Turkcell - Q4 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome, and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell Full Year 2023 Financial Results. At this time, I would like to turn the conference over to Ms. Özlem Yardım, Investor Relations and Corporate Finance Director. Ms. Yardım, you may now proceed.

Özlem Yardım (Director of Investor Relations and Corporate Finance)

Thank you, Constantinos. Hello, everyone. Welcome to Turkcell's 2023. Full Year Earnings Call. Today, our CEO, Ali Taha Koç, and CFO, Kamil Kalyon, will be delivering a brief presentation covering operational and financial results of 2023, which will be followed by a Q&A session. Before we begin, I would like to kindly remind you to review our safe harbor statement available at the end of our presentation. Now, I'm handing the meeting over to Mr. Ali Taha Koç.

Ali Taha Koç (CEO)

Thank you, Özlem. Good afternoon, everybody, and thank you for joining us today. Despite the challenges of 2023, including various uncertainties and economic pressures, we remain committed to our goal of pioneering the digital transformation of Türkiye and generating value. By leveraging our technological capabilities and leading the telecommunication market, we achieved solid results across all fronts. According to the IAS 29 applications, we delivered double-digit real revenue growth of 15%, driven by dedicated price adjustments over the past 2 years, which has supported ARPU expansion as well. We also prioritize value-generating postpaid and fiber customers, expanding our subscriber base by 799,000 net additions. This top line growth led to significant operational leverage, evidenced by a remarkable 20% increase in EBITDA.

Our margins expanded by 1.8 percentage points to 41%, driven by reduced energy prices and lower interconnection expenses. Ultimately, our strong operational performance resulted in a remarkable net profit of TRY 12.6 billion, marking an impressive 83% year-on-year rise. Next slide, please. We successfully achieved our guidance in 2023. In a challenging year, we maintained our business strategy, prioritizing agility to effectively respond to evolving market conditions, particularly to address inflationary pressures. Consequently, in consolidated financials, we recorded 75% revenue growth, surpassing our guidance. This strong performance also enabled us to exceed our EBITDA expectations. An accelerated top line performance resulted in a 21% CapEx to sales ratio at year-end. Additionally, investments in solar energy and others have been postponed to following year. Next slide, please. Let's take a closer look at our mobile operational performance.

Thanks to a focus on postpaid segment, we added 1.6 million postpaid customers in 2023, of which 476,000 came in the last quarter. The prepaid segment shrank by 1.1 million subscribers annually, mainly due to the alternative data solutions. In addition, the rising cost of new line activations and customers preferring postpaid lines to fix their offerings in an inflationary environment also negatively impacted the prepaid side in 2023. Please recall that we also disconnected inactive prepaid lines at year-end, which was the main reason for the quarterly acceleration in mobile churn. Compared to the previous year, our portfolio composition has become more valuable. We achieved a 3-point increase in postpaid share in the mobile segment, exceeding 71% this year.

By historical figures, blended mobile ARPU grew by 85% year-on-year, thanks to the rational price adjustments, upsell efforts, and a rising postpaid subscriber share in the portfolio. In line with inflationary pricing policy, we started the quarter with around a 20% adjustment in our mobile prices in October. We will continue this approach and therefore anticipate sustaining real ARPU growth in 2024. Next slide, please. In the fixed broadband segment, we adopted a profitability-focused approach in DSL and cable while prioritizing penetration in the fiber segment. On the fiber front, we are pleased to have registered a further 43,000 net additions in this quarter and 169,000 for the full year of 2023, owing to an expanded footprint and a seamless pure fiber experience. Furthermore, we are pleased to see strong demand for our TV services.

Despite higher price adjustments compared to the data-only packages, we provide this service to 66 out of every 100 households among our residential fiber customers. ARPU continued to widen the spread with inflation, growing by 76% on a yearly basis in historical figures. This growth was driven mainly by two factors: a rise in 12-month contract tariffs, which enabled us to reflect price increases more rapidly, and a rise in the share of higher speed tariffs from 18% to 30% compared to the previous year. As 86% of new residential fiber customers opted for 12-month contracts in the last quarter, we anticipate a higher share in the coming quarters. Next slide, please. Let's discuss our strategic focus areas, beginning with digital services and solutions.

Standalone revenue from digital services and solutions grew 19% year-on-year, driven primarily by 25% increase in digital OTT service revenues. The paid user base reached 5.6 million, mainly with TV+ and cloud services. Our digital business registered solid 23% year-on-year revenue growth. Besides the performance in managed services, a 50% increase in cloud service revenues and a remarkable 61% real growth in data center revenues supported the growth. Amid increased demand in areas including data centers, cloud solutions, and data analytics projects, we secured 1,000 new contracts in the last quarter. Looking ahead to 2024, while TV+ and lifebox will maintain their flagship position in digital services, we will prioritize ramping up the capacity of data centers and cloud services to meet the high demand in these areas. Next slide, please.

Our Techfin companies continued to deliver a strong performance, contributing to the company's top line growth in 2023. During 2023, Paycell expanded its product portfolio and strengthened its position within the fintech verticals to better serve customer needs. Paycell offers services from stock exchange transaction to shopping limits through Finanscell, and it is taking firm steps towards leading the Turkish fintech ecosystem. Paycell revenue rose 29% year-on-year, primarily fueled by the success of its direct carrier business, Pay Later. The active user base of Pay Later reached 6 million, marking 19% annual growth, while its transaction volume surged 80% in the last quarter. Meanwhile, Finanscell, our financing company, continued to lead the sector in small loans, catering to the needs of Turkcell customers, also playing a significant role in improving the financial inclusion in Turkey.

Finanscell's revenue grew by 28%, thanks to the demand for smart devices and new areas we entered, such as shopping loans, car loans, and green loans. However, a significant rise in interest rates in the last quarter, leading to higher funding costs, had an adverse impact on Finanscell's margin. Next slide, please. Now, our performance in the international markets. The Ukrainian subsidiaries have been classified as discontinued operation as of the end of 2023, due to the announced sales process. Turkcell International revenues, which now accounts for 3% of group revenues, decreased by 1.8% to TRY 2.6 billion. BeST revenues rose 20% on a yearly basis in local currency terms, primarily driven by higher data and voice revenues. The improvement in EBITDA margin was supported by lower interconnection costs and energy expenses as a percentage of revenue.

Revenues of our Turkish Republic of Northern Cyprus subsidiary increased 20% year-on-year, fueled by strong real ARPU growth. The introduction of 4.5G services in September 2023 resulted in a 45% increase in 4.5G data consumption on a quarterly basis. Next slide, please. In our pursuit of building the intelligent edge, we will focus on three key initiatives in 2024. As Turkey's largest data center operator, we prioritize keeping Turkey's data within its borders to ensure data security and confidentiality of personal information. To date, we have invested EUR 330 million in our data centers, which currently boast a capacity of 33 MW in 4 new generation data centers. Due to high demand, we plan to add 9.1 MW of new capacity this year.

Secondly, Turkcell is leveraging its capabilities in artificial intelligence and machine learning to enhance our business models. For instance, our stores and the Turkcell mobile application have implemented AI-supported identity verification processes. Additionally, we have even integrated AI into our communication channels for an improved customer experience. Last but not least, we remain committed to focusing on our state-of-the-art mobile and fiber infrastructure. Our objectives include increasing fiber to site investments and carrying out GPON modernization for improved efficiency. We have also signed a cooperation agreement with Lynk, a non-terrestrial network provider, to provide mobile services via satellite in rural areas where access to mobile networks is limited. We continue to take proactive steps to maintain our leadership position in the technologies of 5G and beyond. Next slide, please. To conclude my presentation, I would like to end by sharing our guidance for 2024.

Given the macroeconomic dynamics, projecting inflation in particular will be a challenging task. We aim to keep you updated about the guidance whenever there is a change in our inflation assumptions. For 2024, we expect high single-digit real revenue growth, EBITDA margin guidance of around 42%, and we expect a CapEx intensity of around 23%. I will now leave the floor to our CFO, Mr. Kamil Kalyon.

Kamil Kalyon (CFO)

Thank you very much, Ali Taha Koç. Now let's move on to our financial results. Before we proceed, I'd like to outline the impact of inflationary accounting on our key financial metrics. Group revenues ramped up by 76% in historical figures, while under inflationary accounting, the rise was 15%. Over the past two years, inflation-adjusted Turkcell Turkey revenues have outpaced the growth of Turkcell Group revenues, driving the overall growth. An expanding subscriber base and robust ARPU growth, as well as digital services, were the main drivers, were the main drivers of this growth. EBITDA increased by 83% on historical figures, while according to inflationary accounting, growth was 20%. Apart from robust top line growth, lower energy prices, favorable interconnection expenses, and a decrease in the cost of goods sold as a percentage of revenues have been instrumental in driving real EBITDA expansion.

Lastly, net income growth was 65% on historical figures, whereas by inflation-adjusted figures, it rose 82%, thanks to a strong EBITDA performance. Next slide, please. In 2023, EBITDA, EBITDA surged 20% to TRY 44 billion, thanks to a strong top-line performance. Accordingly, the EBITDA margin expanded 1.8 percentage points year-on-year. Despite an increase in personal expenses resulting from two wage rises throughout the year, this was more than offset by declines in the cost of goods sold, energy costs, and interconnection expenses. The reduction in energy prices during the second and third quarters of 2023 supported the margin. Additionally, the continued decline in MTR positively impacted our profitability, a trend expected to persist in 2024. Next slide, please. Now let's dive into the net income performance.

Thanks to a robust operational performance, EBITDA has contributed TRY 7.3 billion to net income. The other operating income and expense item includes the first installment of the earthquake donation payment made in October, as well as a provision amount for the second installment of the donation, which was already paid in January. The balance sheet changed due to inflation, inflation adjustments in 2023 had a more adverse effect compared to 2022, with the monetary gain loss item being the most significant pressure point for net income, amounting TRY 4 billion. Our Ukraine operation, classified under discontinued operations due to the ongoing sales process, had a positive impact of TRY 1.1 billion on net income throughout the year 2023. Next slide, please. Let's take a closer look at our CapEx management.

In historical figures, the CapEx to sales ratio for 2023 was 20.6%, with accelerated revenue. This year, we maintained an equal focus on mobile and fixed investments. As our CEO stated, in alignment with our goals, our investments in 2024 will primarily target three areas. One, we will increase the fiber to towers, extending them to 41% of towers in Turkey. This empower us to advance our core capability in offering best-in-class 4.5G services and further strengthen our position in 5G and future technologies. Second, we will continue our investments in solar renewable energy to generate electricity from sustainable resources and to secure cost advantage for the coming years. Lastly, responding to heightened demand, we will expand our data center capacity by constructing two new modules in Çorlu and Ankara, increasing capacity by 28%.

As a result, for 2024, we anticipate greater CapEx intensity. Next slide, please. Now let's turn our attention to the balance sheet. In 2023, our cash position increased by TRY 7.2 billion, majorly supported by FX movements and organic cash generation. Our gross debt was at TRY 84 billion, and we ended the year with a net debt position of TRY 24 billion. Thanks to strong cash generation, our net leverage decreased to 0.5x. In addition to the strong cash position, we have committed lines of around $120 million equivalent for the upcoming periods. The majority of our cash remains denominated in hard currencies. Excluding FX swaps, 53% of our cash is in US dollars and 20% in euros. Next slide, please.

Lastly, let's look into the management of the foreign currency risk for 2023. At the end of 2023, our balance sheet had around $2 billion equivalent in FX financial liabilities. In addition to the $1.5 billion equivalent FX denominated financial assets, we have a $0.6 billion effective hedging portfolio, the vast majority of which consists of future forwards and NDFs. We ended up with a long FX position of $22 million, which is within our neutral FX position definition. This concludes our presentation, and we can now open the line for questions. Thank you.

Operator (participant)

The first question comes from the line of Cesar Tiron with Bank of America Merrill Lynch. Please go ahead.

Cesar Tiron (Equity Research)

Yes, hi, good evening. Congratulations on the numbers, and thanks for the call and the opportunity to ask questions. I have three questions, if that's okay. If I look at the new accounting standard, including inflationary accounting, and if I look at your guidance, there's a slowdown from what I think you delivered in 2023, which I think was 14% or 15%, and your guidance of high single digits. Can you please explain why, excluding inflation, you think the revenue growth will slow down? That's the first one. The second question, I see an increase again in the guidance of CapEx, CapEx intensity to sell. Can you please explain it?

Is that mainly driven by the weakening of the currency? And then the third question, if you can please update us on Ukraine and the sale process, and this litigation, which you've disclosed, I think one or two weeks ago. Thank you so much.

Kamil Kalyon (CFO)

Thank you very much, Cesar, for the question. Actually, as of Q4 this year, in accordance with the standard published by the Capital Market Board, it's newly implemented for Capital Market Board legislation in Turkey, inflation accounting standard. It's still very new for us, and before getting started, I would like to lay some groundwork and highlight a few points regarding the standard of its effects on our financials. Maybe it would be helpful for your side. As you may already know, financial performance figures for current year are adjusted for inflation on a monthly basis with an index which is specific to the related month. Additionally, prior year figures are adjusted with the current year's index to reflect the change in purchasing power in order to make the figures comparable.

Due to the contracted nature of core telco business, the inflation environment initially affected our top line adversely, in 2024, 2022. But, in fiscal year 2023, with the help of sequential price adjustments, we have implemented ours the prior quarters. We returned to a real growth by achieving a real growth of around 15% increase in our revenue side. Before elaborating further on the subject for the 2024 guidance, please bear in mind that our guidance captures the expected impacts of the IAS 29 application, as well as our operational expectations for the 2024. It's a very technical issue, especially making an assumption in the inflationary accounting perspective is a little bit high.

Capital Market Board of Turkey also insists us to make a declaration about the inflation-adjusted figures. Therefore, we would like to be on the safe side in the first quarter, at this stage, about the guidance side, especially from the growth side. But we expect a high single digit revenue growth for 2024. But our aim, most probably, would be taking this amount to double digits in 2024. In the CapEx side, as part of our CapEx planning this year, we will continue to focus more on our core businesses. Accordingly, we will follow our demand-driven CapEx approach.

We are expanding the white space capacity of data centers by adding new modules to meet increasing demand, because there is a big demand in the data center services in Turkey. Therefore, we would like keeping, keep going to make investments in the data center side. This is the first issue which the intensity is high in 2024. Additionally, we have renewable energy investment plans, as you know, on the energy side, to meet our own electricity demand. In 2023, we initiated investments in solar power plant installations to achieve a capacity of 300 MW within three years period. The first phase in 2023, we achieved 54 MW capacity, and we aim to cover 65% of our self-usage from our own premises.

Therefore, we keep going on making investment this solar issue in 2024. This may be the second reason for the CapEx intensity side. All in all, mobile and fixed CapEx will take more than half of the CapEx budget, espe- in this year also, with the remaining share to be taken mainly by data center and renewable energy investments. That can be the summary of the CapEx intensity side.

Ali Taha Koç (CEO)

With respect to the question that is related to Ukraine, as per our company's board of directors' decision, dated December 20, 2023, a share transfer agreement was signed on December 29, 2023, for the transfer of all shares, along with the rights and debts of our company's subsidiaries operating in Ukraine to NJJ Capital, subject to certain conditions determined under relevant agreement. As completion of the transaction depends on fulfillment of certain closing actions, permissions granted by authorities and conditions precedent, including removal of temporary injunction over the shares. Meanwhile, our company has been informed through its Ukrainian subsidiary, that they have received an official ruling from a Ukrainian court on March 5, 2024, imposing temporary injunction by way of applying seizure over the 19.8% of the shares and related corporate rights of lifecell LLC.

And 100% of the shares and related corporate rights of Ukrtower and lifecell LLC. Within the criminal proceedings related to suspicions involving Fridman. We would like to emphasize that we believe that the aforementioned person has no direct or indirect control or influence over Turkcell and/or Ukrainian subsidiaries. Additionally, it is worth to emphasize that this decision to apply temporary injunction has no any significant impact on the daily operations of these Ukrainian subsidiaries. Our Ukrainian subsidiaries already filed for an appeal in order to remove relevant temporary injunction and dismiss of the ruling to be to the related court, submitted on March 7, 2024. With an aim to cancel the seizure and our subsidiaries vigorously contest this decision.

Our Ukrainian subsidiaries continues to work on completion of conditions precedent, including this temporary injunction being lifted over Ukrainian subsidiaries shares for the closing regarding the sale of Ukrainian assets to NJJ Capital. The enterprise value to be taken into account at the closing date for the respective sales transaction is determined as $525 million, and the final sale consideration will be subject to adjustments to be made, including cash and debt adjustments, after the closing. I think.

Operator (participant)

Mr. Cesar, how you.

Cesar Tiron (Equity Research)

That was very clear.

Operator (participant)

Okay. The next question is from the line of Mandacı with ÜNLÜ & Co. Please go ahead.

Ece Mandacı (Director)

Hi. Congratulations on the strong results. I have a couple of questions. One is about your EBITDA guidance for 2024. It looks like you're expecting a double, maybe double, some double-digit growth in your EBITDA in real terms. What's the main reason for that? I understand that you are going to make price adjustments and there will be real revenue growth, but could there be any possibilities in cost saving, maybe? Can you provide more details about that? And secondly, I'm seeing that you have recorded deferred tax income. You also had last year. Is this due to the revaluation of some assets? And will this be continuing in 2024 as well? Thirdly, I see that you expensed some donation expense in the fourth quarter, but cash flow-wise, this payment will be done in the first quarter. Is that right? Thank you.

Kamil Kalyon (CFO)

Yes, Ece. Starting from the third question, yes, the donation is paid on January 2024, the second installment regarding the donation payment. And our EBITDA margin forecast for 2024, as you know, it's a very highly, it's very tough, it would be a tough environment in 2024 also for Turkey. Our full-year EBITDA margin was around 41% in 2023, which is 1.8 percentage points above of last year. However, this year we expect a flattish, flattish margin at around 42%, because inflationary cost pressures will continue, and the cost of energy prices will be one of the most important factors that will affect our EBITDA margin.

As you know, in 2023, the EBITDA energy costs are subsidized by the government side. Therefore, it affected, it really affected our EBITDA high margins in 2023. But, however, our strong real top line growth, supported by our sequential price adjustments, therefore, as you know, we, we are all continuously promising our investors to make the inflationary pricing. We continued it in 2023, and most probably, in 2024, this inflationary sequential price adjustments will continue, and we would aim the flattish same EBITDA margins in 2024. The first question is about.

Ali Taha Koç (CEO)

Right. I think.

Kamil Kalyon (CFO)

The guidance.

Ece Mandacı (Director)

Deferred tax income, is that continuing in 2024 as well? And the reason for that, if you can explain.

Kamil Kalyon (CFO)

Normally, after the inflationary adjustment side, we will not make any revaluation for the fixed asset side, in the local side. Therefore, it would not, there would not be any, most probably would be a revaluation after the inflation accounting side. Therefore, the, we have some tax effects in 2023, coming from the donation side. In 2024, we do not expect any donation related deferred tax or revaluation basis effect in 2024, in the deferred tax side.

Ece Mandacı (Director)

Just to follow up, on your EBITDA margin guidance, do you consider any more increase in minimum wage in the second half or increase in personal expenses in the second half of the year?

Kamil Kalyon (CFO)

No. Our macro model does not include a second increase in the minimum wage income. We will wait the elections, and after the election, we will be closely following the policies of the economic side, but our assumption does not bring a second minimum wage increase in July. And nominal EBITDA growth in 2024 will be around 10%, Ece.

Ece Mandacı (Director)

Mm-hmm. Thank you very much.

Kamil Kalyon (CFO)

You're welcome.

Operator (participant)

The next question comes from the line of Cemal Demirtaş with Ata Invest. Please go ahead.

Cemal Demirtas (Head of Research)

Thank you very much. Congratulations for good results. My first question is about, you know, discontinued operation. You share some historical figures, including Ukraine. Could you tell us the bottom line net income numbers for full years 2023, including Ukraine, you know, in 2023? That's my question. I can see the. I can calculate the revenue and EBITDA, but I cannot calculate the reconcile number for discontinued sites at the net income level. That's my first question. And maybe if you give more digits about the revenue growth in Turkcell Turkey so that we can compare, I think it will be helpful. And the other question is about your guidance.

I understand that for the, you know, when you make the calculation based on the IFRS 29 figures, you're saying that you will have, let's say, 8-9% real growth, plus inflation, 37% year-over-year. I think that's the assumption we are making, if I didn't understand it wrong. So that's my second question. And the third question, how do you see the, you know, the Ukraine operations to end up? You put it in discontinued, but it was a profitable one. Maybe going forward it will change. But, can you give us some, you know, the timeline? And the last is not a question, but just criticism I'm making to all the blue-chip companies in Turkey.

To be honest, I would expect higher, you know, the disclosure transparency related to inflation accounting, because it's really hard to understand. And, you know, most of the companies put several numbers as you did. But I know some good examples like Brisa. They made whole, you know, the, the comparison, which was very much helpful. Just a quick, you know, it's a criticism because, I, Turkcell is one of our topic, and it's, I always show it as a very good standard, but, in my humble opinion, that's, you know, that's the basic, you know, thing that I didn't like with any company in Turkey. Most of the blue chip companies, they give limited, you know, the figures, but I look for the, you know, the transparency. I would expect much, much higher. Thank you. Thank you very much.

Kamil Kalyon (CFO)

Cemal, starting from your first question, the scope operations amount is TRY 1.9 billion in the net income side. Regarding the revenue growth, in real terms, our revenue grew by 15% to TRY 107 billion in 2023. Due to contracted nature of our business, the lagging impact of our sequential price adjustments became more visible, starting from half of 2022, and it continued in 2023. Therefore, the price adjustments are the main motive regarding the revenue growth in the historical figures. Regarding your third question, especially our year-end inflation expectations around 37%.

The average rate, our expectation is around 52% for 2024. Normally, it's really hard to finalize the inflationary accounting principles or the calculations. Such a big company in a short term, it's very hard for us. Therefore, we would like to be in a safe mode in this, regarding the especially real growth issue. Your expectation is a little bit correct. Yeah, we say, we say that it's a high single digit, but as I said before, our aim would be arriving or reaching the double digit growth in 2024. Regarding your criticism, I would like to make some information about this issue, especially Capital Market Board.

Yeah, last week we had a telephone conversation, verbal conversation with Capital Markets Board, and they are very keen, or they have very strict applications or prohibitions not to declare the amounts or the, for example, figures, before the inflation adjustment. Therefore, we prepared our presentation regarding by taking into this account. Therefore, if you need further information about the, any kind of figures regarding before inflation or after inflation, our team will be very happy to present to help you. Regarding the Ukraine question, would you like to see.

Ali Taha Koç (CEO)

Yeah.

Kamil Kalyon (CFO)

Anything?

Ali Taha Koç (CEO)

So we are expecting the legal procedures to continue, and then I cannot, we cannot give a deadline, but, we, we will expect it's gonna be over in this year. But again, it is just a jurisdiction system, so we don't know how long it's gonna take, but we are doing our best to make it as quick as possible.

Cemal Demirtas (Head of Research)

Thank you. But regarding my first question, I understand that, you know, the historical figures, including Ukraine, you mentioned around TRY 1.9 billion, right?

Kamil Kalyon (CFO)

Yes.

Cemal Demirtas (Head of Research)

But I look at your financial statement, and it's the numbers we see for the, you know, the inflation accounting standards. But I see TRY 1.97 billion, you know, the net income related.

Kamil Kalyon (CFO)

Yes.

Cemal Demirtas (Head of Research)

To, you know, the Ukraine. But I am asking, you know, the historical figures, which might be lower than this number, because these numbers are all carried to the year end. So in order to, you know, and my reasoning is to compare with our full year numbers, nothing more than that. So it should be lower than TRY 1.9 billion. So I just wanted to reiterate my question. Thank you.

Kamil Kalyon (CFO)

Cemal, maybe we can provide the detailed information about this calculation after the call to you.

Cemal Demirtas (Head of Research)

Okay. Thank you. Thank you very much. It was very helpful, and congratulations for the.

Kamil Kalyon (CFO)

Because our figures are after inflation adjustment side, and discontinued operations. One figure we edit the historical values we will be giving it after the call.

Cemal Demirtas (Head of Research)

Okay. Thank you. Thank you very much.

Operator (participant)

The next question is from the line of Evgenia Bystrova with Barclays. Please go ahead.

Evgeniya Bystrova (EEMEA Corporate Credit Research)

Hi. Good evening. Thank you very much for the presentation, and thank you for taking my question. I have just one quick question. Do you have any plans for the upcoming 2025 Eurobond maturity? And could you maybe share those with us? Thank you.

Ali Taha Koç (CEO)

Eurobond maturity.

Kamil Kalyon (CFO)

Yes, we have some plans, because I think 2025 and 2026 would be a lot of, there will be a lot of movements in these years. For example, we are expecting this 5G issue, and we have some, the maturity of our Eurobonds are expiring. Therefore, this, as I mentioned, we have around $1.7 billion US dollar equivalent cash in our hands, and we have $120 million US dollar committed lines. That is very sufficient for us, for example, for the two years, maintaining our debt service for two years period. But this year, most probably we are thinking to make some, regarding the adequate case. For this, in order to recover this issue, we are diligently exploring a range of competitive and rational alternatives for the reissues of, 2025 loan this year. This might be sukuk or also again, a conventional Eurobond side.

Evgeniya Bystrova (EEMEA Corporate Credit Research)

Sorry, could you please repeat? What is the size of the committed lines?

Kamil Kalyon (CFO)

The committed line is $120 million.

Evgeniya Bystrova (EEMEA Corporate Credit Research)

Okay. Thank you.

Kamil Kalyon (CFO)

You're welcome.

Operator (participant)

The next question comes from the line of Gustavo Campos with Jefferies. Please go ahead.

Gustavo Campos (Emerging Markets Associate)

Hello. Thank you very much for the presentation. Congratulations on the results. Just wanted to, if you could provide some color on the, your working capital flows as of this, fourth quarter of 2023, unadjusted to, from like the, inflation. That would be very helpful. Thank you.

Kamil Kalyon (CFO)

Yes, thank you very much for the question. We expect our loan portfolio to increase around TRY 8 billion as well as of 2024 year-end. Accordingly, we might continue to see some pressure on the working capital side, yet we have the flexibility to adjust our management in order, in other working capital items. Therefore, our, maximizing or minimizing to using the working capital, process is still ongoing. We take the relevant, precautions about this issue.

Gustavo Campos (Emerging Markets Associate)

Okay, sounds good. Thank you very much.

Operator (participant)

The next question comes from the line of Maddy Singh with HSBC. Please go ahead.

Speaker 9

Yes, hi. Thanks. This is Maddy Singh from HSBC. I just have a couple of questions. Firstly, on the results itself, just wondering if you could share the revenue and EBITDA net income numbers, as well as the growth year-on-year for the fourth quarter? Because I think the results here are for full year, and given that the previous quarter results and all are not reliable, so it will be helpful to see how was the.

Kamil Kalyon (CFO)

It's for Q4 results, Maddy.

Speaker 9

Sorry?

Operator (participant)

Sorry, I couldn't. Just a second.

Speaker 9

The numbers in the table are all for full year. It will be good to have at least some idea about the Q4 as well, so growth and Margin.

Kamil Kalyon (CFO)

We have full year only, we have only full year inflationary adjustment recast figures we have. We do not have for only for Q4 results are not done. Available right now, maybe.

Speaker 9

Okay. All right. So any idea by when we can get those numbers? Because, you know, I'm just trying to understand, you know, the recent trends. Because, you know, when you do the inflation adjustment on historical basis, you know, the trends kind of do not make any sense after that. So it will be good to have some sense about the recent trends. And then the second question is, is there any plan to distribute dividend for the year? And if so, by when we can know about that?

Ali Taha Koç (CEO)

As you know, the dividend proposal is first made by the board of directors and then voted by the shareholders at the general assembly. No proposal has been made by the board of Turkcell for this year yet. As you may recall from last year, our board of directors' dividend proposal was announced together with the general assembly announcement, so you should follow the general assembly announcement. Therefore, I do not want to speculate on the potential proposal of the board of directors regarding the dividends.

Speaker 9

Great. And then finally, on the, you know, the guidance for next year, the high single-digit revenue growth target, as well as the 42% margin you have talked about. Given that, you know, you are assuming 37% margin there, sorry, inflation rate there. If the inflation rate is much higher than this, do you think these guidance will still hold, or you would have to tweak them? Because what I'm not sure about is the underlying adjustments you have to make, given the hyperinflationary accounting, you know, what multipliers and index you use, basically. So, you know, any idea there, any sensitivities there would be helpful.

Kamil Kalyon (CFO)

Yeah. Normally, as I said, we made this guidance for 2024 under the assumption that the year-end inflation rate will be 28%-38%, and the.

Ali Taha Koç (CEO)

37%

Kamil Kalyon (CFO)

37%. The average rate would be around 50%. If the inflation keeps going on, for example, if this exists, our inflationary pricing mechanism will be in place. Therefore, we make some revise in the guidance side in the coming periods. But currently, we determine this guidance under the scope of our macroeconomic expectations.

Speaker 9

Okay. So it is fair to assume that if inflation goes up.

Kamil Kalyon (CFO)

Yeah

Speaker 9

Your real revenue growth will probably also improve somewhat?

Kamil Kalyon (CFO)

Yes. Yes, you're right. Absolutely.

Speaker 9

Yeah. Okay. Got it. Thank you.

Kamil Kalyon (CFO)

Point, inflation pricing, it means.

Speaker 9

Yeah.

Kamil Kalyon (CFO)

For your first question, my colleagues also informed me that, again, we do not have any work on the Q4 results for the inflationary side. We have full year.

Speaker 9

Okay. Okay. Thank you.

Kamil Kalyon (CFO)

You're welcome.

Operator (participant)

The next question comes from the line of Nora Nagy with Erste Group Bank AG. Please go ahead.

Nora Nagy (Equity Research Analyst)

Hi, good evening. Thanks for the presentation. Just a follow-up question from my side, please. If inflation will be higher than you assume for 2024, isn't it the case that then the real growth will be lower than what you are now guiding for 2024?

Kamil Kalyon (CFO)

I thought I explained the. In the previous one, if the inflation rate will be higher than we expect, it means that the inflationary environment is still keep going. It means that we will make, we will keep ongoing the inflationary pricing side. Therefore, we do not expect at this stage, for example, if this is the case, we do not expect a lower growth rates.

Nora Nagy (Equity Research Analyst)

Yeah, but I would assume that that takes time for the output to catch up to inflation, so that the real growth would be negatively impacted if inflation will be higher than you assume.

Kamil Kalyon (CFO)

But the momentum say-

Nora Nagy (Equity Research Analyst)

I believe it.

Kamil Kalyon (CFO)

Yeah, we keep, we have a momentum about this issue, and we still have an inflation problem in Turkey. And as you may assume that, for example, our year-end, for example, inflation rate is 37%, but the average is 50%. It means that inflation environment still keep going until the end of half one. Therefore, our inflationary adjustments or inflationary pricing mechanism or policy will continue with all the year, for example. Therefore, we do not expect, for example, a lag about this issue, because we keep the momentum about this issue. We have started making sequential price adjustments starting from the half two of 2022.

Nora Nagy (Equity Research Analyst)

Thank you.

Operator (participant)

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you.

Ali Taha Koç (CEO)

Thank you very much for the call, and thank you very much for the questions. So hopefully we're gonna have a better and then a greater year in 2024. And I hope to see you and talk to you in the next quarterly update.

Operator (participant)

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling. Have a pleasant evening.

Kamil Kalyon (CFO)

Thank you.

Ali Taha Koç (CEO)

Thanks.