Turkcell Iletisim Hizmetleri A.S. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; the filing is an annual report, not a standalone 2019 Q4 report. Filed April 1, 2020. Financial statements are audited and prepared under IFRS as issued by the IASB. Amounts below are in Turkish lira (TRY); “million” is used unless stated otherwise.
Business context
Turkcell is a Turkey-based mobile and fixed telecommunications operator, with international operations principally in Ukraine, Belarus and the Turkish Republic of Northern Cyprus. Its strategy also includes digital services, enterprise technology solutions and financial technology. Turkey accounted for 85.5% of 2019 revenue; the International segment accounted for 8.0%.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total revenue | 25,137.1 | 21,292.5 | Up 18.1% |
| Gross profit | 8,053.7 | 7,146.5 | Gross margin fell to 32.0% from 33.6% |
| Operating profit | 5,033.3 | 4,359.9 | Up 15.4%; operating margin 20.0%, versus 20.5% |
| Adjusted EBITDA | 10,426.4 | 8,788.0 | Up 18.6%; approximately 41.5% of revenue in 2019. Non-IFRS measure. |
| Net finance costs | (1,727.7) | (1,687.0) | Net cost increased modestly despite lower finance costs, as finance income declined. |
| Profit before tax | 3,289.9 | 2,672.8 | Up 23.1% |
| Profit for the year | 3,276.7 | 2,177.3 | Includes 772.4 gain from discontinued operations related to the Fintur sale. |
| Profit attributable to Turkcell owners | 3,246.5 | 2,021.1 | Includes the Fintur disposal gain; continuing-operations EPS was TRY 1.14 versus TRY 0.93. |
| Net cash from operating activities | 9,026.6 | 5,829.9 | Up approximately 55%; interest paid rose to 2,090.7 from 1,658.3. |
| Net cash used in investing activities | (3,027.3) | (4,535.6) | 2019 includes 2,219.6 cash proceeds from subsidiary sale. |
| Net cash used in financing activities | (3,478.0) | (534.4) | Includes 1,010.0 of shareholder dividends and 1,215.3 of lease-liability payments. |
| Cash and cash equivalents, year-end | 10,238.7 | 7,419.2 | Up 38.0% |
| Total debt, including lease obligations | 20,305.7 | 20,155.5 | Includes 1,533.1 of lease obligations in 2019; company-reported debt/equity ratio was 112%, versus 126%. |
| Capital expenditures | 7,224.7 | 7,643.0 | 2019 and 2018 figures include IFRS 15/16 adjustments. |
Material changes and operating developments
- Revenue growth reflected higher ARPU, greater data usage, price adjustments and a larger postpaid mix. Turkcell Turkey revenue grew 18.8%; International revenue rose 37.5%, partly aided by currency appreciation in Ukraine and Belarus.
- Turkish mobile ARPU rose to TRY 39.8 from TRY 33.9. Postpaid subscribers increased to 20.4 million from 18.8 million, while prepaid subscribers fell to 12.4 million from 14.9 million.
- Turkish mobile subscriber count declined by 1.0 million. The company attributed 1.9 million line disconnections in Q3 and Q4 to new subscriber identity rules, and another 580,000 deactivations to its inactive-prepaid policy. Reported mobile churn increased to 2.7%; excluding the regulatory deactivations, management estimated 2.3%.
- Cost of revenue grew faster than revenue, increasing to 68.0% of revenue from 66.4%. Cost of goods sold rose 77.4%, and depreciation and amortization increased 17.7%. Selling and marketing expense declined 4.4%, partly due to capitalization of subscriber acquisition costs under IFRS 15.
- Finance income fell sharply to TRY 297.5 million from TRY 1,677.1 million, while net foreign-exchange losses declined to TRY 1,039.6 million from TRY 2,695.0 million. Net finance costs remained slightly higher year over year.
Outlook, commentary and risks
- Management expected 2020 operational capital expenditure to be approximately 16%–18% of revenue and said it expected Turkish operations to fund operating needs, investment and debt service through operating cash flow and available facilities. This is forward-looking guidance, not a guarantee.
- The filing describes COVID-19 impacts as uncertain at the time of filing. Risks included weaker consumer spending, store closures, equipment sales and roaming revenue, changes in network usage and investment needs, market volatility, and potential disruption to suppliers and operations.
- Foreign-exchange exposure is material: equipment spending and substantial borrowings are denominated in foreign currencies while much revenue is in local currencies. Management used derivatives and foreign-currency cash balances to mitigate exposure but cautioned that hedging may become less available or more costly.
- Other cited risks include Turkish economic and political volatility, regulation of prices and licenses, competition from telecom and OTT providers, cybersecurity and data-protection obligations, supplier concentration, legal and tax proceedings, and disputes among major shareholders that could impede corporate decisions.
- Unusual items include the April 2019 sale of Fintur for EUR 352.9 million, generating a TRY 772.4 million gain; TRY 199 million paid to settle specified tax assessments; and TRY 128.4 million paid under reservation concerning wireless usage fees, with legal action pending.
- Turkcell paid a TRY 1.01 billion dividend for 2018 in October 2019. The 2019 annual general meeting had not been called as of April 1, 2020, so the filing did not report a 2019 dividend declaration.
Important facts for investors to verify
- Reconcile reported profit growth with the non-recurring Fintur disposal gain; assess continuing-operations earnings separately.
- Review the sustainability of operating cash flow and the impact of capital expenditure, debt service and lease obligations on free cash generation.
- Check debt currency mix, hedging effectiveness and maturities, including the subsequent March 2020 prepayment of the club loan facility.
- Monitor subscriber trends and churn after regulatory line deactivations, as well as ARPU and margin trends amid rising costs.
- Track the outcomes and potential financial exposure of tax, competition and regulatory matters, and the effects of COVID-19 and shareholder disputes.