Earnings Call Transcript - TKC Q3 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining Turkcell's conference call and live webcast to present and discuss Turkcell's Third Quarter Financial Results. The conference is being recorded. 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.

Ozlem Yardim, Investor Relations and Corporate Finance Director

Thank you, Constantino. Hello, everyone, and welcome to Turkcell's 2025 Third Quarter Earnings Call. On the call today, we have our CEO, Ali Taha Koc, and CFO, Kamil Kalyon. They will provide an overview of our financial and operational results for the quarter, 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.

Ali Taha Koç, CEO

Thank you, Ozlem. Good afternoon, everyone, and thank you all for joining us today. This quarter once again demonstrated Turkcell's strong momentum powered by disciplined operations, sharp execution and the strength of our growth engines. We delivered 11% revenue growth, reaching TRY 60 billion, driven primarily by our core telecommunication business. Strong ARPU performance, a growing subscriber base and rising data center revenues all contributed to this outstanding performance. Group EBITDA increased 11% to TRY 26 billion, achieving a solid 43.9% margin, a clear reflection of our continued cost discipline. In addition to our operational success, prudent financial management strengthened our bottom line. Lifting net income from continuing operations up by 31.8% to TRY 5.4 billion. Competition remained intense this quarter. Even so, we added 569,000 net postpaid subscribers. Through targeted pricing and upselling, mobile ARPU rose 12%, once again proving our ability to deliver double-digit growth in a highly competitive environment. Residential fiber ARPU also grew by 17.3% year-on-year in the third quarter. Our strategic growth areas also continued to perform strongly. Data center and cloud revenues grew 51%, and our renewable energy capacity from solar fields across 4 cities in Turkiye has reached 37.5 megawatts. We are proud to reinforce our leadership with the successful outcome of the 5G spectrum tender, a defining milestone for Turkiye's digital future. The results were exactly in line with our expectations and reaffirm our leadership position. We secured 160 megahertz of spectrum, the maximum capacity available to a single operator in this tender. This allocation enabled us to deliver speeds exceeding 1,000 megabit per second while paving the lowest cost per megahertz per subscriber among all operators. 5G will be commercially launched in April 2026, marking the beginning of a new chapter in Turkiye's digital transformation. It will empower industries such as manufacturing, transport, healthcare, and education with high-speed connectivity to regions that currently lack fiber access. Once 5G officially launches, these customers will be among the first to experience 5G speeds. And just as we have done over the past 30 years, we will continue to lead in this new era of connectivity. We are fully ready to shape Turkiye's 5G future and drive the next wave of digital transformation. Let's take a closer look at the key operational highlights from the third quarter. Competition in the mobile market was strong as we expected, maintaining our dynamic and customer-centric approach, we continue to expand our customer base. We recorded 569,000 net postpaid additions, bringing our total net gains to 2 million over the past 12 months. As a result, our mobile subscriber base exceeded 39 million. Leveraging our AI-driven dynamic micro-segmentation approach, we executed our upsell strategies with precision. We offered customers precisely targeted offers, moving the vast majority of our base to higher tier plans. In addition, the share of postpaid subscribers, a key driver of revenue growth, rose by 4.6 percentage points year-on-year to 79%. These efforts, together with higher seasonality, delivered double-digit mobile ARPU growth of 12%, reflecting our continued focus on value-driven growth. Our mobile churn rate was 2.6%, primarily reflecting the ongoing competition and high activity in the number portability market. Now let's move on to our fixed broadband operations. With a focus on fiber customers, we had a net add of 33,000 this quarter, bringing our Turkcell fiber base to over 2.5 million. Including sales over other operators' infrastructure, we introduced 55,000 new customers to high-quality fiber services. Our fiber strategy is best described by a simple principle, high quality and high speed. With this approach, since last year, we remain committed to offering 1,000 megabit per second speeds and delivering greater value to our customers. Year-on-year, the number of subscribers on these plans more than tripled. With effective pricing adjustments, a higher proportion of customers on 100 megabit per second plus plans and 88% commitment rate to 12-month contracts, our residential fiber ARPU grew 17.3% year-on-year in the third quarter. As we continue to strengthen our fiber network, we expanded our footprint with 107,000 new home passes, reaching 6.2 million households. Our 42.6% take-up rate is a clear indication that our fiber investments are effectively planned. Let me now turn on to our strategic areas, beginning with Digital Business Services. Digital Business Services delivered robust 97% revenue growth, reaching TRY 4.9 billion, supported by recurring service income and stronger hardware sales. The backlog from system integration projects reached a remarkable TRY 5 billion. Data center and cloud revenues continued their strong momentum, increasing 51% year-on-year in real terms. We had targeted an 8.4 megawatt capacity expansion at the beginning of 2025, guided by our vision of keeping Turkiye's data within Turkiye, and we successfully activated that capacity in this quarter. Thanks to our early-stage investment, we have established a strong market position, becoming the leading player in the enterprise colocation market. We are preparing for our next strategic move in data centers and cloud businesses, which will further strengthen our leadership. Now moving on to another of our strategic pillars, techfin. Our techfin ecosystem, representing 6% of consolidated revenues achieved 20% year-on-year growth in the third quarter, outpacing the group's overall performance. This growth was mainly driven by our digital payment company, Paycell, which achieved a 42% increase in revenues. Within Paycell, POS and Pay Later services were the key contributors supported by favorable regulatory revisions in mobile payment limits and broader adoption of POS solutions. Our Financell brand, providing customers with fast and flexible financing solutions, continued to expand its loan portfolio, reaching TRY 7.5 billion despite the high-interest rate environment. The net interest margin improved to 5%, driven by more favorable funding costs. Financell continued to support the sales of Samsung A26, a locally manufactured 5G smartphone exclusive for Turkcell with a total of 54,000 contracted sales since its launch in April. Despite global geopolitical and macroeconomic headwinds, we delivered performance that exceeded our expectations over the first 9 months of the year. In line with these strong results and the revised CPI outlook, we are upgrading our 2025 guidance. Reflecting our solid momentum and confidence in the sustainability of our results, we are revising our revenue growth expectations upwards to around 10% and raising our EBITDA margin target to 42% to 43% range. Even as we continue our intensive investment cycle, we are revising our operational CapEx to sales target to around 23%, mainly driven by the acceleration in revenue recognition. As for our data center and cloud revenues, we are also revising our growth guidance upwards to around 43%. With that, I will now hand over to our CFO, Mr. Kamil Kalyon, to walk us through the financial highlights.

Kamil Kalyon, CFO

Thank you very much, Ali Taha. We had a solid quarter driven by continued momentum in our core business and techfin expansion. We achieved 11.2% year-on-year revenue growth, fueled by strong execution across our key business lines. Turkcell Turkiye remained the main top line driver, contributing TRY 5.5 billion of additional revenue. This was supported by double-digit real ARPU growth, a larger postpaid base, and solid performance from digital business services. Techfin added TRY 569 million in revenue, driven by solid growth at Paycell, particularly across POS and mobile payment verticals. On profitability, margins reflected our ongoing investments to enable 5G rollout and to capture the strong growth momentum in Paycell transaction volumes. At the same time, personnel and energy costs contributed positively to our overall performance. Overall, we maintained a solid profitability level, demonstrating the strength of our operating leverage and disciplined cost management. Profit from continuing operations increased 31.8% year-on-year to TRY 5.4 billion, reflecting focused execution and effective cash management. EBITDA contribution totaled TRY 2.5 billion for the quarter, remaining the key driver of profit growth. Despite persistent competition, Turkcell sustained its leadership through a clear strategic focus and efficient execution. We prudently managed our net finance income and expenses this quarter, resulting in a year-on-year contribution of TRY 1.5 billion. With FX depreciation decreased to nearly half of last year's level, we recorded a positive FX impact of TRY 912 million. Despite a higher nominal debt level versus Q3 2024, our strong financial discipline and proactive funding strategy led to a decline in interest expenses to TRY 677 million. Meanwhile, although interest income remained limited, returns were supported by a well-diversified and efficiently managed investment portfolio. Our strong cash position, together with the slower inflation growth year-on-year resulted in a monetary loss this quarter. Turning to our investment strategy with a clear focus on 5G readiness. CapEx intensity was 17.4% this quarter, reflecting our continued commitment to strengthening network infrastructure and preparing for next-generation technologies. With the largest spectrum allocation secured from the 5G tender, we are maintaining our investment momentum at full speed. This quarter, approximately 80% of CapEx was directed towards our core businesses, mobile and fixed broadband. Our base station fiberization rate surpassed 45% this quarter, laying the groundwork for a seamless and efficient 5G transition. In our data centers, we activated an additional 8.4 megawatts of IT capacity, bringing the total to 50 megawatts. On the renewables side, solar capacity reached 37.5 megawatts with further expansion expected in Q4. We have started to see savings from renewable energy investments this year with a more visible impact expected in 2026. Given the expected ramp-up in 5G investments and seasonal factors in Q4, we continue to manage our CapEx with a disciplined and value-focused approach. Moving now to our balance sheet. Our cash position reached TRY 122 billion in Q3. The second dividend installment will be paid in Q4, while under the 5G tender, the first 2 installments are scheduled for 2026. We consider our current liquidity as strong, sufficient to cover upcoming 5G payments and debt service over the next 2.5 years. We are well prepared, having issued a Eurobond earlier this year and secured Murabaha fundings on favorable terms in the first half. Our net leverage ratio increased slightly to 0.2x but remains comfortably within healthy levels, reflecting our continued financial discipline. Given the 5G payment schedule, we expect leverage to remain below 1x in the upcoming periods. Debt repayments of around USD 1 billion are expected to be completed by year-end, of which USD 800 million is denominated in foreign currency. Finally, a brief update on our FX risk management. As of Q3, we held USD 3.9 billion FX debt and USD 3 billion FX-denominated financial assets and USD 800 million derivatives portfolio. We maintain a dynamic FX risk management strategy. We actively manage a short-term derivatives portfolio to mitigate potential FX volatility while accounting for higher hedging costs. We closed the quarter in a neutral FX position. Following the acquisition of the 5G license, our net foreign exchange position is expected to increase. We will closely monitor market conditions and proactively manage this position over the next 1.5 years until the full 5G license payments are completed. Therefore, during this period, we will not apply our neutral position definition. That concludes our presentation. We look forward to addressing your questions. Thank you very much.

Madhvendra Singh, Analyst

My first question is about your capital expenditure and dividend outlook, particularly in light of your recent 5G auction win. For this year, you’ve provided guidance on capital expenditure, which is clear. However, I'm curious whether we should anticipate a significant increase in the capital expenditure to sales ratio next year and if this spectrum payment will impact dividend payments in any way. That's the first question. The second question pertains to your pricing strategy during the last quarter. Did you raise any prices, and how did the competition react? Are you satisfied with the current pricing environment? Finally, regarding your comment on the net short foreign exchange position, you mentioned that the definition will no longer apply going forward. Could you clarify what you meant by that and how we should view foreign exchange losses moving ahead?

Kamil Kalyon, CFO

Thank you for the questions, Maddy. First, for next year, we do not expect significant increases in our CapEx intensity. This year, we set our CapEx sales ratio at 24% but have revised it to 23%. For the upcoming year, we do not plan to exceed the 24% level; it will remain around that figure. We will consider the budget figures from our business lines. Regarding our dividend policy, which distributes 50% of our net income annually, we will propose this to the general assembly, which will ultimately decide. We have been consistently paying dividends for many years. As for 2026, we have not yet made a decision on this matter, but our policy remains to distribute 50% of net income. On the third question, our current foreign exchange position is minus USD 200 million. The results of the 5G tender will be officially confirmed by government bodies around January 2026. Thus, this foreign exchange liability will appear on our balance sheet starting in 2026. We will evaluate our position at that time. As Ali mentioned, the payment for the 5G tender will occur in three installments, with the first one scheduled for January 2026. This will include one-third of the tender price plus 20% VAT, accounting for approximately 44% or 45% of the total. Therefore, we will assess our foreign exchange position and management strategies in January 2026, taking into account macroeconomic conditions, hedging costs, and the internal economic environment in Turkey. I will now pass the mic to Mr. Ali for the second question.

Ali Koç, CEO

Regarding the price adjustment, I will divide this question into two different parts, mobile side and the fixed side. As the leading mobile operator and the biggest operator, mobile operator in Turkiye, we have adjusted our prices in almost every quarter between 2021 and 2024 to reflect the inflationary environment. Considering the slowing pace of inflation and competitive conditions in the market, we updated our prices in January and July of 2024. Following 14% price increases implemented in January 2025, we carried out further price adjustments on our micro-segmented packages such as youth and regional offers in June and August. On top of price adjustments, thanks to our successful upsell performance, we registered above-inflation mobile ARPU growth of 12%. With respect to the fixed broadband market, following the competition, we increased prices in December 2023, August 2024, March and October 2025. We are driving ARPU growth by increasing the share of customers within a 12-month commitment, boosting transition to high-speed packages and also widening the price gap between our TV+ bundled offers and data-only packages. This successful effort enables us to outperform inflation and achieve a 17% real growth performance in our residential fiber ARPU. As Turkcell, we continue to focus on value as the main differentiation point from the competition. Hence, rather than competing on price, we focus on creating additional value for our customers. And we will continue to monitor market conditions and the competition in the upcoming quarters as well.

Madhvendra Singh, Analyst

If I may ask a follow-up on the spectrum part. So the payment is in hard currency. I was wondering whether the asset itself will be recognized in hard currency as well.

Kamil Kalyon, CFO

Normally, as you mentioned, the payments will be done in U.S. dollar terms. Therefore, our liquidity position is fair enough to make all the payments in both in TL side and the U.S. dollar side. Therefore, starting from January 2026, we will look at the macroeconomic conditions, FX rates, TL rates, and the most important one, the hedging rates. For example, hedging costs are essential in order to decide. But as I said, we have enough TL and U.S. dollar money in our hands. Therefore, we will decide in January 2026 by taking into consideration the macroeconomic conditions on that date. It's a little bit early to give a guarantee or to give a color on how we will make the payments. We can prefer to make dollar payments or maybe we can prefer to make TL payments. But at TL, we will be keeping our U.S. dollar money in our hands, and it will not create an additional problem from our perspective.

Madhvendra Singh, Analyst

My question was more on the balance sheet entry on the asset side. So you will recognize the spectrum as an asset, right? But the value, I'm not sure whether that will be put in a lira number or a dollar number.

Kamil Kalyon, CFO

Normally, it will be included into our balance sheet in 2026, and we will make this capitalization in TL terms. This asset will generate an inflation profit starting from the depreciation in the income side starting from 2026.

Unknown Analyst, Analyst

Congratulations on the results. I have a couple of questions. My first question is about your outlook for 2026. Do you believe the revenue growth you're planning for 2025 is sustainable in light of the upcoming 5G rollout? Also, do you think the current EBITDA margin levels can be maintained in the coming years? My second question is whether you have a long-term target for your net leverage, and where do you expect the net leverage ratio to be next year and after the 5G payments are completed?

Ali Koç, CEO

I can start with the first one. Let me talk a little bit about the current year, the great year and a great quarter. We had another solid operational and financial result this quarter, which was actually beyond our initial plans. We continue to expand our subscriber base in both mobile and fixed segments while delivering real ARPU growth in each quarter of 2025 through our dynamic tariff and pricing management, higher postpaid share, also successful upselling actions and rising demand for high-speed connections also supported our ARPU performance. Consequently, in the first 9 months, our consolidated revenue grew by 12% year-over-year. Techfin, if you talk about the techfin in the first 9 months, delivered a 25% year-over-year growth, making a very meaningful contribution to our top line. Our strategic investments, data center and cloud services also achieved robust revenue growth of 51% compared to the same period last year, significantly exceeding our previous full year 2025 guidance. EBITDA grew by 15%, leading to 43.7% EBITDA margins. Building on our strong 9-month performance, we have revised our full year both revenue growth and EBITDA margin expectation and guidance. To remain prudent while revising our guidance, we also considered the reduced magnitude of price adjustments compared to last year. We are expecting a very competitive environment in the following years on 2026 expectation as we are in the planning process. It is too early to comment. However, our goal is to maintain our micro-segment management strategy, along with our AI-driven technologies, along with our revenue growth initiatives and continue growing above the inflation rate.

Kamil Kalyon, CFO

For the second question, as I mentioned in my presentation, at the end of this year, we will be paying the second installment of our dividend payment, and we have some additional repayment of debt for 2025. In January, as I mentioned, we will be paying 44% of the total tender price for the 5G side. Therefore, our expectation is this leverage ratio would be around 0.7 or 0.8x. Our aim is to keep this level lower than 1x.

Unknown Analyst, Analyst

Good results. Actually, all of my questions have been answered.

Cemal Demirtas, Analyst

Congratulations for the good results. My question is rather some technical issues in the income statement. We see monetary loss in the third quarter versus the monetary gain in the previous quarters. Could you just tell us more about the changes that lead to monetary losses in this quarter because it offsets a portion of the higher-than-expected operating profit when we go to the bottom line? And the other question is again about the TOGG participation side, we see lower losses unlike the previous 2 quarters. Do you think it's going to be permanent? Should we expect lower loss contributions from TOGG, your subsidiary side? That's my second question. And again, could you just give any direction about 2026 from your side? And again, I would like to ask what kind of value-added things could come into surface in 2026 as now the 5G is done, please, in terms of licensing. What are the opportunities rather than the organic growth of the company? What could be changing in 2026 from your perspective?

Kamil Kalyon, CFO

Cemal, thank you very much for your technical questions. First question regarding the first question, yes, you're right. Our monetary gain declined by TRY 2.4 billion compared to Q3 of 2024. There are certain reasons. One of them is the slowdown in inflation rates. As you know, last year, inflation was in the same period around 8.9%. Now currently, it's declined to 7.5%. Therefore, this is the first reason for the lower monetary gain. The second one and the most important one, as you know, we sold our Ukraine business in 2024, meaning you took a significant portion from your balance sheet, especially generating inflationary income in your balance sheet. Therefore, due to this effect, the Ukraine subsidiary sale led to a negative composition against nonmonetary assets. Furthermore, the capital reduction executed in our Netherlands company subsidiary in Q4 in 2024 indirectly led to a monetary loss due to indexation in Q3 2025. Regarding your second question about TOGG, as we mentioned in our previous calls, there are some problems, especially in the electric vehicle market in 2025. Starting from Q2, TOGG started to take the necessary actions for cost optimization. As you might remember, there are changes in the special consumption tax base in the third quarter. This change led to an increase in vehicle prices. TOGG recorded a moderate improvement in its performance during this quarter. Most probably, this improvement will continue in Q4. Therefore, starting from Q3 2025, we would expect lower losses from TOGG. The new model is also in the markets right now. There is important demand for these cars. Therefore, we will see the positive impact of these actions in Q4 as well.

Ali Koç, CEO

Regarding the 5G, Cemal, thank you very much for the great question. Yes, the 5G era is starting. Starting from April 1, 2026, we are going to launch 5G all over Turkiye, and it’s going to create new value-added services and opportunities. Especially with 5G, a new era of flexible and personalized tariff will begin. The age of one-size-fits-all plans is coming to an end. Today, for example, Turkcell serves more than 39 million mobile subscribers, which means 39 million unique tariff possibilities. In this environment, our goal is to maintain the highest level of customer satisfaction by offering plans tailored to each individual's needs. We also aim to accelerate 5G adoption because 5G is going to bring high speeds and lower latency, but we need our customers to have 5G phones. So we also aim to accelerate 5G adoption by supporting device financing and establishing new partnerships with smartphone manufacturers. Following our recent collaboration with Samsung, for example, we have already bought 100,000 5G-enabled devices. We plan to form similar partnerships to further increase the number of 5G-ready phones in the market. Through these initiatives, we will make the next-generation devices more accessible as well as drive broader 5G usage across our customer base. In order to give you a brief information about what is the difference between 4G and 5G, 4G technology was designed primarily for people, but 5G opens the door to a world where machines communicate with each other, enabling smart cities, connected factories, smart factories, and industrial automation. As new value-added services over the next 5 years, we anticipate that autonomous driving and connected car sectors will gain momentum in Turkiye. During this period, data consumption and speed requirements are expected to rise significantly. Additionally, similar increases in data demand and speed requirements will emerge across government services as well as logistics, supply chain, smart manufacturing, the energy sector, and the smart city ecosystem, driven by the adoption of hybrid and private 5G networks. 5G will unlock new revenue opportunities not only across the automotive industry but also in government services, logistics, energy, and smart cities. By securing large-scale 5G frequency resources, we gain a significant competitive advantage in both capacity and quality because we got the highest frequency spectrum. The wider the spectrum will allow us to deliver superior customer experience in densely populated areas, ensuring high-speed, low-latency connectivity even under heavy network loads. It also enables us to serve a much larger number of people. We are going to bring this fixed wireless access customers. We call it Superbox 5G, fiber-like performance. Even if you don't have fiber, we are going to provide you with 1,000 megabit per second speeds with our Superbox 5G-enabled boxes. So even if you don't have your fiber in your house, we are going to provide the best speeds within a wireless domain, giving you huge flexibility and huge efficiency.

Operator, Operator

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

Ali Koç, CEO

Thank you very much for joining us, and I hope to see you in the next quarterly meetings.

Ozlem Yardim, Investor Relations and Corporate Finance Director

Thank you for joining us. Hope to see you for the year-end results.

Kamil Kalyon, CFO

Thank you.

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.