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

Ladies and gentlemen, thank you for standing by. I'm Polina, your Chorus Call operator. Welcome, and thank you for joining Turkcell's conference call and live webcast to present and discuss the Turkcell third 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 Mrs. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed.

Thank you, Polina. Good evening, everyone, and welcome to Turkcell's 2026 Third 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 is now my pleasure to hand over to our CEO, Mr. Ali Taha Koc.

Thank you very much, Ozlem. Good evening, everyone. Welcome to Turkcell's third quarter 2026 results call. I will start with our operational and strategic highlights, and Kamil will walk you through the financial results. We will then open the floor for questions. We delivered an outstanding quarter, combining robust real revenue growth and excellent execution across our businesses. These results bolster our confidence in achieving our full year real revenue growth and EBITDA margin guidance. Let me now share our key achievements. Our strategy -- growth strategy once again translated into excellent results this quarter. Consolidated revenues reached TRY 82 billion, representing 6.2% year-on-year growth in real terms. This reflects disciplined execution and the growing contribution from our diversified businesses. Turkcell Turkiye delivered 5.1% year-on-year revenue growth. Digital Business Services stood out with an impressive 65% increase in revenues, while Techfin further reinforced this momentum led by Paycell. Our performance was equally compelling on the profitability front, with our EBITDA margin reached 44.2% and net income totaling TRY 6.7 billion. On the operational front, the gains were particularly notable. We added 701,000 postpaid subscribers and 39,000 fiber subscribers. Mobile ARPU reached TRY 512, while residential fiber ARPU increased to TRY 623. Our pricing actions throughout 2026 have created a solid foundation for ARPU growth in the periods ahead. Superbox, our Fixed Wireless Access offering, had a great quarter, adding 101,000 net subscribers. This outstanding achievement further solidifies our dominant position in the Fixed Wireless Access market. One thing is certain: our leadership in connectivity sets us apart, while our growth businesses are gaining scale, and our investments in data center, cloud and artificial intelligence are paving the way for Turkcell's next chapter. Let's dive into the key drivers, starting with mobile. We saw a favorable shift in competitive dynamics in the mobile market during the third quarter. Quarterly Mobile Number Portability volumes were below 2.3 million compared to 5 million per quarter in 2025. This healthier market environment translated into another impressive quarter with respect to subscriber gains. We carried our subscriber momentum into the third quarter, adding 579,000 net mobile subscribers, led by a remarkable 701,000 postpaid net additions. Over the last 12 months, we added 2.6 million postpaid subscribers, a direct reflection of our superior network quality and customer experience. The growing rate of postpaid customers elevate overall quality of our subscriber base. Improved market conditions and our continued focus on customer retention helped bring mobile churn down to 1.6%, compared to 2.6% a year ago. What stands out is the quality of our growth. We are attracting more postpaid customers while building greater customer loyalty. Mobile ARPU, excluding M2M, increased by 28% year-on-year. Our targeted pricing actions will increasingly translate into ARPU growth as postpaid contracts are renewed. Assuming inflation remains in line with our expectations, we anticipate an acceleration in real ARPU growth over the coming quarters. Beyond our commercial performance, our network leadership remains a key competitive advantage. On April 1, we marked a major milestone with the launch of 5G in Turkiye. Carrying forward our speed leadership from the 4.5G era, Turkcell is once again delivering the highest 5G speeds. Our superior network capabilities are also a key strength behind Superbox, our market-leading Fixed Wireless Access offering. Superbox extends our broadband reach beyond our fiber footprint and continues to lead the Fixed Wireless Access market. Our market share reached to an all-time high of 75%. Superbox delivered a stellar quarter with record high gross additions and 101,000 net additions. With this achievement, we are rapidly approaching the 1 million Superbox subscriber milestone. These results give us even greater confidence in Superbox's long-term potential. Our extensive 5G spectrum portfolio provides a significant competitive advantage to capture further growth opportunities in the 5G era. Now let me turn to our fixed broadband business. Turkcell Fiber accelerated subscriber growth in the third quarter. We added 39,000 subscribers in Q3 and 143,000 over the last 12 months, bringing our total subscriber base to 2.7 million. A key highlight is the shift toward a higher-value subscriber mix. The share of customers served through our own fiber infrastructure climbed to 81%, marking a 4 percentage point increase year-on-year. This puts us in an even stronger position, both in the quality of our service and in the experience we deliver to our customers. In the market, there is a clear shift toward higher-speed plans. The share of subscribers on plans with speeds of 1,000 megabit per second and above surged from 11% to 38% year-on-year, highlighting the growing demand for premium fiber connectivity and Turkcell's ability to capture this opportunity. On pricing, residential fiber ARPU grew by 34% year-on-year, outpacing inflation and directly reflecting our focused pricing strategy. We also stepped up our fiber rollout in Q3, adding 242,000 new home passes and add 2 more Turkcell Fiber cities. This brings our total footprint to 6.9 million home passes across 33 different cities in Turkiye, while maintaining a solid take-up rate of 41%. Now let me turn to TV+, where we bring connectivity and digital entertainment together. TV+ recorded an exceptional quarter, adding 148,000 net subscribers across our OTT and IPTV platforms. Two drivers of this performance are a richer content portfolio and our strategic partnerships. Diversified content is at the core of our TV+ strategy. By bringing together premium sports, compelling entertainment and a wide variety of content, we are elevating the TV+ experience and strengthening its appeal to our customers. Customer engagement is equally impressive, with OTT viewing time more than doubling year-on-year. For Turkcell, TV+ goes well beyond subscriber growth. It deepens customer relationships, strengthens the broader Turkcell ecosystem, and plays a valuable role in driving customer loyalty and reducing the churn. Next page, please. We also made significant strides in renewable energy. During the quarter, we successfully launched our 16-megawatt solar power plant in Ankara, adding another important asset to our solar portfolio. With this addition, our active solar capacity reached 90.8 million megawatts, while total installed capacity increased to 175.4 megawatts. In the first 9 months of 2026 alone, our solar energy portfolio generated TRY 286 million in OpEx saving. As additional capacity comes online, we expect these savings to grow further. With Turkiye hosting COP31 this month, our progress in renewable energy reflects our commitment to turning sustainability ambitions into concrete action, while creating long-term value for our business. Let's now turn to Digital Business Services, one of the key contributors to this quarter's performance. Digital Business Services posted an outstanding quarter. Revenues reached TRY 10.5 billion, up 65% year-on-year, now accounting for nearly 13% of group revenues. The business has firmly established itself as a major contributor to Turkcell's overall performance. Large-scale project renewals made a significant contribution to this quarter's growth. Beyond these renewals, customer demand remained robust across our digital solution portfolio. In our data center and cloud businesses, global RAM and memory supply constraints and geopolitical uncertainties have led to some delays in customer demand, creating a more challenging environment than initially anticipated. As a result, we expect a more gradual revenue growth trajectory this year. Our data center business continues to advance. We now have 54 megawatts of active IT capacity across 4 locations. Construction of the hyperscale data center facilities in Ankara for Google Cloud's Turkiye region is progressing at a rapid pace. I want to emphasize the strategic importance of data center investments. With TRY 628 million invested to date in the data center and hyperscale infrastructure, we are building the foundation for our next phase of cloud and digital service growth, both for Turkiye and Turkcell. Our ambitions go well beyond traditional cloud services. We are advancing our work on GPU-based cloud offering and next-generation artificial intelligence infrastructure, so that we are ready to capture new opportunities as enterprise demand for AI accelerates. Our commercial performance was equally impressive. We secured 1,393 new contracts in Q3, bringing our system integration backlog to TRY 21.6 billion. This substantial backlog offers clear visibility into our future revenue potential. As we expand our digital capabilities, Techfin gives us another way to enhance customer engagement and diversify our revenues. Our Techfin business made a substantial contribution to group revenues, driven by another strong quarter from Paycell. Paycell has an impressive pace of growth, with revenue increasing 23% year-on-year to TRY 2.9 billion. Nongroup revenues accounted for 81% of the total, demonstrating Paycell's global market reach and its ability to scale well beyond the Turkcell ecosystem. Pay later transaction volumes grew 54%, while POS transaction volumes increased 94%, driving POS revenues to an all-time high. The POS business strengthens Paycell's position in the digital payments market. Paycell expands its reach, growing its active user base to 7.1 million users. Financell also gained momentum with 3% quarter-on-quarter revenue growth in real terms. Looking ahead, the recent increase in the device price limit for 12-month installment plans from TRY 20,000 to TRY 40,000 creates further opportunities for growth in Q4. Our loan portfolio maintained healthy growth, reaching TRY 10.7 billion. Meanwhile, lower funding costs and our prudent risk-based pricing strategy underpinned a net interest margin of 7.7%. Financell maintained its leadership in the consumer finance market with a 43% market share by number of loans. Our expanding base of 16.3 million preapproved credit customers further strengthens our growth potential. Beyond our business performance, Turkcell is also taking a more prominent role on the global technology stage. I am proud to have been appointed Chair of the GSMA Technology Group and reelected to the GSMA Board. These roles give us a stronger voice in shaping the future of our industry, particularly in 5G, 6G, artificial intelligence, and next-generation networks, while elevating Turkcell's international standing and Turkiye's role in the broader digital ecosystem. Let me close with a final message. Step by step, we are building the Turkcell of tomorrow, a diversified technology company that combines leadership in connectivity with cutting-edge digital infrastructure, next-generation cloud, and artificial intelligence capabilities we are investing in today. These investments range from GPU-based cloud to AI-ready data centers. Artificial intelligence will define the next decade of this industry, and our investments put us at the center of it in Turkiye. That is how we will capture new opportunities, deliver sustainable and profitable growth, and create lasting value for our shareholders. And with that, let me hand it over to Kamil, who will take you through our financial performance.

Thank you, Ali Taha Koc. Let me turn to our third quarter financial results. It was another excellent quarter for Turkcell. Building on our strong first half performance, we accelerated revenue growth and delivered further improvement in profitability. Our disciplined pricing strategy, together with robust momentum in our corporate business, was instrumental in delivering these results. This performance underscores the strength of our diversified business model and our continued focus on profitable growth. Group revenue reached TRY 82 billion, representing an impressive year-on-year increase of 6.2%. Turkcell Turkiye remains the primary engine of group growth, supported by accelerating activity in the corporate segment. Meanwhile, consumer revenues returned to positive growth, supported by our pricing actions and increasingly rational market dynamics. This marks an important turning point, signaling positive shift in the segment's growth trajectory. Turning to profitability, I would like to highlight 2 key achievements. First, we expanded our EBITDA margin despite a higher revenue contribution from hardware sales in the corporate segment and POS services, both of which carry structurally lower margins. Second, and perhaps even more notably, this improvement came on top of an already exceptional EBITDA margin of 43.9% in the same quarter last year. As a result, we achieved an outstanding EBITDA margin of 44.2%, exceeding expectations and further demonstrating our ability to deliver profitable growth through disciplined execution. Next slide, please. Moving to net income. Let me walk you through the main factors driving this quarter's results. The amortization of 5G license accounted for approximately half of the year-on-year increase in depreciation. At the same time, the capitalized license continued to generate significant monetary gains, providing a favorable offset. On the financing side, our net FX loss was driven by several factors, including outstanding 5G license installments, higher year-on-year TL depreciation, and a larger short FX position amid elevated hedging costs. To mitigate the impact of rising foreign exchange losses, we closely monitor market conditions and dynamically manage our cash position by taking proactive measures to capture favorable opportunities. In this context, our FX swap transactions have enabled us to generate substantial interest income. Our net financial income, excluding FX loss, reached a positive TRY 2.1 billion, representing a 3.5-fold increase compared to same period last year. Turning to our equity accounted investments, TOGG continued to make encouraging operational progress as it scaled up its business. Its impact on group net income improved by TRY 367 million year-on-year. This progress further reinforces our confidence in its long-term potential. Our tax expense also declined meaningfully year-on-year, reflecting the favorable impact of fixed asset revaluation. Taken together, these factors resulted in net income of TRY 6.7 billion for the quarter. Next slide please. Let me now take you through our capital expenditure performance. Our operational CapEx to sales ratio stood at 22.2% in the third quarter and 22.8% for the first 9 months of 2026, both below our full year guidance of 25%. We remain on track to meet our full year targets. We allocated 82% of our operational CapEx to mobile and fixed infrastructure, focusing on enhancing network capabilities and extending our fiber reach. A portion of our planned CapEx for data center and renewable energy projects has shifted to subsequent periods following adjustments to project execution schedules. Our fiber rollout gained further momentum during the quarter. In the first 9 months of 2026, we added 574,000 new home passes, expanding our total fiber footprint to 6.9 million. With our superior infrastructure and the wider spectrum portfolio, we are best positioned to deliver the leading 5G experience in Turkiye. We continue to expand our 5G site footprint this quarter. Turning to our data center investment, we activated the last module of our data center in Ankara as outlined last quarter. Meanwhile, construction of our data center facilities under the Google Cloud partnership is progressing steadily, with the first module scheduled for delivery in 2028. Next slide, please. Turning to our balance sheet. We closed the quarter with TRY 99 billion in cash, maintaining a strong liquidity position and ample financial flexibility to pursue our strategic priorities. Net debt increased compared to year-end 2025, mainly reflecting the first 5G license installment, including VAT, the annual wireless usage fee, bonus payment and higher capital expenditures. Nevertheless, our leverage improved quarter-on-quarter, with net debt-to-EBITDA declining 0.31x, remaining comfortably below peer levels. Looking ahead, the fourth quarter marks an important phase in our strategic investment journey, including the acquisition of our new headquarters and an increased stake in TOGG. These investments reinforce our long-term commitment to strengthening Turkcell's strategic positioning and growth potential. In particular, the acquisition of our new headquarters, spanning a gross area of 83,000 square meters, represent an attractive investment, combining a prime location with a favorable purchase price. Beyond its financial merits, the new premises will serve as a technology and innovation hub, fostering closer collaboration and accelerating product development. In parallel, we have already initiated projects to unlock value from our existing real estate portfolio, and we will continue to explore further value creation opportunities. This demonstrates our ability to fund significant investments, capture long-term growth opportunities and maintain a disciplined approach to financial management. Now let's take a closer look at our FX exposure. Next slide please. Our treasury strategy continues to balance attractive returns with prudent balance sheet management. We use FX swaps selectively to benefit from favorable TL yields where market conditions support their use. At quarter-end, 67% of our cash, excluding FX swaps, and 87% of our financial debt are -- were denominated in hard currencies. We also maintained substantial hard currency liquidity as a neutral hedge against our FX liabilities. Following the removal of tax advantages for money market funds and ongoing CapEx payments, we significantly scaled back our FX swap book activities starting in early Q4. Long-term hedging costs remain elevated at approximately 40% annually for instruments that do not introduce additional FX risk. With the Central Bank's managed exchange rate policy expected to remain broadly unchanged, we intend to maintain our net short FX position near its current level and continue to benefit from this approach. At the end of the third quarter, our FX debt stood at USD 4.3 billion, compared with USD 2.4 billion in FX denominated financial assets. In addition, we had a derivative portfolio equivalent to USD 1.4 billion. Our net short FX position, therefore, stood at approximately USD 1.3 billion, comfortably within our medium-term target range of plus or minus USD 1.5 billion. With that, we conclude our prepared remarks. We are now ready to take questions. Thank you.

[Operator Instructions] The first question comes from the line of Till Mowes with Schroders.

Can you elaborate in more detail on your external funding needs for the rest of the year and 2027? That would be the first one. The second one, if you can explain a bit more in detail what the expected financial terms are for that new headquarter and how much you'd pay on top or how much you'd be saving?

Thank you very much for the question. Currently, as you know, we had very successful loan borrowing activities in 2026. Currently, most probably we do not need additional funding for 2026. As you might be aware, in 2028, we will have a redemption of Eurobonds in the amount of USD 500 million amount. Maybe we can start for preparation for this reduction starting from 2028. And we are looking for if we can find that external advantages, external financing opportunities for the data center financing; we are looking at these opportunities in the market. For the second question...

Okay. Would that be a dollar bond? Or are you looking into euros?

Normally, we prefer to U.S. dollar terms in the Eurobond side, but we have not decided whether we will be making a Eurobond or sukuk issuance in 2025. It's up to the market conditions in that date. For the second question, we paid USD 400 million, including VAT to the headquarter right now.

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

My first question is on your data center business. If you could remind what is the total capacity right now? And what is the monetization plan here? Is it a candidate for an IPO or something similar like a minority investor in there? And the second question is related. You have created a lot of solar capacity. But I was wondering how much of that capacity actually is, let's say, going to be taken up by the data center business itself. So I mean, just wondering whether you are getting all the advantages of new solar capacity getting consumed by the data center business itself? Yes, these 2 questions first.

Thank you for the question. Currently, we have a capacity of 54 megawatts capacity in the data center. For the Google partnership, we are -- as you know, we are establishing 3 more data centers for the region. Most probably within 7 years period, it will reach to 50% additional -- megawatts of additional capacity for the data center. Data centers, as we mentioned in our previous meetings and previous presentations, we are looking at the data center operations as the future of Turkcell. Therefore, this would be a new era for Turkcell side. After finalizing this Google issue, maybe we can look for strategic partnerships or IPOs for the data center issue. I think the most important candidate for the IPO is our data center operations right now.

So for the solar panel, solar portfolio, we currently have around 100 megawatts of operational solar and wind capacity. And it covers currently 20% of our total electricity consumption. Another 84.6 megawatts is being completed and is currently awaiting regulatory approvals. So another 85 megawatts are coming. Once our total renewable capacity reached 300 megawatts and actually becomes fully operational, it will be sufficient to cover more than 50% of our total energy consumption, including the DC and all of our consumption.

Understood. If I may -- I also wanted to follow-up on the real estate investment you have done. So I understand that it is to have a new headquarter for yourself. But how was the location decided? How was the pricing decided on this transaction? What is the, let's say, benchmark pricing of similar properties in other areas of Istanbul? If you could share some of those bottom-up approach on acquiring this asset, that will be very helpful.

We see this acquisition as a long-term investment actually in our operational efficiency as well as the innovation capabilities and our employees' experience. Today, our teams are spread across several locations currently with buying this 33,000 square meters of office space, the new buildings will allow us to bring our teams closer together, particularly in the technology and as well as the R&D department. Our aim is to create a technology and innovation hub in the Istanbul Finance Center, where our engineering and support teams can work more closely, share knowledge as well, and accelerate product development. The new space is also significantly larger than our current leased offices, as we increase the number of days our employees spend in the office after the COVID, we believe it will offer a much more comfortable and modern working environment to our employees. From a financial perspective, we believe owning rather than leasing makes more sense in the long run, particularly in the environment of rising cost and inflation. So with respect to the Istanbul Finance Center is currently the prime location for Istanbul, and we acquired the property at an attractive price relative to its appraised value. Given its size, and 83,000 square meters, I'm talking about size and the location, we believe it will be difficult to find a comparable opportunity elsewhere in Istanbul so it's a prime location. As for the financial impact, the acquisition will be reflected in our fourth quarter 2026 financials. And based on our third quarter figures, our pro forma net debt-to-EBITDA ratio will still remain comfortably below 0.45x.

And since we are a listed company of also Istanbul Stock Exchange, therefore we have an appraisal report regarding the valuation of this real estate. And as we mentioned in our declaration, it's -- it seems currently 4% discounted. But in the future, in the near future, after the economical conditions are going well, we will understand the value of this investment because, if you know the Istanbul, this is located in the center of the Istanbul Finance Center. Therefore, this is a very valuable land. Therefore, having a headquarter is a special issue for a company in Turkiye. Therefore, we are expecting a high valuations in the future.

The next question is from the line of Yusuf Karagoz with Ak Yatirim.