Turk Telekomunikasyon Ord

Ladies and gentlemen, thank you for standing by. I'm Polina, your course call operator. Welcome and thank you for joining the Turk Telekom conference call and live webcast to present and discuss the second quarter 2026 and financial and operational results. We are here with the management team and today's speaker is Omer Karadamir, 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 Karademir. Sir, you may now proceed.

Thank you, Polina, and hello everyone. This is Omer Karademir, Turtevekom CFO. Welcome to our 2026 Second Quarter Results Conference call. Thank you for joining us today. Let's go to slide number 3, Financial and Operational Overview slides. First, I will start with a quick update on the core trend markets. Overall, as TÜV Telekom Group, we successfully closed the period with strong revenue growth and solid profitability despite global geopolitical tensions and macro impacts. Building on this strong first half, we are excited about the second half and full-year growth prospects for our revenue and net profit. As you all know, Geopolitical tensions continue to impact global markets, resulting in higher energy prices and inflation risks. US have left its policy rate unchanged at its April and June meetings. In Turkey, annual CPI rose to 32.6% in May, before easing to 31.8% in July. Central Bank kept its policy rate unchanged at 37%, year-end inflation expectations rose to 29.2% in July 2026, Markets Participants Survey. In this volatile environment, as Triterokon Group, we remain focused on sustaining our strong operational and financial performance. through our disciplined and proactive approach. On the mobile business side, following the nationwide launch of 5G in Turkey on April 1st, we introduced 5G to our subscribers with enriched tariff options. Rational competition continued in the mobile sector in the second quarter. Operators implemented price revisions in April and July. On the fixed internet business side, we introduced new prices Retail Segment in June and in the Wholesale Segment in July. Now on the Group Financial Drop. Consolidated revenues increased by 9% to 73 billion TL. Explicitly, if it was Accounting Impact, revenue growth was 6%. EBITDA grew by 5% to 29.4 billion TL with 40.4% EBITDA margin. As you know, effectual revenues are investment driven and have relatively lower margin. In Q2, strong growth in effectual revenues impacted EBITDA margin. Excluding effectuality impact, our EBITDA margin is 43.3%. EBITDA margin percentage expanded by 60 basis points year-on-year in the first half. We recorded 6 billion TL net profits in the quarter. It declined 7% year-on-year and impacted by our long-term 5G fiber and license investments. CAPEX accelerating solar investments and licenses to that 23 billion TL. It was higher in year-on-year terms due to 5G rollout and strong progress in fiber investments. Unlabeled cash flows to that 3.9 billion TL. This figure indicated a decline from 9.4 billion TL in second quarter of last year, mostly as a result of higher CAPEX. Net leverage remained flat in Q&Q basis and stood at one time compared to 0.6 times at 2025 year end. In summary, I want to emphasize that these results once again demonstrate the strength of our diversified business model and disciplined financial management. Let's go to slide number four, our customer information. Our total subscriber base reached almost 58 million with 455,000 net additions . Excluding 125,000 lost in the fixed voice segment, quarterly net additions were 580,000. Fixed broadband subscribers declined by 24,000 through 15.4 million. Retail broadband subscriber base expanded by 28,000 Q&Q. Thanks to our continuous efforts to improve our analytical skills, our retail turnover for the second quarter was the lowest recorded in the post-pandemic period. Mobile segment added 539,000 subscribers on net basis, pushing up the total base to 32.7 million. Activation and churn volumes were lowered in year-on-year basis-driven vibrational competitive environments. Subscriber growth remains robust with 424,000 net additions, excluding 116,000 MTM additions. Let's move to slide number 5, our fixed broadband performance. We continued our strong double-digit revenue and ARP growth in fixed internet. We introduced retail price revisions for new acquisitions in January and June. Subsequently, we introduced the wholesale price revision, effective from July 1st. We have seen other ISPs adjusting their prices in June and July. Next wholesale adjustment is to be implemented in January 2027. First off, the contracting volume scores higher year-on-year despite last year's high base. Harder growth remains solid at 15% year-on-year in the second quarter. Combination of solid upsell and sustained contracting performance along with successful price implementation enabled us to maintain high growth. We expect strong output trajectory to continue in second half of 2026. Average packet speed of our total subscriber base increased by 57% year-on-year to 124 Mbps. 69% of our subscribers now use more than 50 Mbps speed packets compared to 54% a year ago. Moving on to mobile performance, slide number 6. In second quarter, we continued our mobile customer growth. However, our revenue growth impacted by higher inflation. Rational competitive environment visible by the end of 2025 prevailed in first half of 2026. Mobile number portability MMP market size declined both quarterly and yearly. Turterikon finished second quarter as the leader in the MMT market. On the pricing side, revisions were made in January, April and July. Postpaid and prepaid segments added 415,000 and 124,000 subscribers respectively. Ratio of postpaid subscribers in total portfolio rose by 3.5 percentage points in year-on-year and reached over 80%. Mobile ARPU excluding MTM declined by 6% year-on-year in the second quarter. We expect our growth momentum together with pricing actions taken so far to enable improved real ARPU growth performance in second half of the year. Okay, now we go on to slide number eight for our group summary performance. On the revenue side, concentrated activity revenues expanded by 9% to 73 billion TL. Fixed broadband corporate data and ICT projects led this strong growth. Driven by the acceleration in fiber investments, IFRIC 12 revenues rose strongly. Excluding IFRIC 12 impact Q2 revenues exceeded 66 billion TL up 6% year on year including increases of 15% in fixed broadband. 12% in TV, 17% in corporate data and 30% in other segments. PIX Internet and mobile revenues together accounted for 77% of operating revenue. PIX Internet made the largest contribution to growth with 2.9 billion TL higher revenues in total year-on-year. Corporate data, ICT solutions and equipment sales added a further 2.7 billion TL. While call center and international resource revenues declined by a combined 1.6 billion TL, mobile revenues were lowered by 692 million TL. ICT solutions recorded significant growth supported by new projects, won by our subsidiary Innova. Moving on to EBITDA side, direct cost rose 11% year-on-year, commercial cost rose 43% mainly due to one-off cost increases while other costs remained almost flat year-on-year. Increase in commercial cost was driven by one-off spending in sales and corporate communication to support 5G and sales and distribution channel. We can expect this cost to moderate in the second half. Within other costs, network expense increased by 22% year-on-year on higher technology maintenance and repair costs. 5% year-on-year decline in personal costs can be explained by the reduction in headcount at our call center 2003 due to project completions in the second half of 2025. The decline in interconnection costs was driven by contracting international voice revenues. EBITDA INCREASES BY 5% YEAR-ON-YEAR TO 29.4 MILLION TL EBITDA MARGIN DEPLIES BY 170 BASIS POINTS YEAR-ON-YEAR TO 40.4% EXCLUDING THE EFFICTUOUS ACCOUNTING IMPACT, THE EBITDA MARGIN REALIZES AS 43.3% COMING TO OUR NET PROFIT SLIDE Net financial expense increased year-on-year and quarterly impacted by 5G and concession-related unrealized ethics hedge and discount expenses. Hedge expenses were also impacted by increasing average hedge costs impacted by volatility in the global market since the end of February. We booked 423 million TL net interest expense in the second quarter compared to 705 million TL net interest income in the first quarter as we made a payment of 1.1 billion USD in the first quarter regarding 5G and concession renewal. Monetary gain increased by 8% Q&Q to 16 billion TL. Despite the inflation rate being lower compared to the previous quarter, driven by the fact that the concession asset was inflation adjusted for one month in Q1-26 versus three months in Q2-26. As a result, we recorded net income of 6 billion TL for the period. Let's go to next slide number nine to review our CAPEX numbers. CAPEX spending rose to 23 billion TL in the second quarter compared with 17 billion TL of last year on the back of 5G rollout expenditures and strong progress in fiber investments. Regarding CAPEX breakdown, fixed-line CAPEX, especially fiber access and core network investments, has 51% weight in total. 23% of spending went to mobile, while another 15% went to IT and project investments. and the remaining 11% for other investments. In summary, our capex intensity for the first half realized as 29.1%. Moving on to slide number 10, you can see our Z-profile. Two telecom groups, cash and cash equivalents, total 25.6 billion TL. The FX exposure included U.S. dollar equivalents of 3.2 billion of FX denominated debt, 2.8 billion consensual and mobile license liabilities, 3.4 million of total hedge position and 99 million of hard currency cash. Net debt over EBITDA increased to one time from 0.6 times as of 2025 and on the back of 5G and concession-renewal payments. Netnet EBITDA remains flat on Q&Q basis. In January, we paid the first installment of 5G license, $365 million, plus $219 million as VAT, and the VAT amount of concession extension worth of $500 million, By the end of the year, we will pay the second installment of 5G license and the first installment of concession extension. The VAT payments will be net of. I want to highlight that our increased ethics liabilities are driven by long-term investments in 5G spectrum and concessions. These future payments are extended over a long-term horizon until 2035. and all settlements will be made in Turkish Lira equivalent. Additionally, we actively mitigate our currency exposure through targeted hedges. Last but not least, Concession and 5G assets are revalued under inflation accounting and hence creates monetary gains which as a result balance P&L impact overall. We are now on slide number 11 where we provide update on our cash flow and FX exposures. We recorded 2.4 billion USD short FX position compared to 102 million USD as of year-end duty booking of 2.8 billion USD 5G and concession Concession Renewable Liabilities Excluding those payments, our net ethics loan position is positive $331 million. Finally, we generated 4 billion TL of unlevered free cash flow in Q2 compared to 9 billion TL in the same period of last year. Annual decline is mostly due to higher capex spending for 5G rollout and fiber investments. Moving on slide number 12, we provide updates on 2026 full year guidance. In first half years, our operational revenues were realized in line with our expectations in nominal terms. However, real growth impacted by high inflation. As a result of our actions in pricing and growing business, especially in ICT, We expect the annual operational revenue growth to accelerate in the second half of the year. Hence, we expect to finish the year at 8% real revenue growth. Our first half EBITDA margin increased by 0.6 percentage points year-on-year to 41.3%, remaining within our guidance range of 41-42%. We maintain our guidance on the EBITDA margin. Considering the pace of progress in our fixed line investments, as of the first half of the year and macro and inflation impacts, we expect our full year capex intensity to be realized at 34%. At the upper end of our 33-34% previous guidance range. In summary, we are confident about our revenue growth, EBITDA margin and investment intensity outlook and excited about the second half growth potential. This concludes my presentation. Thank you for listening. Now we can open up the Q&A session.

The first question is from the line of Maddy Singh with HSBC. Please go ahead.