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Turkcell Iletisim Hizmetleri A.S.: Second Quarter 2014 Results

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”). All non-financial data is unconsolidated and comprises Turkcell only figures. The terms "we", "us", and "our" in this press release refer only to the Company, except in discussions of financial data, where such terms refer to the Group, and where context otherwise requires.
  • In this press release, a year-on-year comparison of our key indicators is provided and figures in parentheses following the operational and financial results for June 30, 2014 refer to the same item as at June 30, 2013. For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2014, which can be accessed on our website in the investor relations section (www.turkcell.com.tr).
  • Please note that selected financial information presented in this press release for the second quarter of 2013, and the first and second quarters of 2014, both in TRY and US$, is based on IFRS figures.
  • In the tables used in this press release totals may not foot due to rounding differences. The same applies for the calculations in the text.

HIGHLIGHTS OF THE SECOND QUARTER OF 2014

  • Group revenues grew by 2.4% to TRY2,923 million (TRY2,855 million). This was impacted by regulatory changes in the Turkish mobile market such as mobile termination rate (MTR) and SMS maximum price cuts compared to a year ago, the lower contribution from our Ukrainian business due to devaluation, and a one-off item of TRY26 million.
  • Group EBITDA1 rose by 4% to TRY907 million (TRY869 million), while the EBITDA margin increased to 31.0% (30.4%).
  • Group net income declined to TRY492 million (TRY556 million), adversely impacted by devaluation of the UAH against the US$ in Ukraine and one-off items totaling TRY119 million.
  • Mobile business revenues in Turkey were TRY2,296 million (TRY2,318 million) with a 30.9% (30.1%) EBITDA margin.
    • Mobile broadband revenues rose by 28% to TRY434 million (TRY340 million).
    • Voice revenues2 declined by 3% to TRY1,607 million (TRY1,664 million), due to the continued impact of regulatory decisions.
  • Revenues of subsidiaries3 grew by 17% to TRY627 million (TRY537 million), while EBITDA increased by 16% to TRY198 million (TRY171 million).

Excluding the impact of MTR cuts effective as of July 1, 20134 and one-off impacts5:

  • Turkcell Group revenues would be TRY3,055 million on 7% growth.
  • Mobile business revenues in Turkey would be TRY2,428 million on 5% growth, with a 4% rise in voice revenues.
  • Group EBITDA would be TRY934 million on 7% growth.
  • Net income would be TRY612 million.
    • In Q214, one-off items with a total impact of TRY119 million included:
      • The reimbursement decision of the ICTA with a revenue and EBITDA impact of TRY26 million, and net income impact of TRY21 million after tax
      • An administrative fine imposed by the Ministry of Industry and Trade in relation to service subscriptions and content sales, having a net income impact of TRY68 million
      • An administrative fine imposed by the Competition Board regarding vehicle tracking systems, having a net income impact of TRY30 million

(1) EBITDA is a non-GAAP financial measure. See page 12 for the reconciliation of EBITDA to net cash from operating activities.
(2) Voice revenues include outgoing, incoming, roaming and other (comprising almost 1% of Turkcell Turkey) revenues.
(3) Including eliminations.
(4) The adjusted figures are non-IFRS measures.
(5) See page 7 for the reconciliation of one-off items.
(*)For further details, please refer to our consolidated financial statements and notes as at and for June 30, 2014 which can be accessed on our web site in the investor relations section (www.turkcell.com.tr).

COMMENTS FROM CEO, SUREYYA CILIV

“In the second quarter of 2014, Turkcell Group revenues rose 2.4% to TRY2.9 billion and EBITDA grew by 4% to TRY907 million. Meanwhile, EBIT increased by 4% to TRY521 million, with net income of TRY492 million.
In this quarter, several factors adversely impacted our financials. These included regulatory decisions, devaluation in Ukraine and one-offs. Yet our growth continued with the contribution of mobile broadband revenues, up 28%, and Turkcell Superonline, which posted 39% growth year-on-year. Overall, the Group posted 4% growth in the first half. For the second half of 2014, we are targeting higher growth rates and maintaining our guidance for the year-end.
We continue to ease and enrich our customers’ lives through sustained investments in technology and innovation. In line with this vision, we introduced the “T50,” Turkey’s first 4G smartphone. Furthermore, the T-Fit, our first wearable smart wrist-band, will shortly be on sale. With this device our customers will be able to track a range of information for a healthier lifestyle. As Turkcell, we will continue to differentiate ourselves in the market through our focus on quality and innovative products and services.
We thank all of our customers, employees, business partners, board of directors, and shareholders, who have enabled us to become Turkey’s largest private corporate taxpayer, and contribute further to the economy”

OVERVIEW OF TURKCELL TURKEY

In the second quarter, competition in the Turkish mobile market accelerated. All operators consecutively launched offers at lower prices compared to the previous quarter, while increasing incentives. Competition remained particularly focused on offering further data incentives as part of bundled offers. This, together with seasonally higher minutes of usage, led to a further decrease in unit prices, pressuring overall market profitability. Further, we observed the continued impact of last year’s minimum on-net voice and SMS price decision, as well as MTR and SMS maximum price cuts on overall market growth and competitive dynamics.

As Turkcell Turkey, we remained focused on maintaining our valuable customer base. Accordingly, our postpaid subscriber base expanded by 404 thousand additions to 14.5 million. Reaching a 41.9% share in total subscriber base, 2.1pp higher year-on-year, our postpaid subscribers generated 69% of mobile revenues in Turkey. Overall, our subscriber base declined 157 thousand to 34.6 million during the quarter, driven by losses mainly from the more price-sensitive prepaid segment.

We continued to differentiate ourselves through innovative services and technological solutions. With the recent launch of our “Connected Car Platform”, a first for Turkey, Turkcell strengthened its position as Turkey’s leading M2M solutions provider. Furthermore, our Turkcell-branded application portfolio expanded with the addition of “Super SmallBiz” targeting small businesses and “Turkcell My Child and Me” for parents. While enriching our customers’ lives, these products contribute to our mobile broadband revenues through higher smartphone usage.

On the terminal front, smartphones on our network reached 10.9 million with 676 thousand quarterly additions, indicating 35% penetration. Supporting our strategy of increasing smartphone penetration in Turkey through affordable devices, we recently introduced the seventh T-Series smartphone, the T50, which is compatible with LTE and Dual carrier technologies. We believe the accelerated demand for the T50 confirms the success of our own-branded smartphone strategy. And supplementary to our smart device portfolio we launched T-Fit, a smart wristband.

For the second half of the year, we expect similar competitive and macro conditions in our markets of operation. Meanwhile, negative impact of MTR cuts on our growth rate will not exist as MTR rates will be comparable on a year on year basis. In this environment we target higher growth in the second half. Accordingly, we maintain our revenue and EBITDA guidance for the year-end as TRY12,000 million – TRY12,200 million and TRY3,700 million – TRY3,800 million, respectively*.

(*)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 2013 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

FINANCIAL AND OPERATIONAL REVIEW OF THE SECOND QUARTER 2014

The following discussion focuses principally on the developments and trends in our business in the second quarter of 2014 in TRY terms. Selected financial information presented in this press release for the second quarter of 2013, and the first and second quarters of 2014, both in TRY and US$, is based on IFRS figures.

Selected financial information for the second quarter of 2013, and the first and second quarters of 2014, both in TRY and in US$ prepared in accordance with IFRS, and in TRY prepared in accordance with the Capital Markets Board of Turkey’s standards, are also included at the end of this press release.

Financial Review of Turkcell Group

Profit & Loss Statement (million TRY)   Q213   Q114   Q214   y/y %   q/q %
Total Revenue 2,855.2 2,855.2 2,923.0 2.4% 2.4%
Direct cost of revenues1 (1,771.3) (1,742.3) (1,789.2) 1.0% 2.7%
Direct cost of revenues1/revenues (62.0%) (61.0%) (61.2%) 0.8pp (0.2pp)
Depreciation and amortization (366.8) (399.6) (386.2) 5.3% (3.4%)
Gross Margin 38.0% 39.0% 38.8% 0.8pp (0.2pp)
Administrative expenses (129.0) (142.1) (135.8) 5.3% (4.4%)
Administrative expenses/revenues (4.5%) (5.0%) (4.6%) (0.1pp) 0.4pp
Selling and marketing expenses (452.5) (483.1) (477.2) 5.5% (1.2%)
Selling and marketing expenses/revenues (15.8%) (16.9%) (16.3%) (0.5pp) 0.6pp
EBITDA2 869.2 887.3 907.0 4.3% 2.2%
EBITDA Margin 30.4% 31.1% 31.0% 0.6pp (0.1pp)
EBIT3 502.4 487.7 520.8 3.7% 6.8%
Net finance income / (expense) 138.8 (303.3) 46.6 (66.4%) (115.4%)
Finance expense (30.6) (551.9) (211.3) 590.5% (61.7%)
Finance income 169.4 248.6 257.9 52.2% 3.7%
Share of profit of associates 60.0 73.6 73.8 23.0% 0.3%
Other income / (expense) (20.8) (3.5) (92.0) 342.3% n.m.
Monetary gains / (losses) 20.3 64.5 60.0 195.6% (7.0%)
Non-controlling interests 1.5 200.7 49.6 n.m. (75.3%)
Income tax expense (145.9) (160.2) (166.5) 14.1% 3.9%
Net Income 556.3 359.5 492.3 (11.5%) 36.9%

(1) Including depreciation and amortization expenses.
(2) EBITDA is a non-GAAP financial measure. See page 12 for the reconciliation of EBITDA to net cash from operating activities.
(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

Revenue increased to TRY2,923.0 million (TRY2,855.2 million) on 2.4% growth, driven mainly by:

  • 5.5% growth in mobile broadband and services revenues in Turkey to TRY689.3 million (TRY653.3 million), comprising 30.0% (28.2%) of mobile business revenues in Turkey
    • 27.7% increase in mobile broadband revenues to TRY433.5 million (TRY339.5 million), despite increased competition in the market with data bundled offers at lower prices compared to a quarter ago
    • 18.5% decline in SMS and mobile service revenues. The decline in SMS revenues was mainly due to falling demand for SMS, parallel to industry trends, coupled with the impact of the ICTA decision to decrease the maximum SMS price by 20%. Mobile services, meanwhile, were negatively impacted by the regulatory decisions impacting various consumer segment mobile services, the regulation regarding mobile POS machines, the SMS MTR cut affecting bulk SMS service revenues and reimbursement decision of the ICTA.
  • 16.7% growth in revenues of subsidiaries to TRY627.2 million (TRY537.5 million) at an increasing contribution to the topline by 21.5% (18.8%)
    • 38.9% rise in Turkcell Superonline revenues to TRY309.4 million (TRY222.7 million)

Group revenues were negatively impacted by a one-off reimbursement in the amount of TRY26.4 million in relation to the ICTA regulation on limited usage services*. Furthermore, continued devaluation in Ukraine, as well as lower MTR rates and decreased SMS maximum price in the Turkish mobile market compared to a year ago also limited topline growth in this quarter.

Direct cost of revenues grew by 1.0% to TRY1,789.2 million (TRY1,771.3 million), while as a percentage of revenues declined to 61.2% (62.0%). This was mainly due to lower interconnect costs as a result of MTR cuts as opposed to the increase in other cost items as a percentage of revenues.
The table below presents the interconnect revenues and costs of Turkcell Turkey:

Million TRY   Q213   Q114   Q214   y/y %   q/q %
Interconnect revenues 345.8 253.7 281.2 (18.7%) 10.8%
as a % of revenues 14.9% 11.5% 12.2% (2.7pp) 0.7pp
Interconnect costs (330.9) (241.4) (262.7) (20.6%) 8.8%
as a % of revenues (14.3%) (11.0%) (11.4%) 2.9pp (0.4pp)

Administrative expenses as a percentage of revenues rose by 0.1pp to 4.6% (4.5%) year-on-year in Q214.

Selling and marketing expenses as a percentage of revenues grew by 0.5pp to 16.3% (15.8%) year-on-year in Q214 due to increased prepaid frequency usage fee expense (0.2p), wages and salaries (0.2pp) and other cost items (0.1pp).

EBITDA** increased by 4.3% to TRY907.0 million (TRY869.2 million) year-on-year, while the EBITDA margin rose to 31.0% (30.4%). This was driven by the decrease in direct cost of revenues (excluding depreciation and amortization) by 1.2pp as opposed to the increase in selling and marketing expenses by 0.5pp and the rise in administrative expenses by 0.1pp as a percentage of revenues. Meanwhile, the one-off item of TRY26.4 million discussed in the revenue section reduced EBITDA this quarter.

The EBITDA of subsidiaries improved by 15.8% to TRY197.9 million (TRY170.9 million) driven mainly by the increased EBITDA of Turkcell Superonline.

Net finance income declined by 66.4% to TRY46.6 million (TRY138.8 million), due to the TRY164.7 million translation loss recorded in Q214 as opposed to the translation gain of TRY11.8 million in Q213, despite the rise in interest income recorded on time deposits.
In Q214, Astelit recorded a translation loss of TRY107.2 million, stemming from the continued devaluation of the UAH against the US$ during the quarter. Meanwhile, BeST recorded a TRY40.9 million translation loss, while Turkcell Superonline recorded a TRY11.6 million and other group companies recorded a TRY3.0 million translation gain. Turkcell Turkey recorded a translation loss of TRY31.2 million. In total, Turkcell Group recorded a TRY164.7 million translation loss.

Share of profit of equity accounted investees comprising our share in the net income of unconsolidated investees Fintur and A-Tel, rose by 23.0% year-on-year to TRY73.8 million (TRY60.0 million).

(*)For details, please refer to our consolidated financial statements and notes as at and for June 30, 2014 under note 21 which can be accessed on our website.
(**)EBITDA is a non-GAAP financial measure. See page 12 for the reconciliation of EBITDA to net cash from operating activities.

Income tax expense details in Q214 are presented in the table below:

Million TRY   Q213   Q114   Q214   y/y %   q/q %
Current Tax expense (149.6) (174.0) (165.6) 10.7% (4.8%)
Deferred Tax Income/expense 3.7 13.8 (0.9) (124.3%) (106.5%)
Income Tax expense (145.9) (160.2) (166.5) 14.1% 3.9%

Net income declined by 11.5% to TRY492.3 million (TRY556.3 million) in Q214, mainly due to translation losses recorded during the quarter, despite higher EBITDA. Both in Q213 and Q214, net income was impacted by several one-off items. Excluding one-off items, net income in Q214 would be TRY612.2 million (TRY572.6 million).

In Q214, one-off items included administrative fines imposed by the Ministry of Industry and Trade in relation to service subscriptions and content sales, and by the Competition Board regarding vehicle tracking systems, as well as the reimbursement in relation to the ICTA regulation on limited usage services.

Net income impacts (million TRY)   Q213   Net income impacts (million TRY)   Q214
 
Net income excluding one-offs* 573 Net income excluding one-offs* 612
Impairment on Aks TV and T Medya** (25) Ministry of Industry and Trade fine*** (68)
Legal provisions** 9 Competition Board fine *** (30)
ICTA limited usage service reimbursement*** (21)
      MTR impact (net of tax) above EBITDA   (1)
Net income reported   556 Net income reported   492

(*) Net income excluding one-off impacts is a presentation of our net income, adjusted to exclude certain items that we consider to be exceptional. However, it should not be relied upon as comparable to reported net income prepared in accordance with the IFRS that we apply. Although we expect the specific items represented in this adjustment to be non-recurring, no assurance can be given that this will be the case and that we will not be affected by similar items in the future.
(**) For details, please refer to our consolidated financial statements and notes as at, and for June 30, 2013 under note 21, which can be accessed on our website.
(***) For details, please refer to our consolidated financial statements and notes as at, and for June 30, 2014 under note 21, which can be accessed on our website.

Total debt as of June 30, 2014 was at TRY3,459.9 million (US$1,629.4 million) which was at TRY3,515.5 million (US$1,605.4 million) as of March 31, 2014 in consolidated terms. The debt balance of Ukraine (including intra-group debt) was TRY1,418.2 million (US$667.9 million), while that of Belarus was TRY1,329.0 million (US$625.9 million), and of Turkcell Superonline was TRY787.1 million (US$370.7 million).
TRY2,752.3 million (US$1,296.2 million) of our consolidated debt is at a floating rate, while TRY2,348.3 million (US$1,105.9 million) will mature within less than a year. (Please note that the figures in parentheses refer to US$ equivalents).

Cash flow analysis: Capital expenditures, including non-operational items, amounted to TRY314.0 million in Q214, of which TRY173.9 million was related to Turkcell Turkey, TRY103.3 million to Turkcell Superonline, TRY12.0 million to Astelit and TRY3.3 million to BeST. The major cash outflow items in this quarter were capex and other items including corporate tax payment, payments of the fine imposed by the Competition Board and Ministry of Industry and Trade, advance payments for capex and the change in net working capital.

Consolidated Cash Flow (million TRY)   Q213   Q114   Q214
EBITDA1 869.2 887.3 907.0
LESS:
Capex and License (355.3) (340.4) (314.0)
Turkcell (208.0) (230.2) (173.9)
Turkcell Superonline (73.1) (69.7) (103.3)
Ukraine2 (20.6) (15.0) (12.0)
Investment & Marketable Securities (8.1) (22.7) 51.9
Net interest Income/ (expense) 127.0 205.4 211.2
Other (157.4) (973.2) (967.2)
Net Change in Debt (83.3) 103.8 38.9
Cash generated 392.1 (139.8) (72.2)
Cash balance 7,003.0 7,989.1 7,916.9

(1) EBITDA is a non-GAAP financial measurement. See page 12 for the reconciliation of EBITDA to net cash from operating activities.
(2) The impact from the movement of reporting currency (TRY) against US$ is included in this line.

Operational Review in Turkey

Summary of Operational data   Q213   Q114   Q214   y/y %   q/q %
Number of total subscribers (million) 34.7 34.8 34.6 (0.3%) (0.6%)
Postpaid 13.8 14.1 14.5 5.1% 2.8%
Prepaid 20.9 20.7 20.1 (3.8%) (2.9%)
ARPU, blended (TRY) 22.3 21.0 22.1 (0.9%) 5.2%
Postpaid 37.9 36.3 36.8 (2.9%) 1.4%
Prepaid 12.2 10.8 11.8 (3.3%) 9.3%
ARPU (Average Monthly Revenue per User), blended (US$) 12.1 9.5 10.4 (14.0%) 9.5%
Postpaid 20.6 16.3 17.3 (16.0%) 6.1%
Prepaid 6.6 4.8 5.6 (15.2%) 16.7%
Churn (%) 8.6% 7.8% 8.1% (0.5pp) 0.3pp
MoU (Average Monthly Minutes of usage per subscriber), blended 269.3 254.6 279.5 3.8% 9.8%

Subscribers of our mobile business in Turkey fell by 157 thousand in Q214 driven by losses in the prepaid segment in the continued aggressive competitive environment. Our postpaid subscriber base expanded by 404 thousand this quarter, mainly through switches and on the back of services that increase customer satisfaction. Accordingly, the share of our postpaid subscribers in the total subscriber base increased to 41.9% (39.8%).

Churn Rate refers to voluntarily and involuntarily disconnected subscribers. In Q214, our churn rate decreased to 8.1% (8.6%). Churn rate in Q213 was impacted by the ICTA decision enabling users of mobile lines without a subscription to register those lines under their names. Each subscription line registered due to this decision had to be recorded as a churn and also as an acquisition in operators’ records. Excluding the impact of this decision, the churn rate would have been 8.1% in Q213. Churn rate increased 0.3pp quarter-on-quarter due to seasonality.

ARPU declined by 0.9% to TRY22.1 (TRY22.3), impacted by the MTR cut. Excluding this impact, blended ARPU would have increased by 3.6% to TRY23.1 on the back of an increased postpaid subscriber base, increased mobile broadband revenues, and upsell to our customers.

MoU increased 3.8% year-on-year to 279.5 minutes (269.3 minutes) due to higher incentives and greater package utilization.

OTHER DOMESTIC AND INTERNATIONAL OPERATIONS

Astelit’s financial performance has been negatively impacted by the ongoing tough macroeconomic environment, which has led to year-on-year devaluation of 44% on average UAH/US$ rate. These conditions have led to a 25.9% decline in Astelit’s revenues to US$83.4 million (US$112.5 million), despite 6.9% growth in local currency terms year-on-year. EBITDA fell by 32.7% to US$24.1 million (US$35.8 million), while operational profitability declined by 2.9pp to 28.9% (31.8%). The EBITDA decline was also due to currency devaluation and increased radio frequency usage fees by approximately 1.6 times.

Yet, on the operational front, Astelit managed to record 220 thousand net additions during the quarter, reaching a 9.5 million three-month active subscriber base. Blended ARPU (3-month active) in dollar terms fell by 33.3% to US$3.0 (US$4.5) primarily due to the currency devaluation. Meanwhile, MoU declined by 8.5% to 168.8 minutes (184.4 minutes), mainly resulting from the change in consumer behavior as a consequence of the prevailing macroeconomic environment.

Astelit*   Q213   Q114   Q214   y/y %   q/q %
Number of subscribers (million)1 11.5 12.5 12.7 10.4% 1.6%
Active (3 months)2 8.6 9.3 9.5 10.5% 2.2%
MoU (minutes) 184.4 167.1 168.8 (8.5%) 1.0%
ARPU (Average Monthly Revenue per User), blended (US$) 3.3 2.6 2.2 (33.3%) (15.4%)
Active (3 months) 4.5 3.6 3.0 (33.3%) (16.7%)
Revenue (million UAH) 898.9 899.5 961.0 6.9% 6.8%
Revenue (million US$) 112.5 99.0 83.4 (25.9%) (15.8%)
EBITDA (million US$)3 35.8 31.5 24.1 (32.7%) (23.5%)
EBITDA margin 31.8% 31.9% 28.9% (2.9pp) (3.0pp)
Net loss (million US$) (9.5) (213.1) (59.4) 525.3% (72.1%)
Capex (million US$) 10.6 6.9 5.9 (44.3%) (14.5%)

(*) Astelit, in which we hold a 55% stake through Euroasia, has operated in Ukraine since February 2005.
(1) We may occasionally offer campaigns and tariff schemes that have an active subscriber life differing from the one that we normally use to deactivate subscribers and calculate churn.
(2) Active subscribers are those who in the past three months made a revenue generating activity.
(3) EBITDA is a non-GAAP financial measurement. See page 12 for the reconciliation of Euroasia’s EBITDA to net cash from operating activities. Euroasia holds a 100% stake in Astelit.

Turkcell Superonline sustained its solid financial performance registering 38.9% revenue growth along with a 30.2% EBITDA rise. The EBITDA margin was at 24.4% (26.1%). This quarter, Turkcell Superonline incurred some initial operational costs related to new long-term projects set to generate revenues in the upcoming quarters.

Turkcell Superonline’s total subscriber base (including ADSL subscribers) has exceeded the 1 million milestone with 90 thousand net additions in the quarter. FTTH subscriber base1 reached 653 thousand with 39 thousand net rise during Q2 2014.

Residential segment revenues grew by 54%, while corporate segment revenues rose by 37% with further synergies at the group level year-on-year. Accordingly, the share of residential and corporate segment revenues in total revenues reached 66% (62%). Meanwhile, the share of non-group revenues reached 78% (75%).

Turkcell Superonline has continued to invest in its fiber network and has increased home pass2 figure to 1.9 million.

Turkcell Superonline (million TRY)*   Q213   Q114   Q214   y/y %   q/q %
Revenue 222.7 279.7 309.4 38.9% 10.6%
Residential 78.3 109.0 120.6 54.0% 10.6%
% of revenues 35.2% 39.0% 39.0% 3.8pp -
Corporate 60.2 72.9 82.5 37.0% 13.2%
% of revenues 27.0% 26.1% 26.7% (0.3pp) 0.6pp
Wholesale 84.2 97.8 106.3 26.2% 8.7%
% of revenues 37.8% 35.0% 34.4% (3.4pp) (0.6pp)
EBITDA 3 58.0 74.6 75.5 30.2% 1.2%
EBITDA Margin 26.1% 26.7% 24.4% (1.7pp) (2.3pp)
Capex 73.1 69.7 103.3 41.3% 48.2%
FTTH subscribers 498.8 614.0 652.5 30.8% 6.3%

(*)Turkcell Superonline is our wholly-owned subsidiary, providing fiber broadband.
(1) FTTH subscriber base refers to residential, corporate and wholesale fiber subscribers.
(2) Home passes figure refers to the total of home passes and office passes figures.
(3) EBITDA is a non-GAAP financial measure. See page 12 for the reconciliation of EBITDA to net cash from operating activities.

Fintur’s subscriber base decreased by 0.6 million during the quarter, resulting from KCell’s subscriber decline of 609 thousand, mainly due to a clean-up of 762 thousand subscribers. Fintur’s consolidated revenues declined by 7.9% mostly in light of the decline in KCell’s revenues on devaluation of the Kazakhstani Tenge (KZT) against the US$. Meanwhile, Fintur’s contribution to net income increased by 6.1% to US$35 million (US$33 million) year-on-year.

Fintur   Q213   Q114   Q214   y/y %   q/q %
Subscribers (million) 21.5 20.7 20.1 (6.5%) (2.9%)
Kazakhstan 14.1 13.5 12.9 (8.5%) (4.4%)
Azerbaijan 4.4 4.3 4.3 (2.3%) -
Moldova 1.2 1.0 1.0 (16.7%) -
Georgia 1.8 1.8 1.9 5.6% 5.6%
Revenue (million US$) 508 432 468 (7.9%) 8.3%
Kazakhstan 306 259 274 (10.5%) 5.8%
Azerbaijan 149 124 144 (3.4%) 16.1%
Moldova 20 17 18 (10.0%) 5.9%
Georgia 34 31 32 (5.9%) 3.2%
Fintur’s contribution to Group’s net income 33 33 35 6.1% 6.1%

(*) We hold a 41.45% stake In Fintur, which has interests in Kazakhstan, Azerbaijan, Moldova and Georgia.

Turkcell Group Subscribers amounted to approximately 69.5 million as of June 30, 2014. This figure is calculated by taking the number of subscribers of Turkcell and each of our subsidiaries and unconsolidated investees. It includes the total number of mobile subscribers of Turkcell Turkey, Astelit and BeST, as well as of our operations in the Turkish Republic of Northern Cyprus (“Northern Cyprus”), Fintur and Turkcell Europe. Turkcell Group subscribers declined by 0.6 million during the quarter.

Turkcell Group Subscribers (million)   Q213   Q114   Q214   y/y %   q/q %
Turkcell 34.7 34.8 34.6 (0.3%) (0.6%)
Ukraine 11.5 12.5 12.7 10.4% 1.6%
Fintur 21.5 20.7 20.1 (6.5%) (2.9%)
Northern Cyprus 0.4 0.4 0.4 - -
Belarus 1.0 1.3 1.3 30.0% -
Turkcell Europe 0.4 0.4 0.4 - -
TURKCELL GROUP 69.5 70.1 69.5 - (0.9%)

OVERVIEW OF THE MACROECONOMIC ENVIRONMENT

The foreign exchange rates used in our financial reporting, along with certain macroeconomic indicators, are set out below.

  Q213   Q114   Q214   y/y %   q/q %
US$ / TRY rate
Closing Rate 1.9248 2.1898 2.1234 10.3% (3.0%)
Average Rate 1.8427 2.2253 2.1221 15.2% (4.6%)
Consumer Price Index (Turkey) 1.3% 3.6% 2.1% 0.8pp (1.5pp)
GDP Growth (Turkey) 4.5% 4.3% n.a. n.a. n.a.
US$ / UAH rate
Closing Rate 7.99 10.95 11.82 47.9% 7.9%
Average Rate 7.99 9.15 11.52 44.2% 25.9%
US$ / BYR rate
Closing Rate 8,790 9,870 10,200 16.0% 3.3%
Average Rate 8,687 9,697 10,035 15.5% 3.5%

RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS: We believe that EBITDA is a measurement commonly used by companies, analysts and investors in the telecommunications industry that enhances the understanding of our cash generation ability and liquidity position, and assists in the evaluation of our capacity to meet our financial obligations. We also use EBITDA as an internal measurement tool, and accordingly, we believe that its presentation provides useful and relevant information to analysts and investors. Our EBITDA definition includes Revenue, Direct Cost of Revenue excluding depreciation and amortization, Selling and Marketing expenses and Administrative expenses, but excludes translation gain/(loss), finance income, share of profit of equity accounted investees, gain on sale of investments, income/(loss) from related parties, minority interest and other income/(expense). EBITDA is not a measure of financial performance under IFRS, and should not be construed as a substitute for net earnings (loss) as a measure of performance, or cash flow from operations as a measure of liquidity. The following table provides a reconciliation of EBITDA, which is a non-GAAP financial measurement, to net cash from operating activities, which we believe is the most directly comparable financial measurement calculated and presented in accordance with IFRS.

Turkcell (million US$)   Q213   Q114   Q214   y/y %   q/q %
EBITDA 471.5 399.2 427.8 (9.3%) 7.2%
Income tax expense (79.2) (72.1) (78.5) (0.9%) 8.9%
Other operating income / (expense) 0.4 (2.1) (45.1) n.m. n.m.
Financial income / (expense) (12.9) (16.2) 28.4 (320.2%) (275.3%)
Net increase / (decrease) in assets and liabilities (82.9) (386.7) (169.2) 104.1% (56.2%)
Net cash from operating activities 296.9 (77.9) 163.4 (45.0%) (309.8%)
Turkcell Superonline (million TRY)   Q213   Q114   Q214   y/y %   q/q %
EBITDA 58.0 74.6 75.5 30.2% 1.2%
Income tax expense 2.6 (1.6) (7.9) (403.8%) 393.8%
Other operating income / (expense) 0.3 0.4 1.7 466.7% 325.0%
Financial income / (expense) (12.0) (18.3) 5.0 (141.7%) (127.3%)
Net increase / (decrease) in assets and liabilities (54.3) (63.1) 15.7 (128.9%) (124.9%)
Net cash from operating activities (5.4) (8.0) 90.0 n.m. n.m.
Euroasia (million US$)   Q213   Q114   Q214   y/y %   q/q %
EBITDA 35.8 31.5 24.1 (32.7%) (23.5%)
Other operating income / (expense) 0.1 0.8 (0.5) (600.0%) (162.5%)
Financial income / (expense) (15.1) (14.5) (13.8) (8.6%) (4.8%)
Net increase / (decrease) in assets and liabilities 12.2 (1.3) 7.7 (36.9%) (692.3%)
Net cash from operating activities 33.0 16.5 17.5 (47.0%) 6.1%

FORWARD-LOOKING STATEMENTS: This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act 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 and capex in 2014. 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. In addition, 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”.

Although Turkcell believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to be correct. 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 2013 filed with the U.S. Securities and Exchange Commission, and in particular the risk factor section therein. We undertake no duty to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

ABOUT TURKCELL: Turkcell is the leading communications and technology company in Turkey, with 34.6 million subscribers as of June 30, 2014. Turkcell is a leading regional player with its approximately 69.5 million subscribers in nine countries as of June 30, 2014. It has become one of the first among the global operators to have implemented HSPA+. It has achieved up to 43.2 Mbps speed using the Dual Carrier technology, and is continuously working to provide the latest technology to its customers. Turkcell Superonline, a wholly owned subsidiary of Turkcell, is the first telecom operator to offer households fiber broadband connection at speeds of up to 1,000 Mbps in Turkey. As of March 2014, Turkcell’s population coverage is at 99.49% in 2G and 86.37% in 3G. Turkcell reported a TRY2.9 billion (US$1.4 billion) revenue with total assets of TRY21.8 billion (US$10.3 billion) as of June 30, 2014. It has been listed on the NYSE and the BIST since July 2000, and is the only NYSE-listed company in Turkey. Read more at www.turkcell.com.tr

  TURKCELL ILETISIM HIZMETLERI A.S.

CMB SELECTED FINANCIALS (TRY Million)

                 
Quarter Ended   Quarter Ended   Quarter Ended   Half Ended   Half Ended
June 30, March 31, June 30, June 30, June 30,

2013

2014

2014

2013

2014

 
 
Consolidated Statement of Operations Data
Revenues
Communication fees 2,585.1 2,496.0 2,551.8 5,015.7 5,047.8
Commission fees on betting business 50.9 76.2 67.1 105.2 143.3
Monthly fixed fees 19.3 16.7 14.4 39.5 31.1
Simcard sales 7.3 6.5 7.0 13.7 13.5
Call center revenues and other revenues 192.6 259.8 282.7 369.5 542.5
Total revenues 2,855.2 2,855.2 2,923.0 5,543.6 5,778.2
Direct cost of revenues -1,769.8   -1,740.9   -1,788.7   -3,455.5   -3,529.6
Gross profit 1,085.4 1,114.3 1,134.3 2,088.1 2,248.6
Administrative expenses -128.9 -142.1 -135.8 -257.9 -277.9
Selling & marketing expenses -452.5 -483.1 -477.2 -877.5 -960.3
Other Operating Income / (Expense) 398.5   255.9   104.3   610.1   360.2
Operating profit before financing and investing costs 902.5 745.0 625.6 1,562.8 1,370.6
Income from investing activities 9.9 4.9 8.0 15.2 12.9
Expense from investing activities -31.1 -10.8 -5.1 -32.6 -15.9
Share of profit of equity accounted investees 60.0   73.6   73.8   128.6   147.4
Income before financing costs 941.3 812.7 702.3 1,674.0 1,515.0
Finance income 0.0
Finance expense -258.9 -556.7 -152.8 -345.2 -709.5
Monetary gain/(loss) 20.3   64.5   60.0   73.8   124.5
Income before tax and non-controlling interest 702.7 320.5 609.5 1,402.6 930.0
Income tax expense -146.1   -160.6   -166.4   -283.5   -327.0
Income before non-controlling interest 556.6 159.9 443.1 1,119.1 603.0
Non-controlling interest 1.5   200.7   49.6   5.9   250.3
Net income 558.1 360.6 492.7 1,125.0 853.3
 
Net income per share 0.25 0.16 0.22 0.51 0.39
 
Other Financial Data
 
Gross margin 38.0% 39.0% 38.8% 37.7% 38.9%
EBITDA(*) 869.2 887.3 907.0 1,676.8 1,794.3
Capital expenditures 355.3 340.4 314.0 554.8 654.4
 
Consolidated Balance Sheet Data (at period end)
Cash and cash equivalents 7,003.0 7,989.1 7,916.9 7,003.0 7,916.9
Total assets 19,522.9 21,480.5 21,740.1 19,522.9 21,740.1
Long term debt 1,500.9 1,363.5 1,111.6 1,500.9 1,111.6
Total debt 3,120.0 3,515.5 3,459.9 3,120.0 3,459.9
Total liabilities 5,771.3 6,478.1 6,217.6 5,771.3 6,217.6
Total shareholders’ equity / Net Assets 13,751.6 15,002.4 15,522.5 13,751.6 15,522.5
 
 
** For further details, please refer to our consolidated financial statements and notes as at 30 June 2014 on our web site.
  TURKCELL ILETISIM HIZMETLERI A.S.

IFRS SELECTED FINANCIALS (TRY Million)

                 
Quarter Ended   Quarter Ended   Quarter Ended   Half Ended   Half Ended
June 30, March 31, June 30, June 30, June 30,

2013

2014

2014

2013

2014

 
 
Consolidated Statement of Operations Data
Revenues
Communication fees 2,585.1 2,496.0 2,551.8 5,015.7 5,047.8
Commission fees on betting business 50.9 76.2 67.1 105.2 143.3
Monthly fixed fees 19.3 16.7 14.4 39.5 31.1
Simcard sales 7.3 6.5 7.0 13.7 13.5
Call center revenues and other revenues 192.6 259.8 282.7 369.5 542.5
Total revenues 2,855.2 2,855.2 2,923.0 5,543.6 5,778.2
Direct cost of revenues -1,771.3   -1,742.3   -1,789.2   -3,458.6   -3,531.5
Gross profit 1,083.9 1,112.9 1,133.8 2,085.0 2,246.7
Administrative expenses -129.0 -142.1 -135.8 -257.9 -277.9
Selling & marketing expenses -452.5 -483.1 -477.2 -877.5 -960.3
Other Operating Income / (Expense) -20.8   -3.5   -92.0   -21.1   -95.5
 
Operating profit before financing costs 481.6 484.2 428.8 928.5 913.0
Finance costs -30.6 -551.9 -211.3 -68.0 -763.2
Finance income 169.4 248.6 257.9 336.1 506.5
Monetary gain/(loss) 20.3 64.5 60.0 73.8 124.5
Share of profit of equity accounted investees 60.0   73.6   73.8   128.6   147.4
Income before taxes and minority interest 700.7 319.0 609.2 1,399.0 928.2
Income tax expense -145.9   -160.2   -166.5   -283.0   -326.7
Income before minority interest 554.8 158.8 442.7 1,116.0 601.5
Non-controlling interests 1.5   200.7   49.6   5.9   250.3
Net income 556.3   359.5   492.3   1,121.9   851.8
 
Net income per share 0.25 0.16 0.22 0.51 0.39
 
Other Financial Data
 
Gross margin 38.0% 39.0% 38.8% 37.6% 38.9%
EBITDA(*) 869.2 887.3 907.0 1,676.8 1,794.3
Capital expenditures 355.3 340.4 314.0 554.8 654.4
 
Consolidated Balance Sheet Data (at period end)
Cash and cash equivalents 7,003.0 7,989.1 7,916.9 7,003.0 7,916.9
Total assets 19,553.7 21,508.1 21,767.2 19,553.7 21,767.2
Long term debt 1,500.9 1,363.5 1,111.6 1,500.9 1,111.6
Total debt 3,120.0 3,515.5 3,459.9 3,120.0 3,459.9
Total liabilities 5,776.4 6,482.4 6,221.8 5,776.4 6,221.8
Total shareholders’ equity / Net Assets 13,777.3 15,025.6 15,545.4 13,777.3 15,545.4
 
 
** For further details, please refer to our consolidated financial statements and notes as at 30 June 2014 on our web site.
  TURKCELL ILETISIM HIZMETLERI A.S.

IFRS SELECTED FINANCIALS (US$ MILLION)

                 
Quarter Ended   Quarter Ended   Quarter Ended   Half Ended   Half Ended
June 30, March 31, June 30, June 30, June 30,

2013

2014

2014

2013

2014

 
 
Consolidated Statement of Operations Data
Revenues
Communication fees 1,401.5 1,122.5 1,203.5 2,761.8 2,326.0
Commission fees on betting business 27.8 34.3 31.5 58.2 65.8
Monthly fixed fees 10.5 7.5 6.8 21.8 14.3
Simcard sales 4.0 2.9 3.3 7.6 6.2
Call center revenues and other revenues 104.1 116.8 133.6 203.0 250.4
Total revenues 1,547.9 1,284.0 1,378.7 3,052.4 2,662.7
Direct cost of revenues -959.3   -783.6   -843.9   -1,903.5   -1,627.5
Gross profit 588.6 500.4 534.8 1,148.9 1,035.2
Administrative expenses -69.8 -63.9 -64.1 -141.9 -128.0
Selling & marketing expenses -245.5 -217.1 -225.0 -483.2 -442.1
Other Operating Income / (Expense) -10.9   -1.5   -43.3   -11.1   -44.8
 
Operating profit before financing costs 262.4 217.9 202.4 512.7 420.3
Finance costs -15.4 -246.6 -99.7 -36.2 -346.3
Finance income 92.6 111.7 121.1 185.9 232.8
Monetary gain/(loss) 8.7 29.5 29.2 38.3 58.7
Share of profit of equity accounted investees 32.4   33.1   34.8   70.7   67.9
Income before taxes and minority interest 380.7 145.6 287.8 771.4 433.4
Income tax expense -79.2   -72.1   -78.5   -155.9   -150.6
Income before minority interest 301.5 73.5 209.3 615.5 282.8
Non-controlling interests 0.8   89.4   23.2   3.3   112.6
Net income 302.3   162.9   232.5   618.8   395.4
 
Net income per share 0.14 0.07 0.11 0.28 0.18
 
Other Financial Data
 
Gross margin 38.0% 39.0% 38.8% 37.6% 38.9%
EBITDA(*) 471.5 399.2 427.8 923.6 827.0
Capital expenditures 177.9 155.4 152.8 288.2 308.2
 
Consolidated Balance Sheet Data (at period end)
Cash and cash equivalents 3,638.3 3,648.3 3,728.4 3,638.3 3,728.4
Total assets 10,158.8 9,821.9 10,251.1 10,158.8 10,251.1
Long term debt 779.8 622.7 523.5 779.8 523.5
Total debt 1,620.9 1,605.4 1,629.4 1,620.9 1,629.4
Total liabilities 3,001.1 2,960.3 2,930.1 3,001.1 2,930.1
Total equity 7,157.8 6,861.6 7,321.0 7,157.8 7,321.0
 
 
* Please refer to the notes on reconciliation of Non-GAAP Financial measures on page 12
** For further details, please refer to our consolidated financial statements and notes as at 30 June 2014 on our web site.

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