Turk Telekomunikasyon Ord

Ladies and gentlemen, thank you for standing by. I'm Constantino, your course call operator. Welcome and thank you for joining the Turk Telecom conference call and live webcast to present and discuss the first quarter 2026 financial and operational results. All participants will then listen on the 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. We're here with the management team, and today's speaker is Omer Khadimir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now, I would like to turn the conference over to Mr. Omer Khadimir, CFO. Sir, you may now proceed.

Hello, everyone. Welcome to our 2026 first quarter results conference call. Thank you for joining us today. Let's go to slide number three. I will start with a quick update on markets and our leading position. Global markets in Q1-26 were shaped by rising geopolitical tensions and the Fed's cautious stance. The Fed kept its guidance that further easing will be approached carefully, pending a sustained improvement in inflation. Regional tension in the Gulf and geopolitical developments triggered a spike in energy prices. and volatility in global risk appetite. In Turkey, the central bank cut its policy rate by 100 basis points in January, but kept it on hold in March and April in response to heightened global uncertainties and risks to the inflation outlook. The year-round inflation expectation in the April 2026 market participant survey stood at 27.53%. Aimed at this environment, as Structure.com Group, we remain focused on sustaining our strong operational and financial performance through our disciplined and proactive approach. We started the year with our strategic long-term investments and strong operational and financial results in the first quarter. I would like to emphasize our key investments in our major business, fixed line and mobile, which together represent significant majority of our group revenues and On the fixed-line side, we continue to capitalize on our fiber network exceeding 550,000 kilometers, as the fixed-line concession has been renewed for 24 years. Fixed internet delivers robust KPIs beyond our expectations, and along with corporate data contributes to solid revenue growth and healthy margin improvement. six subscribers opt for higher speeds. On the mobile side, as of April, 5G was launched successfully across all provinces in Turkey. We offer high speed, low latency and superior mobile network performance, supported by our number one fiber position. Rational competition environment prevails in the mobile market. Operators took pricing actions in January and April. Subscriber acquisition momentum remains strong. Overall, as Turtelkom Group, we are in a unique leading position in Turkey. To provide integrated digital services to our millions of customers across the country, we are excited about our company's future vision and growth opportunities and remain focused on delivering strong financial results. Let's move to the next slide, slide number four for financial and operational overview. Consolidated revenues increased by 9% to 65 billion TL, supported by both fixed and mobile segments. Including the interest rate accounting impact, revenue growth was 6% in 9-hour full-year guidance. 70% year-on-year EBITDA growth was well ahead of revenue growth, pushing our EBITDA through 27.4 million TL, along with a solid 300 basis points margin expansion year-on-year to 42.3%. Our net profit increased by a solid 56% to 10.5 billion TL, supported by strong operational performance. CapEx extremely solid investments and licensed to that 17 billion TL. It was higher in year-on-year terms due to our long-term 5G investment. Excluding concession and 5G license related payments, unlevel free cash flow stood at positive 1.7 billion TL. This figure indicates a decline from 10 billion TL in first quarter of last year as a result of higher CapEx and one of Bayes' impact in last year from change in networking capital. Net leverage stood at 0.99 times compared to 0.6 times at 2025 year end. Excluding payments of 1.1 billion U.S. in first quarter related to concession renewal and 5G license, net leverage would have remained confident. Moving to slide number 5, I will provide update on our net subscriber additions. Our total subscriber base exceeded 57 million with 613,000 net additions Q&Q. Excluding the 163,000 lost in the fixed voice segment, co-authored net additions were 776,000. Fixed roll-down subscribers slightly declined by 19,000 to 15.4 million. Despite the retail price action we took in January, the activation volume was similar to what we had seen in the first quarter of last year. Q1 churn increased modestly in year-on-year terms while declined Q2 under the impact of accelerating contract expirations. Both retail activation and churn performance are positively impacted by the acceleration in our Greenfield Fiber investments. Retail net additions exceeded our expectations thanks to lower churn. Full-scale subscriber base didn't change materially. Mobile segment added 712,000 subscribers on net basis, pushing up the total base to 32.2 million. Board activation and churn volume remained higher in year-on-year basis, driven by the prospect segment. Mobile net additions were supported by 571,000 of MTM additions by the corporate segment. Subscriber growth remained on a strong track with 87,000 net post-paid additions, excluding MCM. Post-paid and prepaid segments added 658,054,000 subscribers. If you can go to slide number six, let's look at our fixed broadband performance. We had a very strong performance in fixed broadband. We introduced a retail price revision for new acquisitions in January, as most players in the market followed our price adjustments. Price parities have rebalanced in favor of our retail activations by the end of the quarter. Subsequently, we adjusted the sale segment price for existing customers in March. Recontracting volume scored significantly higher year-on-year. Artful growth remained strong at 18% year-on-year in Q1, despite the last year's high base of 19%. The combination of solid upsell and sustained contracting performance along with successful price implementation enabled us to maintain high growth. We expect the robust ARPU trajectory to continue in 2026. Average package speed on both our total and retail subscriber rates increased by 61% year-on-year to 111 and 120 MHz. 66% of our subscribers now use 50 megabits and evolve packages compared to 51% a year ago. Moving on to mobile performance, let's go to slide number seven. Our strong customer growth continues in mobile sales, 19,000 Q1, Q2, 15.4 million. Despite the retail price action we took in January, the activation volume was similar to what we have seen in the first quarter of last year. Q1 churn increased modestly in year-on-year terms while declined Q&Q under the impact of accelerating contract expirations. Both retail activation and churn performance are positively impacted by the acceleration in our greenfield fiber investments. Retail net additions exceeded our expectations thanks to lower churn, who say subscriber base didn't change materially. Mobile segment added 712,000 subscribers on net basis, pushing up the total base to 32.2 million. Board activation and churn volume remained higher in year-on-year basis, driven by the post-bate segment. Mobile net additions were supported by 571,000 of MTM additions by the corporate segment. Subscriber growth remained on a strong track with 87,000 net postpaid additions, excluding MTM. Postpaid and prepaid segments added 658,000 and 54,000 subscribers. If we can go to slide number 6, let's look at our fixed broadband performance. We had a very strong performance in fixed broadband. We introduced a retail price revision for new acquisitions in January as most players in the market followed our price adjustments. Price parities have rebalanced in favor of our retail activations by the end of the quarter. Subsequently, we adjusted retail segment price for existing customers in March. Recontracting volume scored significantly higher year-on-year. Our growth remained strong at Despite the last year's high base of 19%, the combination of solid upsell and sustained contracting performance along with successful price implementation enabled us to maintain high growth. We expect the robust ARPU trajectory to continue in 2026. Average packet speed of both our total and retail subscriber base increased by 61% year-on-year to 111 and 120 megabits. 66% of our subscribers now use 50 megabits and above packets compared to 51% a year ago. Moving on to mobile performance, let's go to slide number 7. Our strong customer growth continued in mobile segments. The rational competitive environment visible by the end of 2025 prevailed in the first quarter of 2026. Price revisions were made in January and April. M&P market size, which was higher in the first quarter of 2026 in year-on-year terms, declined slightly from its historical height at the end of 2025. Post-paid segments recorded 658,000 net additions in the first quarter. With that, total net additions surpassed 712,000 in total. The ratio of our post-paid subscribers in total portfolio rose to 80% from 76% a year ago. Excluding MTM, post-paid base added 87,000 subscribers. Mobile ARPU excluding MTM came down by 4% year-on-year over last year's strong 21% base. In the first quarter of 2026, we are seeing a normalization in annual mobile ARPU growth as already seen in the third and fourth quarters of 2025. Let's go to slide number 9 to update you on our summary financial performance. Consolidated revenues increased by 9% to 65 billion TL from 60 billion TL in the same period of the previous year. Six broadband corporate data and ICT projects led growth. IFRIC 12 revenues rose strongly in the quarter, driven by the acceleration in fiber investments. Exclusively IFRIC 12's accounting impact 26 revenues reached 61 million TL, up 6% year-on-year, including increase of 17.8% in fixed broadband, 15% in TV, and 28.1% in corporate data, while mobile, international, and other revenues declined by 1%. 27.5% and 0.7% respectively. Fixed voice remained flat year-on-year. Fixed internet and mobile revenues together accounted for 77% of operating revenue. Fixed internet made the largest contribution to growth with 3.2 billion TL higher revenues in total year-on-year. Corporate data and ICT solutions added a further 2.3 billion TL. Wide-course call centers, international revenues, and equipment sales declined by a combined 2.1 billion TL. Mobile revenues were lowered by 253 million TL. growth, supported by new projects, won by our subsidiary Innova, the decline in cost-centred revenues, in line with our expectation, was attributable to projects that concluded in the second half of the last year, while our international business was impacted by the decline in international voice revenues, which is kind of a seasonal business with low margins. Moving on to EBITDA. Direct costs fell 3.5% year-on-year. The decline in interconnection costs was driven by contracting international voice revenues. The equipment costs were lower year-on-year as well. Commercial costs rose 27.7% while other costs declined 2.5% year-on-year. The increase in commercial costs was driven by higher spending across sales and marketing and advertising line items. Within other costs, network excellence increased 1.3% year-on-year. The 4.1% year-on-year decline in personal costs can be explained by the reduction in headcounts at our call center subsidiary, due to project completions in the second half of 2025. Excluding the 12th accounting impact, OPEX to sales ratio improved from 61% in Q1 2025 to 58%, pointing to continued enhancement in operational leverage. Consolidated EBITDA increased by 17.1% year-on-year to 27 billion TL, while the EBITDA margin improved by 300 basis points year-on-year to Excluding the effect towards accounting impact, the EBITDA margin expanded by 395 basis points year-on-year to 44.1%. Coming to our net profit. Net financial expenses increased by 27% year-on-year and 66% Q&Q. The interest income declined from 2.3 billion TL to 659 million TL QoQ as we made a payment of 1.1 billion USD in the first quarter regarding 5G and concession renewables. Moreover, FX hedging expenses rose 108% year-on-year and 28% QoQ on the back of higher FX liabilities. The average hedge cost remained flat on QoQ basis. On the balancing side, monetary gains surged by 80% year-on-year to 14 billion TL, as non-monetary assets of 5G license and fixed concession extension were included in our balance sheet in the first quarter of 2026. These long-term assets revalued each quarter with inflation index. In Q4, a total expense of 7.1 billion TL was recorded, largely consisting of deferred tax expense. The effective tax rate was 40%, mostly due to inflation accounting. We assessed that the deferred tax expense recorded will have a very limited impact on near-term cash flows, with the total effect spread over an extended time horizon. Overall, Turtelecom Group recorded a net income of 10.5 billion TL for the period, up by 56% year-on-year, driven by strong operational performance. Let's go to next slide number 10 to review our CAPEX numbers. CAPEX spending rose to 17 billion TL in the first quarter compared with 10 billion TL of last year on the back of higher 5G rollout expenditures. As usual, fixed line CAPEX, most importantly, the fiber access and core network investments took higher shares in total with 51% weight, 23% of spending went to mobile while another 50% went to IT and project investments and rest to other investments. Moving on to slide number 11, you can see our debt profile. Türk Telekom Group had total 30.4 billion lira cash and cash equivalents of which 56% is FX based. The FX exposure includes US dollar equivalents of 3.3 billion of FX denominated debt, 2.7 billion concession and mobile license liabilities, 3.1 billion of total hedge position and 382 million of hard currency cash. Net debt over EBITDA increased to one times from 0.6 as of 2025 and on the back of 5G and concession renewal payments. Net debt over EBITDA would have remained flat Q&Q excluding those payments. In January, we paid the first installment of 5G license, mainly 365 million USD and plus 215 million VAT. and the VAT amount of concession extension worth of 500 million USD. By the end of the year, we will have also paid the second installment of 5G license and the first installment of concession extension. We prepare detailed schedule of payments and income statement and balance sheet impact for your easy reference. You can find it in the appendix of this presentation. I want to emphasize that the increase in FX liabilities is due to our longer-term investment in 5G spectrum and concession. Our future payments are extended over a long-term period until 2035, and the payment will be in Turkish Lira equivalent. We also actively manage our FX exposure risk through HEDS. Moreover, while concessional 5G liabilities bring additional FX exposure, on the asset side they are revalued under inflation accounting and hence creating monetary gains which as a result balance P&L impact overall. Let's go to slide number 12 where we provide update on our cash flow and FX exposure. We recorded 2.5 billion USD short FX position compared to 102 million USD as of year-end due to booking of 2.7 billion USD 5G and concession renewable liabilities. Excluding those payments, our net FX loan position is positive 162 million USD. Finally, we generated positive 1.7 billion TL of unnevered free cash flow in Q1, excluding 5G and concession renewal payments. Compared to 3 billion TL in Q4 and 10 billion TL in the same quarter last year, annual decline is mostly due to higher capacity. Moving on slide number 13. we provide update on 2026 full year guidance. Our business performance as a whole was in line with our expectations in Q1. We expect operational revenue growth to accelerate in the remaining quarters of 2026. Yet, first quarter inflation came in slightly higher duty regional geopolitical developments, putting pressure on real growth, we will update our revenue growth guidance, if necessary, based on the performance of our business line in Kursalt and the course of inflation. We currently do not see major downside risks to our 41-42% EBITDA margin guidance. As to Telecom Group, we remain cautious, especially regarding inflation expectations and prudently monitoring regional geopolitical developments and taking necessary actions. This concludes my presentation. Thank you for your listening. And now we can open up the Q&A session.

Ladies and gentlemen, at this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press start followed by one on the telephone. If you wish to remove yourself from the question queue, then you may press star and 2. Please use your handset when asking your question for better quality. Anyone who has a question may press star and 1 at this time. One moment for the first question, please. The first question comes from Lanoff Jamal de Veritas with Atta Invest. Please go ahead.

Thank you for the presentation and congratulations for good results. My first question is about your ethics position, short ethics position. It's 2.5 billion. Could you further elaborate this in terms of risks going forward? Most of them, you know, possibly it's going to be critical for the next two, three years. And what are the plans? on your side. And I would like to understand the hedging costs. Did you see any increase in the hedging costs in April compared to March? And do you see any risk on your guidance for CAPEX concerning the risks on the ethics side? This could be very helpful from the CAPEX and ethics position side. And the other question is about the business side. We see some decline in the mobile side. Could you also further elaborate that? And connected with this, how do you see the outlook so far for the second quarter in terms of the business lines? Thank you.

Thank you. For your first question of the ethics position, actually we don't have a short position. We have a long position if we exclude our future 5G and concession payments. So that means for our, let's say, financial debt, financial payments, we are securing our ethics position. And for the... When this payment happens, so the next schedule is the December of this year. I am referring our huge payments, the installments of the 5G and the concession payments that will be made in December. After we have made these payments, we will also hatch this open position. We are planning to hatch this open position. strategy is to hedge our financial debt. Based on the hedging cost, actually we are using the cost cost declining instruments for our hedging policy and we have access to onshore, offshore and also central bank NDF channel. We are using the lowest cost for these hedging transactions. So, the average cost of hedge didn't change compared to last quarter of 2025, and it was similar for the first quarter. But in April, we have seen some, in April, I mean, from the payment side, from the cost side, in April, we have witnessed slightly an increase for hedging costs. But the main factor of our expenditure for these hedging transactions comes from the hedge volume. The payments for 5G and concession in the first quarter with their VATs, as a total it is 1.1 billion US dollars. That's increased our total hedge amount. The main difference comes from this hedge volume. But with the help of this inflation program of central bank and the government, as we have witnessed In the second half of the last year, the hedging costs, we are expecting to decline in the hedging costs, but hedging volume will be similar till the end of this year. I hope this answers your first question. For your second question, CAPEX... You know, we have, our guidance was, our guidance for this year is 23 to 24%, it was realized sorry, 33 to 34% for this year. The last year's realization was somewhere 29%. The main difference was coming from our mobile investments for the 5G rollout. The first quarter's realization is 26.3%. As we have announced, based on the ethics increase, unexpected ethics increase, our budget numbers are in nominal terms, so we try to limit we try to be in the boundary of this budgetary volume in case of an unexpected ethics shock so right now we are still stick to our guidance for the capex but we cannot predict easily what will happen since there is a regional conflict and it will of course affect the supply chain. We haven't seen its effects in our capital spending at the moment. But there will be some effects, we are admitting that. But on the other hand, our contracts are not one year term, they are three to four years of term that fix the price of our CAPEX spending. That will also help us. And for your third question, the business side of mobile, our revenue growth is, you know, the total revenue growth is almost 6%, and the inflation was for the first quarter almost 10 percent that was beyond our expectations that affects the revenue growth the the increase in the inflation higher than the expectation but we are still in line with our budget targets for the first quarter since the fixed broadband compensated our mobile sites. But basically for the mobile, maybe you are referring to our ARCO growth. Yes. The mobile parts, there are two main effects we can state. One is base effect, the other is inflation. For the base effect, we have realized growth in the late 2024 and 2025. That is one reason. But another reason is the competitive environment in 2025. That happened, let's say, in the middle of the year. But we saw an increase rationalization and normalization at the end of the last year and for this year we are also witnessing the continuation of this normalization. Since we and other operators could be able to make their price revision, for January we have 30% of increase in mobile and for April we have 15%. With the help of this price adjustment and with the help of this normalization in the market, we can expect a recovering revenue growth and ARPU growth But it will be in the second half of the year, I can say. Thank you.

The next question comes from a line of Madis Singh with HSBC. Please go ahead.

Yes, hi. Thanks a lot for taking my question. I have... A few quick questions. The first is on, maybe I missed it in the comments, but what has been the price actions this year? If you could share that. I think the last price hike was in Jan, but if you could talk about any further price actions you have seen. so far. And then the second question is on your energy costs. I understand that most of your network is on grid power. So have you seen any price hikes on the electricity side? So if you could share that. Any anticipation of higher electricity prices, that will also be great. And then the final one is on the, you know, under the new fixed construction and licensing, you know, which we have for 5G and all. Is there any change in the asset ownership clauses or is the asset still owned by the government and you just have the right to operate it? So if you could share any color around that. Thank you.

So for your last question, is it for fixed or mobile site for the ownership of asset?

For both, fixed and mobile.

Thank you. For your first question about our projections of this year, for the mobile, we have 30% adjustments in January and 13% in April for the mobile. We have two price actions for the mobile sites. For the fixed sites, in January, for 21%, for new activations and 17 in march for the existing customers these are the uh our predictions of this year for energy costs You know, we are both operating in fixed-end mobile infrastructure, so we have electricity consumption in our business, and we meet the majority of our electricity needs from the free market and national tariffs. Although we observed increased volatility in the market prices from mid-February onwards and the first quarter results were in line with our expectations, the energy market regulatory authority increased retail electricity price by 6% for the lower tier and 18% for the higher tier of the public and private services sector subscriber groups and it's effective in 4th of April and I mean it is lower than our expectations the increase in the electricity by the government and our energy expenses while decreased by 14% year on year constitute almost 5% of our OPEX base in the first quarter of 2026. This rate was 6.3% for the whole year of 2025. And also we have solar power plants. It is now operational and installed capacity of 96 megawatts. It is operational in the beginning of this year and it will meet 15% of our whole consumption and we will have two more power plants and as a total we are expecting to meet 65% of our whole consumption from this And additionally, for the climate environment of Turkey for this year, because of the rains,