Turk Telekomunikasyon Ord

Ladies and gentlemen, thank you for standing by. I'm Konstantinos Jakovic, call operator. Welcome and thank you for joining the Turk Telekom conference call and live webcast to present and discuss the Q3 2026 and financial and operational results. All participants will be listening 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 Karademir, 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, CFO. Sir, you may now proceed.

Thank you, operator, and hello, everyone. This is Omer Karademir, Turtelekom CFO. Welcome to our 2026 Third Quarter Results Conference Call. Thank you for joining us today. Let's go to slide number two, financial and operational. The Telekom Group closed the third quarter of 2026 with strong revenue growth and profitability. Building on this strong foundation, you are excited about the rest of 2026 and 2027 prospects. As you all know, geopolitical tensions continue to impact global markets, resulting in higher energy prices and inflation risk. US has left its policy rate unchanged at its October meeting. In Turkey, annual CPI edged up slightly to 29.77% in October from 29.73% in September. Central Bank cut its policy rate by 100 basis points to 36% in October. Turkish markets experienced market volatility and investment fund issues recently. market started to recover as regulators are taking the necessary measures as to telecom we have robust financial risk management and capital allocation practices we are glad to report that we have no exposure or risk related to the fund issues as a leader in the turkish telecommunications market and a proud members of the board of istanbul is 30 Corporate Governance and Sustainability Leaders Indices and many other global indices. Turtelekom continues to leverage global best practices to protect and improve its operational and financial position and deliver long-term value for all stakeholders. We have seen our business performing well over the third quarter and much stronger than we observed in the first half. We haven't seen any material shifts in demand or subscriber behavior. Apart from those driven by usual seasonality, that fell into the third quarter. Mobile data consumption growth remained robust, supported by high quota 5G plans. Rational competition continued in the mobile sector. In fixed internet, activity was relatively stronger in high season. Now on the group financial results. Consolidated revenues increased by 12% to 86 billion TL. Excluding the effective wealth accounting impact, revenue growth was 11%. EBITDA grew by 7% to 37 billion TL with 43% EBITDA margin. EBITDA margin declined by 30 basis points year-on-year in first nine months of 2026. Excluding if it was accounting impact, our EBITDA margin improved by 40 basis points year-on-year. We recorded 7.7 billion TL net profit in the quarter, down by 42% year-on-year due to higher net financial and depreciation expenses. CapEx excluded solar investment and license stood at 28 billion TL. It was higher in year-on-year terms duty 5G rollout and strong progress in fiber investments. Unlimited free cash flow stood at 10 billion TL, up by 39%. Net leverage comfortably remains flat in Q and Q basis and stood at 0.95 times compared to 0.6 times at 2025 year end. Let's move to slide number four. for Telekom Group Subscriber Editions. Our total subscriber base reached almost 58.5 million with 905,000 Net Addition Queue-on-Queue. Excluding 121,000 losses in the fixed voice segment, quality Net Additions would have exceeded one million. Fixed broadband subscriber base expanded by 26,000 Queue-on-Queue. Retail broadband subscriber base expanded by 83,000 QNQ. Our routine churn rate for the third quarter was the lowest recorded. Mobile segment added 670,000 subscribers on net basis. Activation and churn volumes were lower in year-on-year basis driven by rational competitive environment. Let's move to fixed broadband business performance slide number 5. We continued our strong revenue and ARPA growth in fixed internet. Due to high base impact, fixed internet revenue growth normalized in the third quarter as expected. Nevertheless, revenue expanded by a solid 7% year on year. We had introduced retail price revisions for new acquisitions in January 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. ARPU growth remains solid at 7% year-on-year thanks to a combination of solid upsell and the contracting performance along with price revisions. We expect normalization to continue in the fourth quarter while full-year output trajectories remain strong. Average package speed of our subscriber base increased by 59% year-on-year to 137 Mbps. 45% of our subscribers now use 100 Mbps and higher speed packets compared to 30% a year ago. Showing customers' preferences for higher packets Moving on to next slide number 6 Mobile business performance Prevailing improvements in mobile revenue growth become more visible in the third quarter Mobile revenues expanded by 2% year-on-year in the third quarter compared to flattish in year-to-date terms Rational competitive environment visible by the end of 2025 prevailed in towards 2026. Mobile ARPU, excluding MTM, declined by 1% year-on-year in the third quarter. ARPU growth, excluding MTM, turned positive year-on-year in September. We expect this improvement to continue at an increasing pace going forward. As our 5G tariffs continue to perform strongly, we observed that they contribute to our growth by supporting upside in the contracting process. We implemented post-paid price divisions in January, April, and July. Ratio of post-paid subscribers rose by 2.4 percentage points in year-on-year terms and reached over 80%. Now we can go to slide number 8 for revenue performance. We recorded real growth in all our business lines except fixed voice in the third quarter. Operational revenues exceeded 79,000,000 TL up by 11% thanks to strong growth in ICT projects, fixed internet and corporate data. Delivered by the acceleration in fiber investments, if it's lost revenues rose by 24%. Fixed internet and mobile revenues together accounted for 73% of operational revenues. They added 2.3 billion TL in year-on-year terms. Other segments, including ICT solutions and equipment sales, with 4.6 billion TL high revenues in year-on-year terms. As the technology master partners, Turtelekom will provide the end-to-end communication and technology infrastructure of Code 31, which will take place in Antalya next week. This is a major example of many private and public sector digital projects that Turtelekom Group is undertaking. Corporate data and international revenues added a further 1 billion TL. Despite massive developments and upward regions in inflation expectations, we continued our strong growth in Q3. We sustained our growth expectation for the last quarter and maintained our full year 2026 operating revenue growth guidance at approximately 8% as previously shared. Let's go to slide number 9, EBITDA performance. Q3 EBITDA increased by 7% year-on-year to 37 billion TL with an EBITDA margin of 43%. EBITDA margin impacted by higher revenues from relatively low-margin projects and E3-12. Excluding E3-12, accounting impact EBITDA margin is 46% in the quarters. Direct cost rose 33% year-on-year mainly due to increase in cost of equipment and technology in line with increase in ICT solutions and equipment sales. Commercial costs rose 16% year-on-year while other costs increased by 4% year-on-year. Increase in commercial cost was driven by corporate communication expenses supporting our brand and visibility especially in international areas and projects such as COP31 and NATO Summit, etc. Within other costs, network expense increased by 14% year-on-year on higher technology maintenance and repair costs. 2% year-on-year decline in personal costs can be explained mostly by reduction in headcounts at our cost-centered subsidiary due to project completions in the second half of 2025. The increase in interconnection costs was driven by higher international voice revenues. Overall EBITDA margin in first nine months remains within the 41% to 42% guidance range that we shared earlier. We maintain our 2026 EBITDA margin guidance. Let's go to next slide, number 10, net profit performance. We recorded a net income of 7.7 billion TL for the period, which is an increase of 22% Q&Q. Overall, our strong operational and financial performance resulted in robust profitability. However, year-over-year movements impacted by acquisitional long-term assets and related new debts, mainly FIC license and concession renewable and related investments, partly offset by monetary gains. Our social effects and hedge expenses slightly declined QoQ and total net financial expenses slightly increased QoQ impacted by currency movements and relatively lower returns on financial market instruments. Hedging expenses declined in parallel with QoQ decrease in hedging costs and volume while this effect was largely offset by higher FX expenses. The decline in interest income, on the other hand, resulted in higher net interest expenses Q&Q, while booked 1.5 billion TL net interest expense in the third quarter compared to 447 million TL in the second quarter. Monetary gain declined by 18% Q&Q to 14 billion TL due to lower inflation rates compared to the previous quarter, while our asset base remains at similar levels. Moving to slide number 11 for CapEx. CapEx spending rose to 28 billion TL in the third quarter, compared with 23 billion TL of last year on the back of 5G rollout expenditures and strong progress in fiber investments. As usual, six-line capex, most importantly, the fiber access and core network investments took the higher share in total with 50% weight. 31% of spending went to mobile, while another 7% went to ITM project investments, and the rest goes to other investments. In summary, our capex intensity for the first nine months realized as 30.3%. With the expected increase in capex in the final quarter, we expect this ratio to reach a level in 90,000 year end guidance, 34%. Moving on to the next slide, we have that profile. Through Telekom Groups Cash and Cash equivalent total 30.4 billion Turkish Lira. The ethics exposure included US dollar equivalence of 3.3 billion of ethics denominated debts, 2.8 billion concession and mobile license liabilities, 2.5 billion of total high position and 307 million of hard currency cash. Net debt over EBITDA increased to 0.95 times from 0.6 as of 2025 and on the back of 5G and concession renewable payments. Net debt over EBITDA remained flat on QonQ basis. Just to remind you previous payments, in January we paid the first installment of 5G license, 365 million USD plus 219 million USD UAT and the VAT amount of concession extension worth of 500 million USD. By the end of the year, we will pay the second installment of FHC license and the first installment of concession extension. Let me also remind you that VAT payments will be net of eventually. And we already started netting of majority of the payments. Metin highlights that the increased ethics liabilities are driven by long-term investments and fiduciary spectrum and concessions. For concession extension, future payments are extended over a long-term horizon until 2035. And all settlements will remain in Sürkeşler'e iki olanız. Additionally, we actively mitigate our currency risk exposure through targeted hacks in line with our financial risk management policy. Please also note that concessional 5G assets are revalued under inflation accounting and hence result in monetary gains, which as a result balances P&L impact overall. Most recently, Turk Telekom signed 1 billion USD long-term club loan agreement with the participation of 14 global banks on October 26, 2026, coordinated by Turk Telekom. This transaction came after the Q3 closing. This successful financing represents one of the most successful financing transactions in our sector and in Turkey in line with our track record and it supports our strong analytics structure and liquidity position. We are now on slide 13. Our cash flow and ethics exposures. We recorded 3.3 billion USD short FX position compared to 100 billion USD as of year end due to booking of 2.8 billion USD 5G and concessions renewable liabilities. Excluding those liabilities, our net short FX position would have been 508 million US dollars. Finally, we generated 10,000,000 TL of unnebri... Year-over-year expansion is mostly attributable to high operational cash flow generation in third quarter of 2026. This concludes my presentation. We can now open up the Q&A session.

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 handset when asking your 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 comes from the line of Cemal Demirtas with Alta Invest. Please go ahead.