Earnings Call Transcript - TKC Q2 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome and thank you for joining the Turkcell Conference Call and Live Webcast to present and discuss Turkcell's Second Quarter 2024 Financial Results. All participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. 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

Today, our CEO, Ali Taha Koc, and CFO, Kamil Kalyon, will be delivering a brief presentation covering operational and financial results, which will be followed by a Q&A session. Before we begin, I would like to kindly remind you to review our Safe Harbor statements available at the end of our presentation. Now I'm handing the meeting over to Mr. Ali Taha.

Ali Taha Koc, CEO

Thank you, Ozlem. Good afternoon, everyone, and thank you for joining us today. This year marks a special milestone for us, our 30-year anniversary, which we proudly celebrated with all our stakeholders. On July 8, I had the honor of hosting a closing bell ceremony at the New York Stock Exchange, the world's largest financial center, to commemorate this occasion. What stands out over the past 30 years is what has remained constant, our core value of placing technology at the center of our business, leading innovation in Turkiye and nurturing the expertise of our people. We are committed to growing our business and meeting the needs of our customers across all the sectors we serve. Our commitment has made Turkcell resilient during extraordinary times. In the second quarter of 2024, annual inflation peaked in May, exerting pressure on the financial performance of leading Turkish companies. However, Turkcell, with its diversified business portfolio and disciplined management demonstrated financial resilience. Our top line reached TRY 35 billion, reflecting a strong focus on profitability. We delivered an EBITDA of TRY 15 billion and a solid 42.6% EBITDA margin. This was enabled by the Turkcell Turkiye segment, mainly due to our rational pricing strategy and successive upsell campaigns which allowed us to sustain real ARPU growth. On the other hand, macroeconomic pressure impacted equipment revenues for both consumer and corporate segments. Our focus on value-generating postpaid and fiber customer acquisition resulted in 346,000 net additions. Supported by operational profitability and strategic financial risk management, we delivered a net income of TRY 2.9 billion. Next slide, please. Let's take a look at our operational performance. On the mobile front, as the market leader, we focus on market rationalization. During the second quarter, we faced the aggressive pricing actions of our peers, starting in May, which triggered mobile number portability market activity. Despite this, we implemented a 25% price adjustment in July. Focusing on value-generating customers, we gained 477,000 postpaid subscribers. Over the last year, our postpaid base grew by 1.8 million net additions, with the postpaid customer share reaching 73%, marking a three point raise year-on-year. The widespread use of alternative data providers resulted in a net loss of 232,000 prepaid subscribers. Despite this, through innovative campaigns like the Smart Control Service and the 30th year Double Up campaign, along with our retention strategy, we maintained a churn rate of 1.5%, the lowest in the past six years. Driven by sequential price adjustments and upsell efforts, Mobile ARPU rose by 82% year-on-year, delivering 5% real growth and continued to outpace CPI. The quarter-on-quarter weakening in ARPU growth was expected, as the earthquake disaster negatively impacted the first quarter's base. Next slide please. In the fixed broadband market, we remain focused on fiber, adding 42,000 subscribers. The share of 12-month contracted customers in the residential fiber customers reached 78%, raising 28% year-on-year. Complementing our fiber services, IPTV sold 34,000 net additions. The fixed broadband market remained rational in Q2, allowing us to implement a price adjustment in August, following the incumbents’ move in June. In addition to market rationalization, with sports from TV+ and pure fiber technology, we achieved a record low churn rate of 1.2%, the lowest in 18 years. Residential fiber ARPU grew 84% year-on-year, with a quarterly rise when excluding the earthquake's base effect. The take-up rate rose 2.2 points year-on-year as we continue to prioritize fiber subscriber net additions over home passes. Lastly, we are pleased to see continued interest in high-speed plans. The weight of these packages in the total residential fiber portfolio has increased by 10 percentage points year-on-year. Next slide, please. Let's discuss our strategic focus areas. Starting with Digital Services and Solutions. Our Digital Services and Solutions enable us to connect with our customers and meet their evolving needs. Our goal is to ensure these services reach the right audience, those who truly value them, with the right positioning. In recent quarters, for profitable growth, we have focused on attracting customers who are genuinely engaged with our services. In line with this strategy, we saw a 4% decrease in our standalone paid user base, now at 5.3 million. However, revenue from standalone Digital Services and Solutions grew by 5% year-on-year, driven by our pricing actions. Additionally, this quarter, we are pleased to see Lifebox and TV+ integrated into our national car brand TOGG, Turkiye's electric vehicle, alongside fizy. Moving on to our next focus area, Digital Business Services generated TRY 2.6 billion in revenue this quarter. Recurring service revenues rose 8% year-on-year. However, hardware revenues were impacted by macroeconomic challenges, including reduced demand, particularly in the public sector due to authority measures and the absence of one-off projects from Q2 of last year. We remain committed to maintaining our leadership in the data center market combined with our cloud services. Revenue from these services grew by 57% to TRY 540 million. Next slide, please. The last strategic focus area is Techfin. In the second quarter, Paycell revenues grew by 16%, driven primarily by increased commissions and transaction volumes from Pay Later and POS Solutions. The active users for Pay Later rose by 10%, thanks to wider usage in app stores and nationwide QR payment eligibility. Meanwhile, Paycell's EBITDA increased by 14% year-on-year. Financing the technological needs of customers, Financell's revenue rose by 34% supported by a larger loan portfolio and higher average interest rates. However, the net interest margin declined by 1.6 percentage points due to higher funding costs. At the same time, our cost of risk stands at 2.2%. Next slide, please. Lastly, our performance in the international markets. Turkcell international revenues, which account for 3% of group revenues, rose 2.7% to TRY 890 million. BeST revenues rose 22% on a yearly basis in local currency terms, primarily driven by a focus on high segment tariff exposure, enabling higher voice and data revenue. Better interconnection costs and lower energy expenses sustained the 1.5 percentage point improvement in EBITDA margin. We successfully finalized the share sale of our Ukraine operations this Monday. Moving forward, our primary focus will be on driving value creation within our domestic operations. Before diving into financials, I would like to briefly touch on our 2024 guidance. With monthly inflation trending higher than expected recently and the revised year-end projections announced in Turkiye's medium-term program last week, we are now in a period that we closely follow our guidance. We plan to provide an update along with our third-quarter results if needed.

Kamil Kalyon, CFO

Thank you very much, Ali Taha. Now let's move on to our financial results. Despite the inflationary headwinds, our revenues have remained in line with last year, with only a modest decline, amounting to TRY 35 billion. The Turkcell Turkiye and Techfin segments were supportive of the group top line growth. Turkcell Turkiye revenues rose 1.5% year-on-year, driven mainly by an expanding subscriber base, higher postpaid share in the mobile segment, and real ARPU growth. It's worth noting that the segment's growth was also pressured by a decline in large projects, including hardware sales within digital business services. The Techfin segment contributed TRY 333 million to the top line, bolstered by the performances of Paycell and Financell, which grew by 34% and 16%, respectively. Conversely, the other segment faced challenges due to reduced demand in consumer electronics sales. Next slide, please. EBITDA grew by 0.3% year-over-year, reaching TRY 14.9 million. Lower equipment sales costs more than compensated for higher G&A and S&M expenses. Our EBITDA margin reached 42.6%. While wage increases and higher funding costs in financial services put pressure on profitability, the stabilization of electricity prices, reduced demand for equipment, and a decline in MTR had a positive impact on EBITDA margin. As a reminder, we implemented a wage increase in the third quarter to mitigate inflationary pressures and ensure that our employees, who are invaluable assets to our business, are well supported. However, we expect the ongoing MTR decline to support profitability through 2024. Next slide, please. Let's take a close look at our CapEx management. The CapEx to sales ratio for the second quarter of 2024 increased to 22.5%, aligning with our plans. Investments in both mobile and fixed infrastructure were balanced, each representing 31%. We anticipate an acceleration in tower fiberization during the second half of the year, aiming to achieve our 41% year-end target, as a significant portion of digging permits were secured in the first half after the elections. The rise in data center investments this quarter is a result of ongoing investments in adding new modules to meet growing demand. By the end of Q2, we had completed 45 megawatts of solar energy investments, but we are awaiting legal approvals from the relevant authorities. Once received, these investments will be reflected in our financials, and Green Energy production will commence. Given the seasonality of higher investments in the second half, we expect CapEx intensity to reach 23% for 2024. Next slide, please. Now let's turn our attention to the balance sheet. In Q2 2024, our cash position stood at TRY 51 billion. Gross debt reached TRY 99 billion, leaving us with a net debt position of TRY 32 billion at the end of the quarter. Our net debt leverage ratio slightly rose to 0.6 times. We expect an improved position in Q3, supported by proceeds from the Ukraine asset sales. Our FX debt service for the year stands at around US$189 million, which is manageable given our strong cash reserves. We have sufficient cash to cover the reduction of the 10-year Eurobond in 2025 and are actively exploring funding options for the potential reissuance. A large portion of our cash is held in hard currencies. Excluding FX swaps, 41% is in US dollars and 28% in Euros. Next slide, please. Lastly, the management of foreign currency risk. At the end of the second quarter, our balance sheet had around US$1.9 billion equivalent in FX financial liabilities. Against this, we had US$1.4 billion equivalent in FX-denominated financial assets, along with an effective hedging portfolio of US$0.5 billion, primarily composed of features, forwards and NDFs. As part of our strategic management of FX exposure during a more stable Turkish lira period, our derivative portfolio decreased quarterly, also contributing to lower finance costs. This resulted in a short FX position of US$123 million in line with our expectations. Our target remains to stay within a neutral FX range of minus and plus US$200 million. This concludes our presentation and we can now open the floor for questions.

Operator, Operator

Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from Tiron Cesar with Bank of America. Please go ahead.

Cesar Tiron, Analyst

Yes. Hi. Good evening, everyone. Thanks for the call and the opportunity to ask questions. I have two, if that's okay. Just wanted to understand better what will drive a reacceleration of the top line growth in the second part of the year? And then second, do you have an update on what you intend to do with the proceeds from the Ukrainian asset sale? Thank you so much.

Ali Taha Koc, CEO

Yes. In real terms, our revenues remained flat at TRY 34.9 billion in the second quarter. Please keep in mind that last year, we had the earthquake in Southeastern Turkiye, which resulted in a positive base impact in the first quarter's growth. This positive base impact is absent in the second quarter. Moreover, the economic contraction is suppressing our equipment sales in the consumer and corporate segments. Accordingly, there were fewer large budget projects within our digital business services compared to last year. The negative impact of these large budget projects on our revenue growth in Q2 '24 is around four percentage points. And for the second question regarding the sale of Ukraine assets, we expect the sales process to be fully completed within this year. The final sales value will be determined based on the closing adjustments to be made based on the level of net cash debt on financial statements to be prepared as of the closing date. Although we do not have a Board decision regarding the proceeds we will obtain from the sale of our assets in Ukraine, prospectively, we might have important investments, some of them depending on regulatory authorities' decisions to come, such as the 5G tender and its rollout plan or any other big-scale business initiatives creating value for our shareholders in the upcoming years. Although we are diligently exploring a range of competitive and rational alternatives, we have the redemption of our Eurobond in 2025. It should also be noted that the sales value will have an impact on our net income. Our company's dividend policy allows a payout of at least 50% of distributable net income as cash once conditions contained in the sale policy are met.

Cesar Tiron, Analyst

Great. Thank you so much.

Ali Taha Koc, CEO

Thank you.

Operator, Operator

The next question comes from the line of Mandaci Ece with UNLU Securities. Please go ahead.

Mandaci Ece, Analyst

Hi. Thank you for taking my question. I was going to ask about your revenue growth prospects for the rest of the year. For the first half, we are seeing a 5% revenue growth and a 5% ARPU growth. So after your price adjustments in July, should we expect a better real ARPU growth performance on the mobile side or should it stay around 5% or single-digit maybe? And you have mentioned about your guidance indicating that the macro assumptions had an effect, but also we are seeing a decline in your corporate revenues. Maybe could that be also a reason why you will review your revenue guidance for the rest of the year? So could that be a downside risk compared to your low double-digit real revenue growth estimate? By the way, even when I look at your revenue growth of only 5%, there is a significant 10% growth as of first half in your EBITDA number. So could it be due to better cost management and ARPU growth, sustainable ARPU growth? And will this be sustainable also this EBITDA growth? Thank you very much.

Kamil Kalyon, CFO

Ece, thank you very much for your question. When we look at our first half performance, as you know, the inflation trend is going over the expectations. Therefore, the government revised the year-end inflation rate in the midterm program of 2024. This affects our revenue growth in the second half. But I would like to say that, yes, I would like to say that, yes, inflation rates are exceeding expectations, but in 2023, we have significant mega projects, single one-off projects in, as far as I remember, in April and May. Therefore, since these one-off projects are not done this year, this affects the revenue growth in the second half. Our real ARPU growth is going well, but I would like to remind you that we had the tragic earthquake issue last year. Therefore, when you look at the base effect in the first quarter, our ARPU and revenue growth are performing well. But in the second quarter, we see the base effect, therefore, it is coming from this one. From our perspective, we do not expect any erosion in the EBITDA level because, as I mentioned in my speech, when we look at the EBITDA side, the MTR prices are going in favor of our company. Also, energy prices are stabilizing, which had a positive effect on our cost-efficient cost base. The significant impact on EBITDA is, as I said, last year we had many terminal sales and hardware sales in the corporate sector. This year, due to the government policies, these kinds of projects are at a very low level. Thus, it positively affects our EBITDA level. When we look at our ARPU side for the second half, yes, we are currently implementing inflation pricing. We can easily apply it. In Q2, we couldn't make any price increases, but in July, we had a price increase on the mobile side and in August on the fixed side. Therefore, we will see the effects of these increases in the remaining period of 2024. As I would like to repeat, the one-off large projects of last year in Q2 are affecting our growth levels right now, but we will try to do our best to catch our guidance. We would like to clearly mention or declare a certain amount regarding especially the growth side. We will wait and see the results of Q3; we will most probably provide a good understanding at the end of Q3 regarding the growth rate.

Mandaci Ece, Analyst

Thank you very much for your answers. Could you also please speak about the growth trend in your subscriber base as well in July and August?

Kamil Kalyon, CFO

In July and August, our churn rates are going down since the competition had some aggressive campaigns. However, when we look at July and August levels, we have net adds in both months. Therefore, the subscriber base is growing very well, especially in July and August.

Mandaci Ece, Analyst

Thank you very much.

Operator, Operator

The next question comes from the line of Singh Madhvendra with HSBC. Please go ahead.

Singh Madhvendra, Analyst

Yes. Hi. Thanks. I have a first question, actually on the revenue growth still. I mean, it is slightly confusing to me that you are having regular price increases. So year-on-year basis, your prices in the second quarter should have been higher than last year, which is also reflected in your ARPU growth. But overall revenue growth is still flat quarter-on-quarter. I understand your point about 1Q '23 being a weak quarter because of the earthquake. But Q2 '23 would also have been much lower from a pricing perspective than where we are right now. So just break it down for me: what really drove the revenues down? Your ARPU grew 6%. Your prepaid subscriber base seems to have been lower. So is that the reason why you have some pressure on the revenues? I understand the part about your equipment side. So excluding that, if you could discuss. And then with that, I was also wondering if you could give us a baseline for third quarter '23 and fourth quarter '23 quarterly revenue base because otherwise, it becomes quite difficult guesswork trying to get the historical numbers as well as then forecasting the next quarter. Thank you.

Kamil Kalyon, CFO

Yes. Thank you very much for your question. First of all, I would like to say that when you look at the results of the other best companies, for example, you will see the growth rates less than the inflation rates. Currently, we have, for example, flat revenues. We are not under the inflation rate. Therefore, we are keeping at least we are making some pricing or we grant development in the growth side at the rate of inflation. But as you said, the hardware sales are very important because in the same period, if we do not have one-off projects, for example, in 2023, our growth rate would have been around 4% or 5% right now. Therefore, since the economic tight monetary policies are tightening the market, if you do not make such kind of one-off projects or hardware sales in 2024, it really affects our growth rate. As I said, if you do not have one-off projects, for example, in 2023 in April and May, our growth rate would be around the 4% level. Therefore, it seems that we are making a growth rate over inflation. But I would like to remind you that our figures are not negative; at least we keep on increasing in line with the inflation rate.

Singh Madhvendra, Analyst

And what about the previous quarter?

Kamil Kalyon, CFO

On the other hand, as you know, we have some tight economic policies right now regarding minimizing consumption in Turkey. This also affects the consumer handset deals right now. Also, when we compare the sales of handsets, for example, with last year, we have a significant decrease this year. This also affects our growth rate. However, in our main business for the recurrent income, we do not have any problem regarding the inflationary pricing mechanism. Regarding the Q3, as for Q3 '23 and Q4 '23 inflation-adjusted revenue, we cannot say anything as we do not know the monthly inflation rates for the upcoming months. Therefore, unfortunately, I cannot provide any insight about this issue. Sorry for this inconvenience.

Singh Madhvendra, Analyst

Okay. And just going back on the pricing part, I understand that you raised prices in July. Before that, when was the previous price hike done? And how frequently do you actually undertake the price hikes?

Kamil Kalyon, CFO

In February, we had a price increase right now, and we did it in the mobile side in July. And in the fixed side, we made a price increase in August. We will chase the competition and the economic environment in the coming period. If we can do, we would like to increase prices if it’s necessary, but we do not have any plan about this issue right now.

Singh Madhvendra, Analyst

Okay. Great. Thank you.

Kamil Kalyon, CFO

We do not want to erode our base.

Ali Taha Koc, CEO

We are definitely closely following the market and the competition. If they have significant campaign discounts, we are just hesitant to do the price increases, but we are closely monitoring the market. If there is a need and rationale, that’s the reason that we are calling this a rationalization of the market. As Turkcell, we are trying to rationalize the market and figure out the perfect time and amount if there's a need for the increase in the tariffs.

Singh Madhvendra, Analyst

That makes sense. And if you could just inform which operator is being most aggressive right now?

Kamil Kalyon, CFO

I think it would not be useful to provide such kind of name brands in this call, but we have two competitors.

Ali Taha Koc, CEO

In Turkiye, there are three operators, one of them is Turkcell and the other two are Competitors. So it’s not going to be that hard for you to guess.

Operator, Operator

The next question comes from the line of someone with Stratus. Please go ahead.

Unidentified Analyst, Analyst

Hello, can you hear me?

Kamil Kalyon, CFO

Yes. Thank you.

Ali Taha Koc, CEO

Yes, loud and clear.

Unidentified Analyst, Analyst

Hello. Thanks for taking my question for the presentation today. My question is if the Eurobond that you already mentioned on this call, I think, the reissuance window for Turkish corporates in the dollar market has been widely open throughout the year. So I was trying to understand what's keeping you from coming to market thus far? And what are the parameters that you're looking at?

Kamil Kalyon, CFO

Yes. Thank you very much for your question. Now we have adequate cash reserves to fulfill our bond reduction. As I mentioned in my speech, we have around US$1.5 billion equivalent cash in our hands. However, as Ali Taha said that we have some developments in the sector like 5G and other significant investment sides. Maybe we are looking for the alternatives to encompass potential solutions such as launching a fresh bond, sukuk offering or securing a bank loan. By closely monitoring economic conditions and interest rates, we can proceed with issuance and Eurobond at an opportune time. We are looking at the windows for additions.

Unidentified Analyst, Analyst

Okay. Well, I hope the reissuance window stays open while you consider all of these aspects. Can you walk me a bit more through your 5G spending plans, both in terms of auctions and regular CapEx associated with the rollout? Let's say, for example, calling what kind of ballpark CapEx to sales are we talking about for 2025 and 2026?

Ali Taha Koc, CEO

Okay. Thank you very much. We are just closely following the regulatory bodies and we are just talking to them as well. We have had several meetings with the Ministry of Transport as well. We expect that through 2025, there will be a tender auction for the 5G frequency. In 2026, we expect to be live on 5G; that’s what we have heard from the government entities. There is no official timeline yet, but this is just a ballpark timeline in 2025 and 2026. However, the recent state indicated the 5G transition will occur at some time in 2026. Also, let me mention that we are still making investments in 4.5G, but when we're doing this 4.5G investment, we are acquiring the latest equipment, comparable to 5G as well. We are making an extra investment for our base stations and towers for the fiberization of our towers. So as Turkcell, we are determined to establish our 5G infrastructure with local and national technologies as much as possible and we'll continue making efforts to support the development of these technologies. But to be honest, the auction amount and preconstruction terms are not set yet, so it is going to be not clear for us right now since in 2025 when we discuss the auction terms maybe we can provide you with much more information because it will be totally different. We expect that this is going to be a full frequency auction, both 700 megahertz and 3.5 gigahertz. The amount they will ask for is also going to differ, but we are talking to them, and continuing our meetings with them to convince them to make it more profitable and better for future investments.

Unidentified Analyst, Analyst

Okay. Thank you. And remind me of one thing, you still own all the towers or would you have to pay for the lease amendments and upgrades to external tower operators?

Ali Taha Koc, CEO

No. In Turkcell, we own all of our towers and then we don't need to do any lease; we will just install extra equipment, 5G equipment, and then we won't need to dig more fiber connections to our towers, but all towers belong to us.

Kamil Kalyon, CFO

Yes. We are providing lease service to our competitors.

Ali Taha Koc, CEO

Yes. Also, we will share our towers with our competitors, and we are making money out of those tower leases.

Operator, Operator

The next question comes from the line of Campos Gustavo with Jefferies. Please go ahead.

Campos Gustavo, Analyst

Hello. Thank you very much for taking my questions. Just very briefly on my side. Would you mind providing a quick review on your mobile contract structure in terms of tenure, CPI adjustments that you may make? How is the situation looking as of this moment? That would be my first question. Thank you.

Ali Taha Koc, CEO

So all of our contracts have a 12-month period, and we are following the CPI adjustments, which are around 73% year-on-year. Recently, we did some increments; last month, in July, we had a 25% increase on the tariffs. Overall, we are closely following the CPI, and year-on-year it is 73%.

Campos Gustavo, Analyst

Okay. So my understanding is that the 25% adjustment is a bit below the inflation rate during the year. Is that correct?

Ali Taha Koc, CEO

No, not at all, because we just did it at a similar kind of increase in February. This is the second time that we are increasing the tariffs. So if you look at the year-on-year, we did it one in February and then one in July. So if you look at the year-on-year increase, it's around 90%.

Campos Gustavo, Analyst

Okay. I see. Thank you for the clarification. So they're 12 months in tenure and then maybe like semiannually, you could make a tariff adjustment. You have that option.

Ali Taha Koc, CEO

That is correct for our postpaid customers. We have a strategy to move all of our prepaid customers to postpaid. We have a huge margin, and the percentage rate of our customers is postpaid. So because competition is a little bit different in prepaid, but postpaid customers have a 12-month contract.

Campos Gustavo, Analyst

Understood. Twelve months for the postpaid is great. Thank you for making that clear. I appreciate it. Secondly, is it correct that the base case involves refinancing the Eurobond?

Kamil Kalyon, CFO

Sorry, I could not catch the question. Again please?

Campos Gustavo, Analyst

Refinance Eurobond in 2025.

Ali Taha Koc, CEO

Hello? Yes, we can hear you. Yes, refinancing the Eurobond, you asked right?

Campos Gustavo, Analyst

Yes. If that's your base case coming back to the market and issuing again.

Kamil Kalyon, CFO

As I mentioned in the previous question, we are thinking about being in the market for the refinancing of the Eurobond, which will expire in October 2025. Most probably you will be seeing us in the market in the near future.

Campos Gustavo, Analyst

Okay. Great. Thank you. And in light last question for me. Thanks a lot again. Where do you see net leverage going? Because you might increase some of your investments in 5G, as you mentioned. Would that provide you some pressure in your capital structure or is that not something that will budge your credit profile?

Kamil Kalyon, CFO

Our net leverage rate is around 0.66. When you compare it with the market level, it's under the market level. Therefore, as I said, we may have some reissuance, and we would have some cash from Ukraine sales that will come to our treasury. Regarding the leverage rate, we are keeping our leverage rate at these levels because making operations in Turkey makes us cautious about this issue. We are confident about this matter. Most probably at the end of the year, we will maintain these levels. In the next year, we will be evaluating our financing mode and how our leverage will change since the cash from the Ukraine sales will also help us keep the leverage levels at logical points.

Campos Gustavo, Analyst

Okay, perfect. Thanks a lot. I appreciate it.

Kamil Kalyon, CFO

You're welcome.

Operator, Operator

The next question comes from the line of Bystrova Evgeniya with Barclays. Please go ahead.

Bystrova Evgeniya, Analyst

Yes, hello. Thank you very much for the presentation and for all the insights that you're providing. I just have one quick question regarding 5G. Do you already understand how it's going to be rolled out in terms of do you target to first roll it out for corporate clients or will it be immediately rolled to retail clients as well? Thank you.

Ali Taha Koc, CEO

If you look around the world, there are different models, and it depends on how the auction is going to happen. But if you think about it, as you may know, 4G is the last technology that's built for humans; 5G will be built for things and for the industry. We are expecting that the digitalization of the industry is going to be a huge market for the 5G technologies. But currently, it's going to be most probably a hybrid version in Turkiye, that's what we are expecting. We are going to provide 5G services for both customers and the industry. There are many big industry firms, and we are talking to them about private LTE and private 4G networks. Most probably, they will have a similar structure when 5G happens. The easy answer is that it's going to be a hybrid model; both of them.

Bystrova Evgeniya, Analyst

Okay. Thank you very much. And also one quick follow-up on the cash position. You mentioned it's TRY 1.5 billion; that does not include Ukraine proceeds, right?

Kamil Kalyon, CFO

Yes, you're right.

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 Taha Koc, CEO

Thank you very much for listening to us. It’s a great pleasure. It was a very strong quarter. We grew close to the inflation rate and with the inflation, we are following our management and cost structure; our EBITDA is growing very nicely. Our net cash is also growing nicely. Overall, we expect that the third quarter and fourth quarter are going to be much better. Hopefully, in the future, we will see the results and share them with you. Overall, what I want to say is in Turkiye nowadays, as you may know, because of the inflationary pricing and regulations, the monthly inflation ratios are so important. That’s the reason that even the government entities are changing their midyear plans. We are closely following the future trends and we will inform you when the time is needed.

Ozlem Yardim, Investor Relations and Corporate Finance Director

Thank you for your participation.

Kamil Kalyon, CFO

Thank you very much for your valuable time. Have a good evening.

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.