now let's move on to capex management. In the first quarter of 2026, our capex-to-sales ratio stood at 21.5%. 85% of our operational topics was allocated to connectivity businesses, naturally reflecting our intensive preparations for the 5G rollout. On the fixed side, we continued our fiber expansion, adding 138,000 new home assistive quarters. Our base station fiberization has now reached 47%, significantly enhancing our overall network quality at 5G readiness. Data center investments accounted for approximately 5% of our capex, with construction currently underway for the fifth module in Ankara data center. Seasonally, we experienced lower capex intensity in the first quarter. However, we expect higher figures in the upcoming quarters driven by our ongoing investments in renewable energy and data center expansions for Google Cloud. Next slide, please. Moving to our well-positioned balance sheet. The first quarter ended with a cash position of 96 billion TR. In January, we completed the first installment payment for the 5G license and paid 3.2 billion TL wireless usage fee. However, our cash position was significantly bolstered by the successful Murabaha syndication. Considering both cash and financial assets as part of our overall liquidity, we maintained a stable position quarter on quarter. Our current liquidity remains robust, providing full coverage for both the upcoming 5G payments and all debt maturities over the next four years. Driven by the new loan utilization and the impact of significant regulatory payments on our cash reserves, our net debt increased to 49 billion TL. Consequently, and as expected, our net leverage ratio rose to 0.42 times. We expect leverage to remain below the one-time threshold despite this being a high investment year. Next slide, please. What's reformed currency risk management? We proactively balance hedging costs supported by our strong natural hedge position. Currently, 77% of our cash is held in hard currencies, while 88% of our total FX denominated debt is in hard currencies. To avoid excessive hedging costs during periods of relatively stable FX levels, we have strategically opted to maintain a higher short FX position. Supported by 2.8 billion USD in FX assets, and a $1.3 billion derivatives portfolio against $4.4 billion in FX debt, our net short FX position has now risen to $1.2 billion. This position reflects cash outflows related to 5G license, FX-denominated CapEx, and our optimized use of hedging instruments. Moving forward, we target an FX position of approximately $1.5 billion to support our ongoing investments and 5G obligations while maintaining the flexibility to adjust our strategy in line with market conditions. That concludes our presentation. We would not be happy to take your questions. Thank you very much.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your headset when asking a question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Maddy Singh with HSBC. Please go ahead.

Thanks a lot for taking my question. My first question is on the consumer segment. I think your release rates, consumer revenue growth was about 3%. So if you could talk about that, you know, what is the context there? Because your overall revenue growth is high single digit in line with your guidance, but consumer growth is much slower. So if you could talk about the drivers. And then secondly, if you could talk about the pricing action within the mobile segment, how many, have you revised the prices year to date? And how much was the price hike? What periods are your future plans around the price hike as well? So that's the second question. And then finally, have you seen any impact on your operating costs from the higher fuel prices, energy costs, and so on? So any potential impact there, if you could talk about that. Thank you.

Let me try with the price adjustments. In 2026, segment-based dynamic pricing and offer strategy will be maintained. We're going to closely follow up the competition and act upon it. So we utilize actually AI power tools to provide dynamic and customer-specific offers. So we cannot have a mass change in the pricing, but from segment-wise, segment-level, we are doing the change in price differentiation. On mobile side, this year we applied a 26% price adjustment in January, and 16% effort to restore pricing to the expected baseline. This year this did happen. And on the fixed side as well, we applied price adjustments broadly in line with the incumbent's pricing actions. Accordingly, we implemented an approximately 12% price increase on the shared infrastructure, and around 18% on our fiber products in February. Regarding the first question, this quarter, we have lots of great news with the digital business services. And then our digital business services and PayPal has a huge growth. And currently, we are the biggest digital integrator in Turkey. And we are working very closely with the domestic industry and another public sector. We gain lots of momentum on that perspective. So that's the reason that our growth is higher. Secondly, data center and cloud businesses grew around 21% year over year. So that's also helping us our growth. And the pay cell also remains a strong contributor to Salesforce. It's our main growth engine. It grows 15%. So we have a balanced sheet right now. So we have multiple options that we can grow. So consumer segment is still the biggest one, but we have other options that we can have a higher growth.

For the first question, we are closely monitoring the volatility in the global energy market, especially the full prices. While high full prices put upward pressure on costs, the actual impact will depend on the conflicts, duration and the intensity. Currently, it's a little bit early to say, how can I say, estimation for the future, but it depends on the duration of the conflict.

Okay, thank you.

The next question is from the line of Cemal Demirdaz with ATA Invest. Please go ahead.

Thank you for the presentation. My first question is about the ARPU site. We see a real term contraction year over year. Could you further elaborate that? How should this trend go in the following quarters? And other questions about the post-write, the participation. We see that it turns a positive net income, around $305 million contribution to your site. What do you expect for the following quarters, at least? And the last question is about the tax rate, effective taxes. How should we assume for the rest of the year? Thank you.

Thank you, Jamal. Thank you very much for the question. I'm going to answer the first one, and the top part and the tax part, the accountability is going to answer that. So let me start with our primary objective is actually maintain a healthy ARPU growth that aligns with macroeconomic indicators. The mobile market currently is characterized by intense competition throughout 2025, as you may know. Consequently, our strategic turn management and pricing actions taken last year have had a temporary restrictive impact on our current ARPA growth, because we already did this strategic term management systems last year, so we can see the impact this year. For the full year 2026, our target is to achieve ARPA growth that closer tracks the inflation cycle. However, we must remain mindful that any unexpected shifts in inflation dynamics, as we can see that nowadays, will create some influence on our real growth trajectory. Our dynamic pricing model will manage this and continue to migration to higher value segments remain our key strategy to ensure ARPU resilience. We implement a strategy that will enable us to maintain a healthy growth. So in 2025 has also affected district growth as our ARPU growth is coming with a lag, so we need to always know that there is a lag between the inflation and our ARPU growth, because we are doing our contracts, 12-month contracts, so that's the reason that increasing trend in inflation is also putting a pressure on current use growth. But if you look at the numbers, we have a healthy ARPU for the users, and then also we don't do any strange operations with the machine-to-machine communication, so our ARPUs are always stable, and then growth is there.

From the TOX side, TOX net loss initially is starting from the third quarter of 2025, Cemal, mainly supported by change in the special consumption tech space, which led to higher vehicle prices in the company. The new model, 10F, also supported the sales momentum in Q4 2025 and Q1 2026. Within the light of these facts, in Q1 TOK registered an net income of 306 million TL. There are various reasons of this profit in the TOK side. This improvement was mainly driven by the increased benefit of current incentive mechanism with higher vehicle sales. This is the first one. The other one, financial expenses also improves due to relative stability of EURTR parity in Q1. Additionally, TOK continues to record monetary gains under the inflation accounting due to its significant fixed asset base. Therefore, when you combine these three facts, the company declared a good result in Q1. We also expect the momentum in the coming period. For the last question, as you know, From the tax side, as you might aware, the termination of inflation accounting in accordance with the Turkish tax procedural law led to tax impacts of the indexation effects of accounts under capital items is no longer taken into account. With another saying, the inflation accounting in the local side is cancelled or postponed for three years period. Therefore, there are some negative effects of this issue in the deferred tax side. Therefore, since the taxable nature of the monetary loss calculates on capital items has been eliminated, the effective tax rate has increased naturally. Therefore, higher fixed asset regulation effects were included at the end of year. Termination of inflation accounting, in fact, had been limited from this side. In addition to this, for the inflation accounting, the profit of the term is also increased in the first quarter. Therefore, this is the second reason which we have a tax expense in our finances in Q1.

And do you expect any upper provision to your revenue growth after around 9% growth in first quarter? You have like 5% to 7%.

It is really urgent to say something about the guidance revised because first of all we should see the economic conditions in Turkey and the other one, the most important one is the duration of the conflict. If the conflict duration for example extended for many months, it will, how can I say, influence the inflation rate in Turkey. Therefore, we will look at the position of the inflation in the coming future. Therefore, it's really early to say something about this one. I mean, we should see the Q2 results. Maybe in the Q3 side, it would be more feasible or more rational to say a revise in the guidance side, negatively or positively. It's really too early to talk about this one.

Thank you. And one last thing about your, you know, promotion camera. It's very, I think, effective, at least from a consumer perspective like me. Whenever I look at, you know, see it, it makes me smile. So I think from my side, it's very effective. But from your side, do you think it reached to crowds in Turkey? Any reaction on that? Because it really is one of the best commercials I have experienced. during the last several years. So I just want to appreciate it from the consumer perspective. But do you have any measure that it has any positive effect on your activities in all around Turkey? Thank you.

First of all, thank you very much for the comments. You are making us happy with these comments. And also our marketing team is also very happy about the impact. Overall, what happened is, you know, so we missed that kind of great ads in Turkey. And Truxell has the DNA to publish a great ad. So I think it's just go back to the future or whatever you can say that a long time before we didn't have that kind of big, great ads. But still true that everybody knows, especially the story is very nice, and explaining the privacy technologies in a very funny and Turkish-style way, I can say that. So that's the reason that there's a huge interest on that, and everybody's... 5G speed is just very well aligned with the Turkcell terminology, so it helps a lot. But we are seeing that we continue on the campaigns, especially we are on the consumer side. We have a huge campaign about the 5V. And so we are waiting for that to be over. And this month and the next month, we are going to see the real impact. On top of it, we just bought a new market, which is called fixed wireless access. It means that we are going to give 5G SuperVACs And we have a new ad about it as well. So overall, we are expecting a positive impact, both the campaign and how we deploy our 5G technology in Turkey.

Thank you very much. Thank you.

As a reminder, if you would like to ask a question, please press star and 1 on your telephone. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell Management for any closing comments. Thank you.

Thank you very much for joining, and hopefully we are going to see each other in the second quarter results. Thank you.

Thank you for joining us.

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