Earnings Call Transcript - TKC Q4 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. I'm Paulina, your Chorus Call operator. Welcome, and thank you for joining Turkcell's conference call and live webcast to present and discuss Turkcell's Fourth Quarter and Full Year 2025 financial results. The conference is being recorded. At this time, I would like to turn the conference over to Mrs. Ozlem Yardim, Investor Relations and Corporate Finance Director. Mrs. Yardim, you may now proceed.

Ozlem Yardim, Investor Relations and Corporate Finance Director

Thank you, Paulina. Hello, everyone, and welcome to Turkcell's 2025 year-end earnings call. On the call today, we have our CEO, Ali Taha Koc; and CFO, Kamil Kalyon. They will provide an overview of our operational and financial results for the quarter and the year, followed by a Q&A session. 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. With that, I will now turn the call over to Mr. Ali Taha Koc.

Ali Koç, CEO

Thank you, Ozlem. Good afternoon, everyone, and thank you for joining us today. We closed 2025 with a strong finish, exceeding all of our expectations. Revenues increased by 11%, and we achieved an EBITDA margin of 43.1%. Net income from continuing operations reached TRY 17.8 billion, up 23% year-on-year. These outcomes reflect disciplined execution and strong momentum across the business. 2025 was pivotal for our long-term strategic positioning. We were awarded the largest spectrum in the 5G auction and secured our fiber footprint through the agreement with BOTAS. This will strengthen our network leadership and expand our capacity to capture 5G demand. We maintain a robust balance sheet through prudent financial management. This preserves flexibility and liquidity. We delivered shareholder returns through a solid dividend payment and launched a 3-year share buyback program. Turkcell is a technology company. We are reinforcing that identity through focused investments. In 2025, we allocated 15% of CapEx to strategic areas, primarily in data center, cloud infrastructure, and renewables. These investments deepen our digital infrastructure, enhance energy resilience, and support long-term value creation. A major milestone for Turkey is our strategic partnership with Google Cloud. We are building a hyperscale cloud region in Turkey. This cloud region will help enterprises accelerate cloud adoption to secure their data sovereignty as well as access advanced capabilities in AI, cybersecurity, and digital platforms. Turkcell is at the center of Turkey's digital transformation. With this partnership, Turkcell will have sustainable technology-led growth. Over the past 3 years, we have executed with discipline to show that Turkcell's leadership in connectivity and digital infrastructure. This transformation shapes how we operate today and how we allocate capital to deliver long-term value creation. Our capital allocation framework is built on 3 pillars. First one, investing in our business to sustain leadership and capture future growth. We continue to advance mobile rollout and expand our fiber footprint with 5G. Our fixed wireless access solution Superbox will extend our coverage beyond fiber. In parallel, we are investing in data centers and cloud, which will bring future growth. As we scale this business, we may also evaluate selective inorganic opportunities. Our expected CapEx intensity of around 25% reflects this investment cycle. The second one, delivering attractive shareholder returns. Last year, we distributed 72% of net income from continuing operations. This is our ninth consecutive year of dividend distribution. We also launched a new share buyback program and repurchased $58 million of shares to date, reflecting our confidence in the long-term value of our business. Thirdly, maintaining a strong balance sheet. We continue to diversify our funding sources from sustainable bond issuance to Islamic financing structures. We remain committed to maintaining net leverage below 1x, preserving flexibility to invest in growth while continuing to support shareholder returns. Overall, we have a crystal clear capital allocation plan to invest in strategic infrastructure, capture structural global opportunities, and deliver sustainable shareholder value. We can now move to the quarterly performance. The fourth quarter marked another period of solid execution for Turkcell's leadership. Performance was driven by operational excellence and supported by our key growth engines. In this quarter, revenues grew by 7% year-on-year to TRY 63 billion. Results were underpinned by ARPA expansion, continued subscriber momentum, and scaling of our data center business. All of these reinforce the strength and resilience of our growth model. Group EBITDA increased 12% to TRY 26 billion, reaching a solid 41.2% margin. Margin expansion reflects continued cost discipline as well as operational efficiency. Focused financial management also supported our bottom line with net income from continuing operations increasing 11% to TRY 3.6 billion. We achieved 905,000 net postpaid additions in the fourth quarter. This is the strongest quarterly result in the last 6 years. This was driven by targeted value propositions as well as a customer-focused strategy. Another good news, this growth also came with real ARPU expansion, reflecting balanced growth. Our data center and cloud business continued to scale with revenues growing by 32%, and renewable energy installed solar capacity reached 62.2 megawatts. Our digital infrastructure strategy is central to Turkcell's long-term growth. We believe that cloud and AI infrastructure is structural, a must for every business in Turkey. The Turkish cloud market is growing at 19% annually in dollar terms, supported by increasing digitization and rapid adoption of AI-driven workloads. Our partnership with Google Cloud marks a defining milestone. Establishing a Google Cloud region in Turkey strengthens our country's digital ecosystem and enhances our position in the infrastructure value chain. This partnership diversifies Turkcell's revenue streams and reinforces our long-term growth profile. Today, we operate 50 megawatts of active data center capacity, and it will be doubled by 2032. Over the same period, we expect our data center and cloud revenues to grow at least sixfold in U.S. dollar terms. We are uniquely positioned to capture this technological breakthrough with our scale, network assets, market leadership, and strategic partnership, we are ready to benefit from this structural growth.

Kamil Kalyon, CFO

Thank you very much, Ali Taha. Let me briefly walk you through our financial results. We delivered a strong performance for both the year and the quarter. Top line grew by 11% year-on-year, surpassing TRY 241 billion, quarterly growth was 7%. This performance reflects resilient execution in our core telecom business and continued scaling of our techfin platform. Turkcell Turkey revenue increased by TRY 21 billion year-on-year. Growth was driven primarily by real ARPU expansion and sustained postpaid subscriber additions. Continued upselling and premium positioning further enhanced the quality of our revenue base. Techfin accounted for 6% of consolidated revenues contributed TRY 2.4 billion for the year. Performance was underpinned despite strong momentum in Paycell, particularly in POS solutions and Pay Later. Now EBITDA performance. Exceeding the top line growth, EBITDA increased by 14% year-on-year to TRY 104 billion, reflecting efficient cost management, EBITDA margin surpassed 43%. The main positive contributors were employee and energy expenses. While payment expenses scaled alongside strong POS expansion, Paycell's primary growth driver this year. Radio-related expenses reflect the acceleration of our 5G readiness and ongoing network modernization efforts. As a result, EBITDA margin expanded by 1.2 percentage points demonstrating disciplined execution while continuing to invest for future growth. Profit from continuing operations increased by 23% year-on-year to TRY 17.8 billion, primarily driven by strong EBITDA growth. We maintained market leadership through solid execution and a diversified revenue mix supporting sustainable EBITDA generation. We had a larger debt position during the year. However, our proactive balance sheet management further supported bottom line performance by TRY 3.5 billion. Net finance income benefited from lower interest expenses, loan redemptions, and reduced hedging costs amid stable FX conditions. In addition, maintaining a solid TL position allowed us to benefit from attractive local currency yields. Looking ahead, the capitalization of the 5G license is expected to support normalization in this line. We will continue to advance both mobile and fixed infrastructure. Our investment profile reflects a focus on our strategic growth areas beyond traditional telecom. Operational CapEx intensity of 25% is aligned with our strategic priorities across 5G, data centers, and renewable energy.

Bystrova Evgeniya, Analyst

Congrats on your results. I have just one question. I was kind of curious to know more about the data centers business. If you could please provide more color maybe on what are the EBITDA margins of this business? That would be very helpful.

Ali Koç, CEO

Thank you very much for the question. It's our growth area, and we are expanding our data centers. AI and our cloud are expected to drive a 14% CAGR in data centers from 2025 to 2030, lifting global capacity from 108 gigawatts to 200 gigawatts. So overall, what we can see is our results are getting better and better. AI is reshaping workloads all around the world, so there's a huge demand in the data center business. Our expectation is that there will be more than a 2x increase in active data center capacity and a 6x increase in the data center cloud revenues in dollar terms by 2032. The share of the DC cloud revenue and total revenue is expected to increase around 8% to 10%; currently, it is around 2%, and we are expecting that no dilutive impact is expected on our EBITDA margin.

Cemal Demirtas, Analyst

Thank you for the presentation and congratulations on good results. My question is about your FX position. Maybe if you could elaborate further, I couldn't understand the justification behind that. Also, I received questions about the size of the investments in your data centers. Can you just help us to understand better?

Kamil Kalyon, CFO

Yes, Cemal, I will start from your first question. Our FX position is around USD 957 million. As you know, the fourth quarter has seasonality from the CapEx investments on our side. Therefore, one reason is coming from the high CapEx investments. The other side, we monitored the market conditions closely and swapped some portion of U.S. dollar holdings into Turkish lira. Currently, 56% of our cash is Turkish lira position. We would like to benefit from higher local currency yields. Regarding your second question, yes, it appears as if we are taking a position. The FX policy of the Central Bank worked very well this past year. We will discuss how we will use this FX position as we continue to monitor the conditions.

Ali Koç, CEO

Regarding the data center business, let me tell you that Turkiye's total cloud consumption is around 150 to 200 megawatts. Most corporates in Turkey are still building their own data centers and have their own hardware. Therefore, the 50-megawatt number may not appear large. However, this investment is significant. We are preparing infrastructure for the colocation services for Google Cloud, which is going to bring thousands of servers to Turkey. This setup will be utilized by hundreds of companies, contributing to the cloud's scalability.

Yusuf Karagoz, Analyst

You ended the year with a 43% EBITDA margin; for next year, your guidance is around 40% to 42%. Do you expect any contraction in margins?

Kamil Kalyon, CFO

Yusuf, normally, the 2025 performance was very good regarding EBITDA, especially concerning energy costs and wage expenses. In 2026, we will implement a salary increase. We will also be starting marketing activities for the 5G rollout; this may affect our margins. Therefore, we would like to be slightly conservative starting for the year for the EBITDA margin. We will look forward within the year.

Ali Koç, CEO

Thank you very much for listening. Hope to see you next time. Thank you.

Kamil Kalyon, CFO

Thank you very much.

Ozlem Yardim, Investor Relations and Corporate Finance Director

Thank you, bye.

Operator, Operator

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