“Resilient results under inflationary pressures”

ISTANBUL: Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) (BIST:TCELL):

• Please note that all financial data is consolidated and comprises that of Turkcell Iletisim Hizmetleri A.S. (the “Company” or “Turkcell”) and its subsidiaries and associates (together referred to as the “Group”) unless otherwise stated.

• We have four reporting segments:

• "Turkcell Türkiye," which comprises our telecom, digital services, and digital business services related businesses in Türkiye (as used in our previous releases in periods prior to Q115, this term covered only the mobile businesses). All non-financial data presented in this press release is unconsolidated and comprises Turkcell Türkiye only figures, unless otherwise stated. The terms "we," "us," and "our" in this press release refer only to Turkcell Türkiye, except in discussions of financial data, where such terms refer to the Group, and except where context otherwise requires.

• “Turkcell International,” which comprises all of our telecom and digital services-related businesses outside of Türkiye (BeST and KKTCELL).
  • As of December 31, 2023, our Lifecell, UkrTower, and Global LLC operations in Ukraine have been classified as a disposal group held for sale and as a discontinued operation.

• “Techfin” which comprises all of our financial services businesses.

• “Other” which mainly comprises our non-group call center and energy businesses, retail channel operations, smart devices management, and consumer electronics sales through digital channels and intersegment eliminations.

• Discontinued operations in Ukraine include Lifecell LLC, LLC Global Bilgi, and LLC UkrTower.

• This press release provides a year-on-year comparison of our key indicators and figures in parentheses following the operational and financial results for June 30, 2024 refer to the same item as at and for the three months ended June 30, 2023. For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2024, which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

• Selected financial information presented in this press release for the second quarter and half year of 2023 and 2024 is based on IFRS figures in TRY terms unless otherwise stated.
• In the tables used in this press release, totals may not foot due to rounding differences. The same applies to the calculations in the text.

• Year-on-year percentage comparisons appearing in this press release reflect mathematical calculation.

NOTICE

This press release contains the Company’s financial information for the period ended June 30, 2024, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). This press release contains the Company’s financial information prepared in accordance with International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies (“IAS29"). Therefore, the financial statement information included in this press release for the periods presented is expressed in terms of the purchasing power of the Turkish Lira as of June 30, 2024. The Company restated all non-monetary items in order to reflect the impact of the inflation restatement reporting in terms of the measuring unit current as of June 30, 2024. Comparative financial information has also been restated using the general price index of the current period. This release includes forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, Section 21E of the U.S. Securities Exchange Act of 1934, and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. This includes, in particular, and without limitation, our targets for revenue growth, EBITDA margin, and operational capex over sales ratio for the full year 2024. In establishing such guidance and outlooks, the Company has used a certain number of assumptions regarding factors beyond its control, in particular in relation to macro-economic indicators, such as expected inflation levels, that may not be realized or achieved. More generally, all statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding our operations, financial position, and business strategy, may constitute forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as, among others, "will," "expect," "intend," "estimate," "believe," "continue," and “guidance.”

Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. In addition, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements that may be expressed or implied by forward-looking statements. Should one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned, or projected.

These forward-looking statements are based upon a number of assumptions and other important factors that could cause our actual results, performance, or achievements to differ materially from our future results, performance, or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. For a discussion of certain factors that may affect the outcome of such forward looking statements, see our Annual Report on Form 20-F for 2023 filed with the U.S. Securities and Exchange Commission, and in particular, the risk factor section therein. These forward-looking statements should not be relied upon as representing the Company’s views as of any date subsequent to the date of this press release. All forward-looking statements in this press release are based on information currently available to the Company, and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

The Company makes no representation as to the accuracy or completeness of the information contained in this press release, which remains subject to verification, completion, and change. No responsibility or liability is or will be accepted by the Company or any of its subsidiaries, board members, officers, employees, or agents as to or in relation to the accuracy or completeness of the information contained in this press release or any other written or oral information made available to any interested party or its advisers.

FINANCIAL HIGHLIGHTS

SECOND QUARTER HIGHLIGHTS

• Resilient financial results:

• Group revenues down 0.3% year-on-year, primarily due to the inflated base effect of large-budget projects in the digital business services in the same period of last year

• EBITDA up 0.3% leading to an EBITDA margin of 42.6%; EBIT declined 5.6% resulting in an EBIT margin of 13.4%

• Net income was positive at TRY 2.9 billion

• Net leverage level at 0.6x; short FX position of US$123 million

• Steady operational performance:

• Turkcell Türkiye subscriber base3 up by 346 thousand quarterly net additions; 679 thousand net additions in the first half of the year

• 477 thousand quarterly mobile postpaid net additions; postpaid subscribers share at 73%

• 42 thousand quarterly fiber net additions

• 54 thousand new fiber homepasses in Q224

• Mobile ARPU4 growth of 5.3%; fixed residential fiber ARPU growth of 6.6%

• Data usage of 4.5G users at 19.6 GB in Q224

• Due to the upward trend in monthly inflation, which has surpassed expectations, and considering the year-end projections in Türkiye’s Medium-Term Program, we are currently reviewing our guidance5. We aim to provide an update, if needed, with our third-quarter results.

(1) EBITDA is a non-GAAP financial measure. See page 15 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(2) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.
(3) Including mobile, fixed broadband, IPTV, and wholesale (MVNO&FVNO) subscribers
(4) Excluding M2M
(5) The guidance for the year 2024 includes the effects of implementing inflation accounting in accordance with IAS 29. Our 2024 guidance has been established using a certain number of assumptions regarding factors beyond our control, including in relation to macroeconomic indicators such as expected inflation levels. In particular, our 2024 guidance is based on an assumed annual inflation rate of 37%, applied on a monthly basis. Please note that this paragraph contains forward-looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2023 filed with the U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
For further details, please refer to our consolidated financial statements and notes as at June 30, 2024, via our website in the Investor Relations section (www.turkcell.com.tr).

COMMENTS BY CEO, ALİ TAHA KOÇ, PhD

As Turkcell, the first and only Turkish company to be listed on the Istanbul and New York stock exchanges simultaneously, we celebrated our 30th anniversary on July 8th by ringing the closing bell at the New York Stock Exchange. In our 30th year, we resolutely remain on a path toward transforming our solid foundations and innovative company vision into stakeholder value.

In line with our strategy of creating value from our assets, we continuously evaluate our portfolio and take strategic actions when the right conditions are met. Accordingly, we initiated the sale process for our assets in Ukraine at the end of 2023. Upon the completion of official approval procedures, we successfully executed the share sale on September 9, 2024. We expect the final sale value to be determined by the end of the year, following the closing adjustments of the financial statements. With this transaction, we reaffirm our focus on Türkiye and on a technology-driven approach.

In the second quarter of 2024, the Central Bank of Türkiye's decision to keep the policy interest rate steady, meeting expectations, contributed to a balanced macroeconomic trajectory, while low foreign exchange rate volatility improved predictability in managing our financial risks. Annual inflation, which peaked with a 75.4% increase in May, was recorded at 71.6% in June. Therefore, the growth performance of those companies applying hyperinflation accounting was negatively impacted by high inflation.

Our second quarter consolidated revenues were at TRY 34.9 billion, with EBITDA1 of TRY 14.9 billion, and an EBITDA Margin of 42.6%. We delivered a net income of TRY 2.9 billion, supported by lower foreign exchange rate losses and effective risk management. During the quarter, we had a net add of 346 thousand, reaching a total of 43.2 million subscribers. The strong financial performance of the Techfin segment, one of our strategic focus areas, continued to support our group.

Successful operational results with the lowest mobile churn rate of the past six years

As in 2023, we observed a rational market until May of this year. Yet, after that, the mobile number portability (MNP) market was triggered due to aggressive pricing actions by competitors. As the leader in the mobile segment, we aim for sustainable growth and keep an eye on market rationalization. Although short-term actions leading to unsustainable performance are not among our priorities, we closely monitor changes in market dynamics.

With our customer-focused actions, superior service quality, and value propositions we gained net 474 thousand mobile subscribers in the first half of the year, 245 thousand being in the second quarter. Our postpaid subscriber base rose by a net of 477 thousand this quarter, where the additions of the past 12 months reached 1.8 million. Thanks to our sequential price adjustments, our postpaid subscriber base exceeding 73%, and our ability to upsell our customers, our Mobile ARPU2 rose 5.3% year-on-year.

In line with our strategy of offering innovative and comprehensive solutions based on our customers' needs, we continue to stand by them at all times. Within this scope, we have continued to offer the “Smart Control Service,” which we launched in the first quarter, free of charge. Additionally, we shared the spirit of our 30th anniversary with our customers through the “30th Anniversary Double Up Campaign.” Thanks to our subscriber retention strategy, supported by analytical models, as well as our innovative campaigns and services, our mobile churn rate decreased to 1.5%, the lowest level of the past six years.

In fixed broadband services, we maintained our focus on fiber subscribers. As a result of strong demand for our high-speed, end-to-end fiber service, we gained net 42 thousand subscribers, bringing our fiber subscriber base to 2.4 million for the quarter. Our high-speed fiber internet packages, designed to meet our customers' growing speed requirements, have continued to attract interest. The rate of fiber subscribers opting for speeds of 100 Mbps and above increased to 34% this quarter, with respect to 24% in the same period of last year. Meanwhile, we continued to pursue our 12-month contract strategy to mitigate the effects of inflation. The share of 12-month contract tariffs among our individual fiber subscribers reached 78%. Residential fiber ARPU rose by 6.6% year-on-year in this quarter. Our total fixed broadband subscriber base reached 3.2 million, and our fixed subscriber churn rate, at 1.2%, marked its lowest level since 2006.

The continued strong contribution of Techfin, one of our focus areas

Our techfin business, which we operate under the Financell3 and Paycell brands, continued to contribute significantly to the group growth this quarter. Financell's revenues grew by 33.9% year-on-year to TRY 947 million, driven by an increase in average interest rates, while its loan portfolio reached TRY 6.3 billion at the end of the second quarter. The revenues of Paycell, which provides secure payment solutions, increased by 15.8% year-on-year. The transaction volume of the "Pay Later" service (excluding group companies) grew by 34% to TRY 2.6 billion, while our POS solutions, which have seen high demand since their launch, continued to strengthen their place in our product portfolio with an 86% increase in transaction volume. Our digital service portfolio, including TV+, lifebox, fizy, BiP, and GAME+, allows us to comprehensively impact our customers' lives. With those services, we primarily focus on revenue and profitability. The standalone paid user4 of digital services decreased by 3.8% year-on-year to 5.3 million in the second quarter, while thanks to our pricing actions, revenues from digital services & solutions grew by 4.9%.

We are progressing in line with our strategic goals

In the 30 years since our founding, we have not limited our investments to mobile and fixed infrastructures alone; we have also contributed to a wide range of areas, from people to things, the technology ecosystem to other industries, and from social responsibility to environmental sustainability. That's precisely why, in our 30th year, we say that, “Everything works with Turkcell, and Turkcell works with everyone.”

Meanwhile, in addition to our core focus on “leadership in telecommunications”, we also prioritize data center operations, renewable energy, artificial intelligence technologies, and cybersecurity to further strengthen our position as an “end-to-end technology provider”. And so, by building on our achievements, we will continue without pause to shape a future where technology enriches lives and drives progress.

I extend my heartfelt thanks to all our employees for their contributions to our success and express my gratitude to our Board of Directors for their continued support throughout this journey.

(1) EBITDA is a non-GAAP financial measure. See page 15 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income
(2) Excluding M2M
(3) Following the change in organizational structure, the revenues of Turkcell Sigorta Aracılık Hizmetleri A.Ş. (Insurance Agency), which was previously managed under Financell, are now classified as "Other" in the Techfin segment as of the first quarter of 2023.
(4) Including IPTV, OTT TV, fizy, lifebox and GAME+

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

(1) Excluding depreciation and amortization expenses.
(2) EBITDA is a non-GAAP financial measure. See page 15 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

Revenue of the Group decreased by 0.3% year-on-year in Q224. This was mainly attributable to the decreasing demand for large-budget projects in digital business services, resulting in lower hardware revenues on a yearly basis coupled with lower consumer equipment sales.

Turkcell Türkiye revenues, comprising 87% of Group revenues, rose 1.5% year-on-year to TRY30,433 million (TRY29,969 million).

- Consumer segment4 revenues grew 8.0% year-on-year on the back of an expanded subscriber base, increased postpaid subscriber share as well as successful upselling performance.

- Corporate segment4 revenues decreased by 19.3% year-on-year. This segment was adversely impacted by hardware sales of digital business services, which declined 70.7% year-on-year.

- Standalone digital services revenues across consumer and corporate segments grew 5% year-on-year due mainly to price adjustments despite a shrinking paid user base.

- Wholesale revenues down 12.9% year-on-year to TRY1,722 million (TRY1,977 million) on the back of alternative data solutions in the market.

(4) Following the change in organizational structure, the revenues from sole proprietorship subscribers that we define as Merchant, which were previously managed under the Corporate segment, are being reported under the Consumer segment as of and from the third quarter of 2023. Within this scope, past data has been revised for comparative purposes.

Turkcell International1 revenues, comprising 3% of Group revenues, rose 2.7% to TRY890 million (TRY867 million).

Techfin segment revenues, comprising 6% of Group revenues, increased 23.5% year-on-year to TRY1,754 million (TRY1,421 million). Financell’s revenue rose 33.9%, and Paycell revenues grew 15.8% year-on-year. Please refer to the Techfin section for details.

Other subsidiaries' revenues, at 6% of Group revenues, which include mostly non-group call center and energy business revenues and consumer electronics sales revenues, decreased 33.8% year-on-year to TRY1,836 million (TRY2,772 million). This was driven primarily by low demand for consumer electronics.

Cost of revenue (excluding depreciation and amortization) decreased to 46.7% (49.2%) as a percentage of revenues in Q224. This was mainly due to the decline in cost of goods sold (6.2pp), interconnection cost (1.0pp), and energy expenses (0.6pp) despite the rise in personnel expenses (3.1pp), funding cost (1.1pp), and other cost items (1.1pp) as a percentage of revenues.

Administrative Expenses increased to 3.4% (2.6%) as a percentage of revenues in Q224 due mainly to the rise in personnel expenses.

Selling and Marketing Expenses increased to 6.5% (4.8%) as a percentage of revenues in Q224, due mainly to the rise in personnel expenses (0.7pp) and marketing expenses (0.9pp) as a percentage of revenues.

Net impairment losses on financial and contract assets decreased to 0.7% (1.0%) as a percentage of revenues in Q224.

EBITDA2 rose 0.3% year-on-year in Q224, leading to an EBITDA margin of 42.6% (42.4%).

- Turkcell Türkiye’s EBITDA increased 6.1% year-on-year to TRY14,248 million (TRY13,434 million) with an EBITDA margin of 46.8% (44.8%).

- Turkcell International EBITDA declined 3.2% year-on-year to TRY334 million (TRY345 million), leading to an EBITDA margin of 37.6% (39.8%).

- Techfin segment EBITDA decreased 27.1% year-on-year to TRY466 million (TRY640 million) with an EBITDA margin of 26.6% (45.0%). The key factor behind the year-on-year decline in EBITDA margin was the rise in funding cost for Financell compared with the second quarter of 2023.

- The EBITDA of other subsidiaries was at negative TRY162 million (TRY426 million).

Depreciation and amortization expenses increased 3.2% year-on-year in Q224.

Net finance expense of TRY1,489 million (TRY5,482 million) was recorded for Q224, including a TRY1.2 billion monetary gain and net FX losses of TRY2.0 billion.

See Appendix A for details of net foreign exchange gain and loss.

Fonte: Business Wire