Turkcell Iletisim Hizmetleri A.S. (TCELL) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell Second Quarter 2026 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed.

Thank you, Geli. Good evening, everyone, and welcome to Turkcell's 2026 second quarter earnings call. Before we begin, I would like to kindly remind you to review our safe harbor statement, which is available at the end of our presentation. Our earnings release and today's presentation are available on our Investor Relations website. Our CEO, Mr. Ali Taha Koc, will begin with an overview of our business performance followed by our CFO, Mr. Kamil Kalyon, who will take you through our financial results. After the presentation, we will open the line for your questions. It's now my pleasure to hand over to our CEO, Mr. Ali Taha Koc.

Thank you very much, Yardim. Good evening, everyone. Welcome to Turkcell's second quarter 2026 results call. Today, I will take you through our operational and strategic performance for the quarter. After my remarks, Kamil will cover the financial results in more detail, and then we will be happy to take your questions. The key message this quarter is clear. We continue to deliver real growth in a challenging environment. Macro conditions remain demanding with inflation still above 30%. We keep on delivering real revenue growth for the eighth consecutive quarter, supported by disciplined pricing, continued postpaid additions and improved churn. And our strategic growth areas, Digital Business Services, Fixed Wireless Access, FWA, data centers, TV and Techfin took another step forward. Throughout all these slides, you will see one consistent story, disciplined, value-focused execution. Let's begin with the numbers. Group revenue reached TRY 71.8 billion, up 2.5% year-on-year. I want to underline this. With inflation at 32%, this is genuine real growth, driven by consistent pricing actions and healthy commercial momentum across our businesses. EBITDA was TRY 30 billion with a margin of 41.8% and net income was TRY 5.2 billion. Our profitability continues to reflect the strength of our disciplined operations and balanced capital allocation approach. On the operational side, momentum was strong across the board. We added 284,000 postpaid subscribers in a single quarter. Turkcell Fiber business added 31,000 net subscribers. Mobile ARPU was realized at TRY 448, while residential fiber ARPU reached TRY 570. Techfin revenue was up 7% to TRY 4.1 billion. Digital Business Services revenue grew 33% to TRY 8.7 billion. Data center and cloud revenue increased 10% to TRY 1.6 billion and Superbox, our Fixed W Access technology added 64,000 subscribers. These businesses are becoming core engines of Turkcell's growth and reinforce our strategy of building a more diversified and resilient business model. Now let me go deeper into each business, starting with mobile business. Our mobile business delivered an outstanding quarter. We crossed the 40 million mobile subscriber milestone for the first time in Turkcell's history. This is a testament to the strength of our network, our brand and our commercial execution. Our postpaid base reached 32.5 million subscribers, driven by 284,000 net additions in the quarter and 2.4 million over the last 12 months. Prepaid performance remained broadly stable this quarter, as we successfully continue the transition of our mix towards postpaid, which now accounts for 81% of our mobile base. This mix shift is significant as postpaid customers deliver higher lifetime value through lower churn and multiservice adoption. Churn tells the same compelling story. Monthly average churn improved to 1.6%, down significantly from a year ago. Strong net additions combined with declining churn proved one thing. Customers are choosing Turkcell with long-term loyalty. On pricing, mobile ARPU, excluding M2M, grew 27% year-on-year. Given the predominantly contractual nature of our postpaid base, pricing actions are gradually reflected in ARPU as contracts renew. Our strategy remains consistent. We take disciplined pricing actions to sustain real revenue growth, supported by our strong brand and superior service quality. One of the most dynamic drivers of our connectivity business today is Fixed Wireless Access. Let me now turn to our FWA performance. Superbox is our Fixed Wireless Access, FWA offering, which we view as the next wave of growth in home Internet. We are the undisputed market leader with a 74% share of the FWA, Fixed Wireless Access market. After a soft start to 2025, growth has accelerated for 4 consecutive quarters. We added 64,000 subscribers this quarter alone, expanding our total Superbox base to 818,000. The strong momentum we are building here is particularly encouraging. Looking ahead, 5G will act as a catalyst. Superbox, our FWA offering delivers fast, reliable plug-and-play home Internet today, and 5G will elevate that experience to an entirely new level, further accelerating market demand. Superbox enables us to capture broadband demand quickly and efficiently, while working hand-in-hand with our fiber strategy. And fiber remains the backbone of that strategy. Let's move to fixed broadband. Our fixed broadband strategy is straightforward, grow on our own fiber, price with discipline and deliver a premium service and experience. Turkcell Fiber reached 2.6 million subscribers with 31,000 net additions in the quarter and 138,000 over the last 12 months. We continue to increase the share of customers served through our own fiber infrastructure, reaching 80%, up 3 percentage points year-on-year. The increase reflects our sharp focus on expanding the highest value part of our fiber business. The strength of our fiber business goes beyond scale, reflecting the quality of our subscriber base. 88% of our residential fiber subscribers are on 12-month contracts, while monthly churn improved to 1.1%. Together, these metrics provide exceptional revenue visibility and reinforce the resilience of our fiber business. On pricing, residential fiber ARPU grew 37% year-on-year, outpacing the inflation rate. Combined with continued improvements in churn, these results demonstrate the strength of our fiber proposition and the value customers place on our service. At the same time, we continue to expand in Türkiye with strong discipline. We passed 194,000 new homes in this quarter, bringing total home passes to 6.7 million across 31 different cities with a take-up rate of 41%. Take-up rate is one of the metrics we track closely, as it demonstrates that we are expanding where demand is strongest. Connectivity also opens the door to our digital customer services, starting with TV+. TV+ now serves 2.7 million subscribers. Subscriber momentum continues to gather pace throughout the year. Net additions increased from 62,000 in the fourth quarter of last year to 106,000 in the first quarter of this year and accelerated further to 123,000 this quarter. Content is a key driver of the TV business. Our strategic partnership with HBO Max launched in November has significantly enriched our content offering and resonated well with customers. As a result, viewing time increased by 14% quarter-on-quarter and 64% year-on-year. TV+ is about more than just the numbers of subscribers. It strengthens engagement across our ecosystem. Users that actively use TV+ interact with Turkcell more frequently, adopt more of our services and build deeper, longer-lasting relationships with us. Now let's move to our fastest-growing part of the group, Digital Business Services. Digital Business Services delivered an outstanding quarter with revenue up 33% year-on-year to TRY 8.7 billion. This strong performance reflects the depth, scalability and market strength of the digital infrastructure platform we have built over the years. Today, our data center footprint spans 4 different locations: Kocaeli, Ankara, Tekirdag and Izmir. Following the activation of a new module during the quarter, our active IT capacity reached 54 megawatts. We are now taking this platform to the next level. Construction of hyperscale data center facilities dedicated to Google Cloud's Türkiye region in Ankara is underway. A partnership of this caliber is a strong endorsement of the quality of our infrastructure and further strengthens Turkcell's position at the center of Türkiye's digital transformation. Including our hyperscale data center investments, our total investment amount reached EUR 612 million. As of Q2, data center and cloud represent 2.3% of our group revenues. While still a developing revenue stream today, we see this business as one of Turkcell's most promising long-term growth platforms. Growth in system integration was supported by both hardware and services. More importantly, we entered the second half of the year with more than 1,500 new contracts and a system integration backlog of TRY 16 billion. This contracted backlog provides exceptional revenue visibility and reinforces our confidence in the sustainability of future growth. Finally, let me turn to our Techfin businesses, another critical pillar of the Turkcell ecosystem. Our Techfin businesses contributed 6% of the group revenue this quarter and continue to strengthen the diversity of our earnings base. Paycell delivered another strong quarter, with revenue increasing 22% year-on-year to TRY 2.4 billion. Pay Later transaction volume surged 84%, while POS transaction volume grew 67%. Consequently, total payment volume across the Paycell ecosystem reached TRY 39 billion during this quarter. Paycell now serves 6.8 million active users across a broad range of everyday payment services, while the ongoing expansion of our POS solution is further strengthening our merchant ecosystem. Together, these customer and merchant capabilities continue to reinforce the scale and the resilience of our payment platform. At Financell, our focus remains firm on profitability and portfolio quality. These efforts resulted in a significant improvement in net interest margin, while increased from 4.5% to 7.8%, while the cost of risk remained well under control at 3.4%. Revenue was 12% lower year-on-year, reflecting our disciplined approach to portfolio management. Financell continues to lead the consumer finance market with a 43% market share by number of loans. Our 16.1 million pre-approved credit customers provide significant potential for future growth. As we close the quarter, one key message stands out. Our core connectivity business continues to perform with resilience, while the businesses we have been investing in and are becoming increasingly important drivers of our growth and profitability. We remain committed to executing our strategy with discipline, investing in high-return, long-term growth while continuously enhancing operating margins. Before I conclude, let me briefly touch on our outlook. Since the beginning of the year, the macroeconomic environment has evolved, and we now anticipate year-end inflation to settle around 28% compared with our previous assumptions of 23%. Even with this revised inflation assumption, our financial guidance remains unchanged. Finally, I want to express my sincere gratitude to the entire Turkcell team. Their dedication and commitment are behind every achievement we have shared today. With that, I will hand it over to Kamil for a more detailed review of our financial results.

Thank you, Ali Taha bey. Let me now take you through our financial results. During the second quarter, inflation proved more persistent than anticipated with regional geopolitical tensions adding further pressure to the macro outlook. Despite these headwinds, delivering positive real growth clearly underscores the inherent stability of our business model. This performance is a direct result of our strong brand equity, disciplined pricing strategy and solid commercial momentum across every segment. Simply put, these results give us full confidence in the quality and long-term sustainability of our growth trajectory. Turning to our financial performance in this environment. We generated TRY 71.8 billion in revenues, marking an impressive 2.5% year-on-year growth. Turkcell Türkiye continued to drive group expansion, delivering TRY 1 billion in incremental revenue with accelerated momentum across the corporate segment played a pivotal role in supporting this performance. On the profitability side, I want to highlight our deliberate strategy around 5G. As the clear leader at every stage of the 5G transition, we intentionally stepped up our marketing investments this quarter to further solidify customer adoption and translate our 5G leadership into long-term commercial value. Even when measured against an exceptionally strong comparable base, we delivered a healthy EBITDA margin of 41.8%, which sits fully in line with our full year expectations. Next slide, please. Moving on to net income. I would like to briefly outline the key dynamics shaping our financial performance this quarter. Following the commercial launch of 5G, depreciation of the associated assets commenced this quarter. Roughly half of the year-on-year increase in depreciation is attributable to the 5G license. As expected, the resulting increase in depreciation impacted the bottom line, while marking an important transition as our 5G investments moved into active deployment and monetization. This impact was partially offset by higher monetary gains associated with the capitalization of the 5G license compared with the same period last year. Despite the year-on-year increase in our net debt position, our active treasury management continued to deliver tangible benefits. Excluding FX effects, we generated higher financial income while reducing financial expenses with both contributing positively to our bottom line year-on-year. Moving to our Equity Accounted Investments. TOGG in which we are proud to be a founding shareholder, continued to scale its operations during the quarter. As the business matures, the heavy start-up losses of its early years have now largely normalized, delivering a more favorable contribution to the group year-on-year. On the tax side, our tax expense was significantly lower year-on-year, supported by the fixed asset revaluation effect and tax incentives tied to our growing data center business, leading to a meaningful improvement in our effective tax rate. Bringing all these factors together, we delivered a strong bottom line performance, translating into a net income of TRY 5.2 billion. Next, I'd like to walk you through the main drivers behind our net FX loss. Before discussing this quarter's FX impact, let me first emphasize that we continue to manage both FX and interest rate risk proactively with a disciplined approach that balances risk, hedging costs and financial returns. On the borrowing side, the [ USD 1 billion ] Murabaha facility we secured last quarter increased the FX component of our debt portfolio. This exposure is largely balanced by our sizable FX-denominated cash and financial assets, which provide a natural offset against of our FX liabilities. At the same time, we actively manage these assets under our treasury strategy to optimize returns while maintaining a disciplined approach to FX risk. Another factor contributing to the FX impact this quarter was our remaining 5G license installments. With 2 payments still outstanding, these obligations remain subject to FX revaluation. Furthermore, the accelerated pace of TRY depreciation compared to previous periods has naturally added to our reported FX expenses. We constantly evaluate alternative hedging strategies. However, under current market dynamics, the cost of fully hedging our FX exposure remains elevated. We believe our current approach strikes an effective balance between managing FX risk and maintaining cost efficiency. Finally, it is essential to evaluate our finance expenses holistically rather than focusing solely on reported FX loss. As part of our proactive liquidity management, we utilize FX swaps to convert hard currency liquidity into Turkish lira and deploy the resulting funds into high-yielding money market instruments and deposits. While the cost of these transactions is recognized as FX losses for accounting purposes, the resulting Turkish lira liquidity generates meaningful interest income, which is recorded separately and therefore, is not captured in the FX loss line. Therefore, the reported FX loss should not be viewed in isolation as it captures only one component of the broader economic outcome of our treasury strategy. Next slide, please. Turning to our investments. Our operational CapEx to sales ratio stood at 25% in the second quarter, bringing our first half ratio to 23.2%. We allocated the 81% of our operational CapEx directly to our core business, primarily supporting 5G network rollout and the continuous expansion of our fiber infrastructure. During the quarter, we added 194,000 new fiber home passes, expanding our total footprint to 6.7 million. Meanwhile, the fiberization rate of our base stations reached 47.5%, further strengthening the quality and the resilience of our integrated network. Beyond our core telecom infrastructure, we continue to expand our renewable energy portfolio. In April, we acquired a 12.1 megawatt solar power plant in Mersin, bringing our active solar generation capacity to 74.4 megawatts. We expect this capacity to increase further over the coming quarters as projects currently under the development become operational. We also made further progress in our data center investments. We activated the final module of our Ankara data centers and broke ground on the data center infrastructure supporting the Google Cloud region in Türkiye. With these investment milestones covered, let me now turn to our balance sheet position. Turning to our balance sheet. Our financial position remains strong with cash and cash equivalents reaching TRY 89 billion at quarter end. Our cash position remained resilient compared to year-end 2025, despite significant planned cash outflows, including the first 5G license installment, the annual wireless usage fee and bonus payments. The Murabaha financing completed during the period further strengthened our liquidity position and provided additional financial flexibility. We remain focused on proactive liquidity management, balancing efficient funding with the preservation of a strong balance sheet. As anticipated, these planned cash outflows resulted in net debt of TRY 44 billion. Importantly, our leverage ratio remained very low at just 0.4x, well within our comfort zone and among the strongest levels in our peer group. Looking ahead, our robust liquidity fully covers all remaining 5G license obligations and debt maturities over the next 4 years. Next, let's take a closer look at our FX exposures. Finally, let me touch upon our foreign currency risk management. As part of our proactive treasury strategy, we selectively used FX swaps to optimize returns on our cash balances, converting a portion of our hard currency liquidity into Turkish lira to benefit from attractive TRY yields. At the same time, we maintained a substantial portion of our cash in hard currencies, providing a natural hedge against our FX liabilities. At quarter end, 60% of our cash was held in hard currencies, while 87% of our financial debt was denominated in hard currencies. At the end of second quarter, we had USD 4.3 billion equivalent of FX denominated financial liabilities, balanced by USD 2.6 billion equivalent of FX denominated financial assets and effective hedging portfolio of USD 1.2 billion. The year-on-year increase in FX liabilities primarily reflects our 5G license obligations and related investments, the expansion of our data center capacity and the BOTAS tender, all directly linked to the execution of our long-term investment strategy. As a result, our net short FX position remained comfortably within our medium-term target range of plus or minus USD 1.5 billion. With that, I will hand the call back to the operator, and we would be happy to take your questions. Thank you very much.

[Operator Instructions] The first question is from the line of Cesar Tiron with Bank of America.

Congratulations on the results. I have 3 questions. Sorry about that. The first one is very easy. Just wanted to understand what would be the drivers that would help you reaccelerate growth in the second part of the year so that it's more in line with the guidance you provided. I'm talking about revenue growth. The second question, I would like to understand a little bit better why the margins at Paycell and Financell are so volatile. So for example, if I look at the Paycell margins, there was a 5.5% decrease this quarter versus last year. To the opposite, the Financell margins increased by almost 20 percentage points. So I'd like to understand that a little bit better. And then the third question is on the CapEx. We've seen, I think, your key competitor increasing slightly CapEx guidance in light with the FX volatility and that high inflation. Are you still comfortable with your current CapEx guidance?

Thank you very much. I will start from the third question. Yes, we are still confident about to reach our guidance in the CapEx side, even if there would be, how can I say, FX increases. As you know, coming from history, we are very disciplined about the CapEx spending side. Therefore, we will be carefully -- we carefully spending our money, and we think that we do not expect more deviation in the CapEx guidance side. In the second question, Paycell side, I think last 2 years period in Paycell, we are focusing on the POS solutions in physical POS solutions and the other side. Therefore, the profitability of these transactions a little bit eroding the Paycell's EBITDA margin, while we have a very important amount of growth in the Paycell side. But sometimes these POS transactions can be a little bit erode the EBITDA. But in totally, we are very happy to see the performance of the Paycell side. Regarding the Financell side, due to the economical conditions in Türkiye, there are, how can I say, tightening policy. Therefore, the demand for the terminal or the equipment side is a little bit how can I say, poor this year. Therefore, this directly affects the Financell credit lines and the activities. But since the cost of financing is reducing in this way, therefore, you can see higher EBITDA margins in the Financell side. Therefore, the volatility is coming from this one. But we are still very happy to the contribution of the Techfin side into our overall picture.

So for the first part, so we are expecting the growth in the second half? Because currently in the telecom market, the competition is naturalizing and it's becoming more realistic competition is in the market right now compared to mobile number portability if you compare to last year. This year is a little bit better. And we have a dynamic pricing actions we put in the first half of the year. So the impact of that price changes is going to be support our second half growth. And I'm pretty sure that the DBS and fintech continues to support our growth in the second half of the year.

The next question is from the line of Maddy Singh with HSBC.

My question is a follow-up on the growth outlook. So just wondering when do you see the impact of recent price hikes to become fully visible in the growth and it goes towards your guidance of high single-digit level. So if you could give some color around that, that will be very helpful. And then the second question is on your FWA offering. Very interesting to see the growth in that segment. So if you could help understand of your current customer base of around 800,000, if I remember correctly, are they all on 4G devices or those devices they have are capable of using 5G as well. So do they need to upgrade their device basically to benefit from the 5G transition. So that will be helpful to understand. And in terms of the pricing of FWA, what kind of discount or parity it has versus the fiber product? If you could talk about the offering itself, what speed customers are getting now and what speed they're likely to get at 5G. If you could give some dynamics around the products, that will be very helpful.

Thank you very much for your question. First of all, the first part, the growth impact because of the lag effect of our price change and also a 12-month contract. So beginning from the end of the Q4, you're going to see the impact and the growth much clearer. For the FWA part, FWA is currently, as you may know, we got the highest frequency band and we had the biggest investment in the 5G. So we have a higher capacity. And our 5G offerings are supporting Wi-Fi 7 as well. So what we are doing right now is we are just offering this product to all of the customers in Türkiye who has old-fashioned technologies using like DSL. And then on top of it, it is a very portable and plug and play easy to use device. So there's a huge appetite from the market, they want to buy it. And at the beginning, we just -- for our own 4G users, 4G Superbox users, we started to swap them with our 5G devices because currently, 4G -- current 4G Superbox only support 4G technology, but we deploy 5G all around Türkiye. So that's in order to utilize that kind of capacity, they need to have a 5G equipment. And if you compare the pricing of our Superbox compared to the fiber, Superbox pricing is a little bit above fiber prices, but there is a huge impact of the usability. So it's very easy. You can go and grab that device and you can plug and play and then you can use it very easily.

Did I hear that correctly? The Superbox is more expensive than fiber?

Comparable prices, again, just a little bit. So just they're close because you put some limits on the Superbox tariffs. So which is 250 gigabytes or 500 or 1 terabyte. So depending on the limits that you have, the price can change, but it's comparable prices.

Understood. And in terms of any response from competition on that side, have you seen anything?

So 74% market share, I think, answered your questions.

The next question is from the line of Cemal Demirtas from Ata Invest.

Congratulation on good results. My first question is about the strategic perspective, EBITDA. I remember that when you were appointed as the CEO in your mind, you were maybe expecting or you foresee to have 2% on the [indiscernible] side in the future. You have -- your ambitious targets at that time and we are progressing the company any year. But I would like to ask a strategic perspective question. You have more value [indiscernible] now, but you are getting more than the mobile operators. When do we think we will see the other areas like in digital platforms, data center to have more significant contribution in your revenues. Could we expect any 3-year plan that at least give us the direction maybe in the following quarters. Maybe it's nothing real now, but at least that kind of thing will get us -- in a position to get that digital platform, more that [indiscernible] operators at least [indiscernible] to point that because currently, the Turkcell is a bit under realm in our view, we have difficulty to understand the diversification. But we understand that the market is focusing on the weak ARPU, at least at this moment. So I think any clarification on that or any long-term perspective as you did in the past in data center, it could be very helpful. Sorry for the long question. And the second one is about the short-term perspective. In your earnings release, you mentioned that ARPU improvement could come in the fourth quarter. And should we assume that in the fourth quarter, are we going to see some improvements? Or you mean it's going to be in 2027?

Thank you very much for the question. So when I started this role, I have a dream. So I have still that dream, but I'm going to executing it firmly and with a disciplined approach. So what we happened in 2016, Turkcell started its journey in the DC provider. It built its first DC in 2016. And then it started the DC business as a colocation provider. So colocation business is very good, profitable, good business. But in order to come up with like a dream of becoming another Turkcell, you need to add the service business on top of it. So that's the reason that we have a huge agreement with Google Cloud, like $3 billion of investment to reach that dream because with the colocation business, it is limited because what happens and it affects very deeply about all these political issues. If no one can buy servers, they don't need colocation services as well. So currently, you can see that the price of the servers are going high and then because of the processor and the RAM crisis, the price of each server is getting higher and higher. So on top of it, everyone is looking for the services, cloud services. So that's the reason that we have a huge agreement with the Google Cloud. Currently, this year, our revenue of the DC and Cloud revenue reached 2.3% of overall revenues. It was 1% or something a couple of quarters back. It went up to 2.3%, but we are constantly improving that percentage and revenue. And with -- we started the construction of our Google Cloud data centers. And in 18 months, hopefully, we're going to start on 2 years, we're going to start selling services. And the service business is going to bring more revenue. And I'm pretty sure that in 5 to 6 years, we are going to see more revenues coming out of that. And we are expecting at 2030, '31, 10% to 15% of the revenue is going to come from our data center business. But that is a long-term story. And then also with the AI, I'm pretty sure that the value -- this investment value is going to be more recognized because in order to have AI capability, you definitely need a data center. And guess what? Currently, we have 54 megawatts of capacity for AI usage. And if anybody can bring their servers or the AI chips, we have the location for them. So that's the reason that I have -- I'm very optimistic about the revenue, and it's going to come. Any other question?

Cemal, can you repeat the second question please.

Second question. I'm sorry, I forgot that the second question, Cemal.