Turkcell Investor · Global Telco Industry Challenges Flow of funds Turkcell’s Responses Digital...

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Investor Presentation

Presentation

Turkcell Investor

March 2020


STRATEGIC FOCUS AREAS& 3-YEAR PLAN

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CORE COMPETENCIES

STRATEGIC FOCUS AREAS

Digital Business Solutions Techfin ServicesDigital Services

Strong Bond With Customers

State-of-the-art Infrastructure

Advanced Analytics & Technology

Strong & Agile Team

Telecom Services

Well-Positioned to Create More Value

44


Enlarge subscriber base with dedicated focus on postpaid segment

Grow in fixed broadband through fiber and FWA

Utilize the digital channel for acquisition, device sales and growth

Leverage continued demand

Ensure standalone growth

Expand globally

Boost overall corporate business with multiplay focus

Provide end-to-endIT solutions for corporates

Trusted partner of corporates through their digital transformation

Reach wider customer base with complete portfolio of solutions

Reach out to long tail of 1.6Mn+merchants in Turkey

Launch new consumerfinance solutions

GROW IN TELECOM SERVICES

MONETIZEDIGITAL SERVICES

LEVERAGEDIGITAL BUSINESS SOLUTIONS

LEAD TECHFIN SERVICES

+1 Million Subscribers/year

in Turkey

2.5x Standalone revenue

growth in 3 years

#1 Solution Provider

in 3 years

17 Million Active Paycell users

by 2022

Strategic Focus Areas

55


MPOS

PSD2

E-money

Micro Lending

Potential regulatory changes in the definition of loan facilitations

Benefit: Potential to give micro loans to consumers

The potential adaptation of PSD2 Payment Services Directive of EU in Turkey

Benefit: Ability to reach banking system, becoming single interface for customers

Using smartphone or tablet to perform the functions of a cash register

Benefit: Increased penetration of longtail merchants

Potential legislative measure to remove the requirement to keep e-money funds in escrow account

Benefit: Potential to attract more users offering return on e-money accounts

Techfin: Regulation Becoming More Supportive

66


Turkish Techfin Ecosystem

DCB Wallet

Bill Payment

Payment Facilitators

Money Transfer

Paycell App Strategy

E-Money

VISION: Being an enabler on financial inclusion with the combination of technology and financial services

Paycell: Super App for All Techfin Solutions

77


Merchants

Go-to Market Strategy

(MPOS & QR)

Go-to Market Strategy

(App)

Customers

6,000Turkcell Stores

37 MnCustomers

4,000Direct Sales Force

TurkcellTechnology

Paycell: Go to Market Strategy

88


1 Bn

2.5 Bn

2019 2022E

Paid Subscriptions

Platform Licensing

Discovery Services

Traffic Monetization

Data Monetization

Operator Co-operations

Standalone Revenue (TRY)

DSS: The Dynamics of New Standalone Strategy

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Telco market figures consist of mobile and fixed voice & data figures and exclude hardware sales. Mobile figures are based on Futurebright 2018Q4 Field Research. Fixed figures are based on ICTA Report 2018Q4 and Turkcell Estimation. ICT, Hardware & Software figures are based on IDC Blackbook 2019.

TELCO BUSINESS / EXISTING BUSINESS

41%

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DIGITAL & ICT BUSINESS / GROWTH ENGINE

5%

HARDWARE & SOFTWARE BUSINESS / OPPORTUNISTIC APPROACH

• Superior network perception• Net add, increase in ARPU• Opportunity of multiplay, new services• High margin

• Fragmented market• Lack of strong system integrator• Increase in demand for digitilization

• Profitable growth with integrated solutions

TelcoMarket Share

ICTMarket Share

Billion TRY

DBS: Market & Turkcell Positioning

1010


Inflationary Pricing

Effective Balance Sheet

Risk Management

Strong Free Cash Flow

Generation

Efficient Capital Allocation

• Key to sustainable growth and profitability

• Assurance for required return on investment

• Above-market ARPU growth

• Liquidity management• Net fx position

• Sustainable revenue growth• Continued operational

profitability• Controlled capex

• Review of investment requirement in conventional services

• Investment in high growth businesses

• Ensure returns above WACC

Turkcell Finance: Key Priorities

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INFLATIONARY PRICING FX & INTEREST RATE HEDGING LIQUIDITY

• Key for sustaining growth & margins

• Secure ROI of projects & investments

• Reflecting costs to the prices

• Proven track record

• Keeping cash majorly in hard currency

• FX hedged for whole maturity, both on principal & interest of loans

• Converted variable to fixed interest

• Strong free cash flow generation

• Additional committed lines

• 1.7Bn USD cash covers principal & interest payments until 2023

59%41%

Details of Financial Debt (After Hedging)

Local Currency

FX

Fixed interest

Variable interest

90.5%

9.5%

Turkcell ARPU vs. CPI Trend (Q116=100)

100105

113119 118 119

126 124129

134

149144 147

157

175 177

100 101 103 105110 113 114

118 122127

136145 146

150 154160

Q11

6

Q21

6

Q31

6

Q41

6

Q11

7

Q21

7

Q31

7

Q41

7

Q11

8

Q21

8

Q31

8

Q41

8

Q11

9

Q21

9

Q31

9

Q41

9

TCELL ARPU (excl. M2M) CPI

Principal & Interest Payments*

(Million USD)

*Data of Turkcell Group companies, excluding TCF

595251 301 240

1,680386

2020 2021 2022 2023 2024+

FX Local Currency

981

251 301 240

1.680

Three Pillars Of Our Business Model Hedging

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Reduce funding needsin capex heavy traditional business

Invest in new high growth areas

Global Telco Industry Challenges

Flow of funds

Turkcell’sResponses

Digital services (TV, music, etc.)

Techfin services

ICT solutions (datacenter, cloud etc.)

IPO/M&A activities

Infrastructure sharing

Sell & leaseback transactions

Heavyinvestment

need

Slowrevenuegrowth

Improve returns over WACC12

Efficient Capital Allocation

13


3-Year Outlook

*Excluding license

2020 - 2022

REVENUE GROWTH (CAGR) 13%-16%

EBIT MARGIN 18%-21%

OP.CAPEX/SALES* 16%-18%

EBITDA MARGIN 39%-42%


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Q4 & FY 2019 Results

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2019: Cementing Our Leadership

LEADER IN INTEGRATED TELECOM SECTOR REVENUES

TOP-LINE

+6.3%

25.1Bn TLRevenue

vs. closest competitor

GROWTH

+2pp

18.1% YoY


NET INCOME

+34.9%

3.2Bn TLNet Income


ARPU GROWTH

~2x

17.7% YoYMobile Blended

Sectoraverage

FWA

323K

First & mostwide-spread

Superboxsubscriber

NPS

+10p

Best-insector

vs. closestcompetitor

POSTPAID

1.5Mn

Record of the decade

Net add

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Good Execution: Guidance Delivered

REVENUE GROWTH 18.1%

EBITDA MARGIN 41.5%

OP.CAPEX/SALES* 18.0%

EBIT MARGIN 21.4%

*Excluding license

Actual

~18%

41%-42%

~18%

Guidance

20%-21%

2019

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Q4 2019: Solid Performance

Robust RevenueGrowth18.8% YoY

Record PostpaidNet Add984Thousand

Strong EBITDA Margin41.2%

Postpaid shareup 6pp YoY62%

Solid Net Income756Mn TL

Record Mobile ARPU (excl.M2M)22.7% YoY

Strong FCF Generation1Bn TL

Record ResidentialFiber ARPU21.0% YoY~

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Q4 2019 YoY % 2019 YoY %

6,684 18.8% Revenue 25,137 18.1%

2,754 23.0% EBITDA 10,426 18.6%

41.2% 1.4pp EBITDA Margin 41.5% 0.2pp

1,349 41.7% EBIT 5,380 19.6%

20.2% 3.3pp EBIT Margin 21.4% 0.3pp

756 (12.5%) Net Income 3,246 60.6%

25.4% (0.3pp) Opr. Capex/Sales1 18.0% (0.5pp)

Note: TRY figures are based on IFRS. 1Excluding license fees

Turkcell Group Financials

Full Year Highlights

• Financial performance in line with the guidance

• Strong operational profitability and bottom line

Quarter Highlights

• Strong quarterly revenue growth

• Net income impacted by one-off tax settlement

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Revenue Development

* Turkcell Consumer Finance Company (Financell)

5,626

6,684

993

139 (46) (29)

RevenueQ418

Δ TurkcellTurkey

Δ TurkcellInternational

ΔTCF* Δ OtherSubsidiaries

RevenueQ419

18.8%

QUARTER MILLION TL

• Yearly revenue generation of 1.1 bn TL in Q419; 3.8 bn TL in 2019

• In 2019, top-line impacted by slow down in TCF and exit from İnteltek & Azerinteltek

FULL YEAR MILLION TL

21,292

25,137

3,395

546 (45) (51)

RevenueFY18

Δ Turkcell Turkey

Δ Turkcell International

Δ TCF* Δ Other Subsidiaries

RevenueFY19

18.1%

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58.2

70.4

2.4%2.9%

4.5%

1.9% 2.4% 2.1%

Q4 17 Q4 18 Q4 19

TURKEY SUBSCRIBERS ARPU

MONTHLY AVERAGE MOBILE CHURN RATE

20.4

12.4

Postpaid Prepaid

QoQ 1.0M↑ 2.7M↓ 29K↑ 36K↑Net add

62%of total mobile

Operational Highlights

40K↓

1.5

0.7

49K

Fixed subscribers

0.7

IPTVfiber ADSL

fiber

cable

ADSL

excluding the impact of regulatory change &

involuntary deactivated lines

2.3

YoY 1.5M↑ 99K↑ 106K↑187K↓2.6M↓

37.4

45.9

Mobile blended (excl.M2M)Q4 18 Q4 19

22.7% YoY

Fiber ResidentialQ4 18 Q4 19

What has changed? The ICTA introduced a regulation requiring the

deactivation of prepaid lines which lack residency documents by the

6th month of subscription. Turkcell deactived 1.9Mn prepaid lines.

21.0% YoY

MILLION TL

%

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14.9 15.0 15.0 15.012.4

0.06

1.9

Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

MOBILE SUBSCRIBERS

Shifting to a More Valuable Portfolio

18.8 18.718.9

19.4

20.4

Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

Deactivatedlines due toregulatory

decision

Po

stp

aid

Pre

pai

d

-204 -155

215

503

984

Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

POSTPAID: NET ADD & ARPU GROWTH

~1 MillionRecord high

net addin Q4 19

13.7%11.5%

15.1%

19.3% 20.0%

Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

Postpaid (excl.M2M) YoY Growth

SUSTAINABLE GROWTH

ARPU↑NET

ADD↑

CHURN↓

MILLION THOUSAND

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Superbox: The Brand for FWA

3356

130

217

323

Q4 18 Q1 19 Q2 19 Q3 19 Q4 19

SUPERBOX SUBSCRIBER TREND

14 23 73 88 106QoQ (K)Net add

2xthe ARPU of

fixed broadband

THOUSAND

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3.44.2 4.4

7.6

10.010.8

5.9

8.19.0

Q4 18 Q3 19 Q4 19

Non 4.5G Users 4.5G Users Total Users

MOBILE DATA USAGE 4.5G SUBSCRIPTION

Growth Engine: Mobile Data

94% are 4.5G

subscribers

19 million with

4.5G compatible SPs87% are 4.5G

compatible SPs

Monthly data consumption of a 4.5G user reached to 11.5 GB on December

76% smartphone

penetration

30.8 30.7

18.0 19.2

Q4 18 Q3 19 Q4 19

4.5G subscribers 4.5G compatible smartphone

↑53%YoY data

usage growth

Regulatory decision impact:

~1 million decrease

AV. GB/USER MILLION

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Leadership in Quality & Experience

+13+10

+23+26

Q4 18 Q4 19

Points over next best Points over third best

CUSTOMER EXPERIENCECONSUMER NET PROMOTER SCORE (POINTS)

CUSTOMER FOCUS

Source: Future Bright

Regional play

Innovative offers

Data-driven marketing

Segmented approach

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• Launched for consumers

• Launched multicloud

• Ad integration in apps

• Personalisation with AI

Strategic Focus Areas: 2019 Highlights

MONETIZEDIGITAL SERVICES

LEVERAGEDIGITAL BUSINESS SOLUTIONS

LEAD TECHFIN SERVICES

1 Billion TLStandalone revenue in 2019

44%Revenue growth in 2019

3xActive Paycell Card users YoY

• Became Top 3 IT solution provider

• Largest DC operator in Turkey

• ~1.3 bn TL backlog of contract value

• Bursa city hospital inauguration (5 in total)

• 4x higher volume in Paycell Card

• 2x higher bill payment volume

• 24% rise in payments for digital content

• QR Code scheme in restaurants & markets

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Q4 18 Q4 19 YoY %

Revenues 247.4 201.2 (18.7%)

EBITDA 124.8 128.4 2.9%

EBITDA Margin 50.4% 63.8% 13.4pp

Net Income1 (54.1) 101.4 n.m

CONSUMER FINANCE

Techfin: Financial & Operational Performance

HANDSET FINANCING

0.4 0.4

4.22.4

Q4 18 Q4 19

Financell Consumer Loans

Turkcell ContractedReceivables

4.5

Q4 18 Q4 19 YoY %

Revenues 43.4 77.1 77.8%

EBITDA 27.8 32.4 16.4%

EBITDA Margin 64.0% 41.9% (22.1pp)

PAYMENT SERVICES

1 including the 40 mn TL dividend from Paycell in Q418 and Q419

2.8

3-Month Active User

Volume

Revenue

4.5 Million

5.7 Billion TL

252 Million TL

2019MILLION TL

MILLION TL BILLION TL

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18%

1 Figures are based on IFRS

Turkcell International

SUBSIDIARIES AT A GLANCE

Note: Remaining 5% comprises lifecell Germany, other international operations and intra-company eliminations. Ukraine, Belarus and TRNC local currency growth figures are based on stand-alone financials.

• 14% yoy revenue growth in local currency in 2019

• 4G user data usage: 10GB/month in Q4

• 8% yoy revenue growth in local currency in 2019

• 4G user data usage: 10GB/month in Q4

Lifecell Ukraine

Life :) Belarus

Like-for-like EBITDA margin improvement is 1.7 pp in Q4 19 and 2.2 pp in 2019.

Q4 19 YoY % 2019 YoY %

561 33.0% Revenue 2,003 37.5%

244 (1.3%) EBITDA 904 47.5%

43.5% (15.0pp) EBITDA Margin 45.1% 3.0pp

FINANCIAL HIGHLIGHTS

11%

66%

KKTCell TRNC

• 23% yoy revenue growth in 2019

• Increasing contribution of fixed & corporate business

2019 Revenue ShareMILLION

28


Sustainability Initiatives

The UN Sustainable Development Goalsto which we have contributed

ESG GRADE A

Contribution to AI ethics with «Turkcell AI principles»

Member of CFO Task Force for SDGs

«Recycle Into Education» campaign for electronic waste

Appointment of Turkcell Data Protection Officer

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Free Cash Flow GenerationBILLION TL

(0.1)

(2.5)(2.2)

(0.7)

0.0

2.4

2014 2015 2016 2017 2018 2019

• Following the 4.5G investment period, free cash flow* generation turned positive in 2018

• We registered further 2.4 billion TL in 2019 (exc. Fintur sale proceeds)

• We aim to continue to generate positive FCF following years

*Free cash flow calculation includes EBITDA and the following items as per cash flow statement of IFRS reports: acquisition of property, plant and equipment, acquisition of intangible assets, change in operating assets/liabilities, payment of lease liabilities and income tax paid

4.5G Investment period

30


Solid Balance Sheet

NET DEBT/ EBITDA

1 Excludes Turkcell Consumer Finance Company’s loan portfolio

TCF loan portfolio

Net Debt1

Q2 2019 Q3 2019 Q4 2019

Total Cash 10,687 10,975 10,239

Total Assets 45,608 45,515 45,715

Total Debt 22,062 20,675 20,306

Lease Obligations 1,577 1,544 1,533

Total Equity 17,331 17,431 18,083

Net Debt 11,375 9,700 10,067

Net Debt1 8,160 6,975 7,658

SUMMARY

8,1606,975

7,658

3,215

2,7242,409

1.2x

1.0x 1.0x

0.9x

0.7x0.8x

Q2 19 Q3 19 Q4 19

Net Debt/EBITDA Net Debt/EBITDA1

Postdividend

MILLION TL

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FX Position Management

• We improved our FX position to long level over the years

• Our net FX gain** was 17.7Mn TL in Q419, thanks to our long position of 115Mn USD

• We aim to keep our FX position neutral in the coming periods

Net FX Position*:

Dec 15 Dec 16 Dec 18 Dec 19

Short FX Position Limited Short FX Position Neutral FX Position

-1,979Mn USD -125Mn USD -224Mn USD +115Mn USD

Dec 17

-144Mn USD

*Including advance payments, derivative transactions for hedging purposes and excluding FX swap transactions.**Excluding the impact of swap interest income/expense

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Notice

This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities ExchangeAct of 1934 and the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. This includes, in particular, our targets for revenue, EBITDA,EBIT and capex in 2020 or for the medium term 2020 to 2022. More generally, all statements other than statements of historical facts included in thispresentation, including, without limitation, certain statements regarding the launch of new businesses, our operations, financial position and business strategymay constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the written or oral use of forward-lookingterminology such as, among others, "will," "expect," "intend," "estimate," "believe", "continue" and “guidance”.

Although Turkcell believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that suchexpectations will prove to be correct. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety byreference to these cautionary statements. For a discussion of certain factors that may affect the outcome of such forward looking statements, see our AnnualReport on Form 20-F for 2018 filed with the U.S. Securities and Exchange Commission, and in particular the risk factor section therein. We undertake no duty toupdate 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 presentation, which remains subject toverification, 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 presentation or any other written or oralinformation made available to any interested party or its advisers.

Please note that all financial data are consolidated whereas non-financial data are unconsolidated unless otherwise specified. In the charts or tables used in thispresentation totals may not foot due to rounding differences. The figures used in this presentation are rounded while percentage changes are calculated based onthe figures disclosed in the press release.

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THANK YOUFor further information please e-mail

[email protected] call Turkcell Investor Relations at

(+90 212 313 1888)

Turkcell IR Website

THANK YOU

mailto:[email protected]

https://www.turkcell.com.tr/en/aboutus/investor-relations

Turkcell Investor · Global Telco Industry Challenges Flow of funds Turkcell’s Responses Digital...

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