Türk Telekomünikasyon Anonim Sirketi ($TTKOM)

Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekom conference call and live webcast to present and discuss the first quarter 2026 financial and operational results. [Operator Instructions]. The conference is being recorded. [Operator Instructions]. We are here with the management team, and today's speaker is Omer Karademir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Omer Karademir, CFO. Sir, you may now proceed.

Hello, everyone. Welcome to our 2026 First Quarter Results Conference Call. Thank you for joining us today. Let's go to Slide #3. I will start with a quick update on markets and our leading position. Global markets in Q1 '26 were shipped by rising geopolitical tensions and the feds cautious staff. The Fed kept its guidance that further easing will be approached carefully, pending a sustained improvement in inflation. Regional tension in the Gulf and geopolitical developments triggered a spike in energy prices and volatility in global risk appetite. In Turkey, the Central Bank cut its post rate by 100 basis points in January, but kept it on hold in March and April in response to heightened global uncertainties and risk to the inflation outlook. Year-end inflation expectation in the April 2026 market participant survey stood at 27.56%. Aim at this environment as Türk Telekom Group, we remain focused on sustaining our strong operation and financial performance through our disciplined and proactive approach. We started the year with our strategic long-term investments and strong operational and financial results in the first quarter. I would like to emphasize our key investments in our major business fixed line and mobile, which together represents a significant majority of our group revenues and profits. On the fixed line side, we continue to capitalize on our fiber network exceeding 550,000 kilometers as the fixed line concession has been with us for 24 years. Fixed Internet delivered robust KPIs beyond our expectations and along with corporate data, contributed to solid revenue growth and healthy margin improvement. Fixed subscribers opt for higher speeds. On the mobile side, as of April, 5G was launched successfully across all provinces in Turkey. We offer high speed, low latency and superior mobile network performance, supported by our fiber position. Rational competition environment prevailed in the mobile markets, operators took pricing actions in January and April, subscriber acquisition momentum remained strong. Overall, Türk Telekom Group, we are in a unique leading position in Turkey to provide integrated digital services to our millions of customers across the country, we are excited about our company's future vision and growth opportunities and remain focused on delivering strong financial results. Let's move next slide, Slide #4, for financial and operational overview. Consolidated revenues increased by 9% to TRY 65 billion, supported by fixed and mobile segments. Including the IFRIC 12 accounting impact, revenue growth was 6%, in line with our full year guidance. 70% year-on-year EBITDA growth was well ahead of the revenue growth, pushing our EBITDA to TRY 27.4 billion, along with a solid 300 basis points margin expansion year-on-year to 42.3%. Our net profit increased by a solid 56% to TRY 10.5 billion, supported by strong operational performance. CapEx excluding solar investments and license stood at TRY 17 million. It was higher in year-on-year terms due to our long-term 5G investments. Excluding concession and 5G license related payments, unlevered free cash flow stood at positive TRY 1.7 billion. This figure indicated a decline from TRY 10 billion in first quarter of last year as a result of higher CapEx and one-off base impact in last year from change in net working capital. Net leverage stood at 0.99x compared to 0.6x at 2025 year-end. Excluding payment of USD 1.1 billion in first quarter related to concession renewable and 5G license, net leverage would have remained constant. Moving to Slide #5. I will provide update on our net subscriber additions. Our total subscriber base exceeded 57 million with 613,000 net additions Q-on-Q. Excluding the 163,000 loss in the fixed voice segment, quarterly net additions were 776,000. Fixed broadband subscribers slight declined by 19,000 Q-on-Q2, EUR 15.4 million. Despite the retail price action we took in January, the activation volume was similar to what we have seen in the first quarter of last year. Q1 churn increased modestly in year-on-year terms, while declined Q-on-Q under the impact of accelerating contract expirations. Both retail activation and churn performance are positively impacted by the acceleration in our greenfield fiber investments. Retail net additions exceeded our expectations, thanks to lower churn whose subscriber base didn't change materially. Mobile segment added 712,000 subscribers on a net basis, pushing up the total base to 32.2 million. Both actuation and churn volume remained higher in year-on-year basis, driven by the postpaid segment. Mobile net additions were supported by 571,000 of MTM additions by the corporate segment. Subscriber growth remained on a strong track with 87,000 net postpaid additions excluding MTM postpaid and prepaid segments added 50 -- sorry, 668,000 and 54,000 subscribers. If you can go to Slide #6, let's look at our fixed broadband performance. We had a very strong performance in fixed broadband. We introduced a retail price division for new acquisitions in January as most places in the market followed our price adjustments. Price parities have rebalanced in favor of our retail activations by the end of the quarter. Subsequently, we adjusted the steel segment price for existing customers in March. The contracting volume scored significantly higher year-on-year. ARPU growth remained strong at 18% year-on-year in Q1 despite the last year's high base of 19%. The combination of solid upsell and sustains the contracting performance along with successful price implementation enabled us to maintain high growth. We expect the robust ARPU trajectory to continue in 2026. Average of both our total and retail subscriber base increased by near to 111 and 120 megabits. 6% of our subscribers now use 50 megabits and above package compared to 51% a year ago. Moving on to mobile performance. Let's go to Slide #7. Our strong customer growth continued in mobile segment, the ratio of competitive environment visible by the end of 2025 prevailed in the first quarter of 2026, price revisions were made in January and April. M&P market size, which was higher in the first quarter of 2026 in year-on-year terms declined slightly from its historical height at the end of 2025. Postpaid segment recorded 658,000 net additions in the first quarter. With that, total net additions surpassed 712,000 in total. The ratio of our postpaid subscribers in total portfolio rose to 80% from 76% a year ago. Excluding MTM, postpaid base added 87,000 subscribers. Mobile ARPU excluding MTM came down by 4% year-on-year over last year's strong 21% base. In the first quarter 2026, we are seeing a normalization in annual mobile ARPU growth as already seen in the third and fourth quarters of 2025. Let's go to Slide #9 to update you on our summary financial performance. Consolidated revenues increased by 9% to TRY 65 billion from TRY 60 billion in the same period of the period year. Fixed broadband, corporate data and ICT projects led growth, revenues rose strongly in the quarter, driven by the acceleration in fiber investments. Excluding the FX accounting impact, Q1 '26 revenues reached TRY 61 million, up 6% year-on-year, including increase of 17 points ,8% in fixed broadband, 15% in TV and 28.1% in corporate data, while mobile international and other revenues declined by 1% and 27.5% and 0.7%, respectively. Fixed voice remained flat year-on-year. Fixed internet and mobile revenues together accounted for 77% of operating revenue. Fixed internet made the largest contribution to growth TRY 3.2 billion higher revenues in total year-on-year. Corporate Data and ICT solutions added a further TRY 2.3 billion white call center intentional revenues and equipment sales declined by a combined TRY 2.1 billion. Mobile revenues were lower by TRY 253 million. ICT Solutions recorded significant growth supported by new projects won by our subsidiary, Innova, the decline in cost center revenues in line with our expectation was attributable to projects that completed in the second half of the last year. While our international business was impacted by the decline in international voice revenues, which is kind of a seasonal business with lower margins. Moving on to EBITDA. Direct costs fell 3.5% year-on-year. The decline in interconnection cost was driven by contracting international voice revenues. The equipment costs were lower year-on-year as well. Commercial costs rose 27.7% while the cost declined 2.5% year-on-year. The increase in commercial cost was driven by higher spending across sales and marketing and advertising line items. Between other costs, network expense increased 1.3% year-on-year. The 4.1% year-on-year decline in personnel costs can be explained by the reduction in head count at our call center subsidiary due to project completions in the second half of 2025. Excluding the accounting impact, OpEx to sales ratio improved from 61% in Q1 '25 to 58% pointing to continued enhancement in operational leverage. Consolidated EBITDA increased by 17.1% year-on-year to TRY 27 billion, while the EBITDA margin improved by 300 basis points year-on-year to 43.3%. Excluding the accounting impact, the EBITDA margin expanded by 395 basis points year-on-year to 44.1%. Coming to our net profit. Net financial expenses increased by 27% year-on-year and 66% Q-on-Q. The interest income declined from TRY 2.3 billion to TRY 659 million Q-on-Q as we made a payment of USD 1.1 billion in the first quarter regarding 5G and concessions renewable. Moreover, FX hedging expenses rose 108% year-on-year and 28% Q-on-Q on the back of higher FX liabilities. The average hedge costs remained flat on a Q-on-Q basis. On the balance sheet side, monetary gains surged by 80% year-on-year to TRY 14 million as nonmonetary assets of 5G license and fixed concession extensions were included in our balance sheet in the first quarter of 2026. These long-term assets revalued each quarter with inflation index. In Q4, a total excess of TRY 7.1 billion as deposits, largely consisting of deferred tax expense. The effective tax rate was 40%, mostly due to inflation accounting. We assessed that the deferred tax expense recorded will have a very limited impact on near-term cash flows with the total FX spread over an extended time horizon. Overall, Türk Telekom Group recorded a net income of TRY 10.5 billion for the period, up by 56% year-on-year. driven by strong operational performance. Let's go to next Slide #10 to review our CapEx numbers. CapEx spending rose to TRY 17 million in the first quarter compared with TRY 10 million last year on the back of higher 5G rollout expenditures. As usual, fixed line CapEx, most importantly, the fiber access and core network investments took higher shares in total bit 51% rate, 23% of spending went to mobile, while another 50% went to IT and project investments and rest other investments. Moving on to Slide #11, you can see our debt profile. Türk Telekom have total 30.4 billion cash and cash equivalents of which 56% is FX based. The FX exposure includes U.S. dollar to 2 months of 3.3 billion of FX denominated debt, 2.7 billion concession and mobile stance liabilities, 3.1 million of total hedge position and 382 million of hard currency cash. Net debt over EBITDA increased to 1x from 0.6 as of 2025 and on the back of 5G and concession renewal payments. Net debt over EBITDA would have remained flat Q-on-Q, excluding those payments. In January, we paid the first installment of 5G license, namely USD 365 million and plus 215 million and the VAT amount of concession extension word of USD 500 million. By the end of the year, we will have also paid the second installment of 5G license and the first installment of concession extension. We prepared detailed schedule of payments and income statement and balance sheet impact for your easy reference. You can find it in the appendix of this presentation. I want to emphasize that the increase in FX liabilities is due to our longer-term investment in 5G spectrum and concession. Our future payments are extended over a long-term period until 2035 and the payments will be in Turkish lira. We also actively manage our FX exposure risk through hedge. Moreover, while concession and 5G liability has been additional FX exposure. On the asset side, they are revalued under inflation accounting and hence, creating monetary gains, which, as a result, balance P&L impact overall. Let's go to Slide #12, where we provide update on our cash flow and FX exposures. We recorded USD 2.5 billion short FX position compared to USD 102 million as of year-end due to booking of USD 2.7 billion 5G and concession general liabilities. Excluding those payments, our net FX loan position is positive USD 162 million. Finally, we generated positive TRY 1.7 billion of unlevered free cash flow in Q1, excluding 5G and concession renewable payments compared to THB 3 billion in Q4 and TRY 10 million in the same quarter last year, annual decline is mostly due to higher CapEx. Moving on Slide #13. We provide update on 2026 full year guidance. Our business performance as a whole was in line with our expectations in Q1. We expect operational revenue growth to accelerate in the remaining quarters of 2026. Yet, first quarter inflation came in slightly higher due to regional geographical developments, putting pressure on real growth. We will update our revenue growth guidance, if necessary, based on the performance of our business line in first half and the cost of inflation. We currently do not see major downside risk to our 41% to 42% EBITDA margin guidance. Türk Telekom Group we remain cautious, especially regarding inflation expectations and prudently monitoring regional geopolitical developments and taking necessary actions. This concludes my presentation. Thank you for your listening. And now we can open up the Q&A session.

[Operator Instructions]. The first question comes from the line of Cemal Demirtas with Ata Invest.

Congratulations for good results. My first question is about your short FX position. It's TRY 2.5 billion. Could you further elaborate this in terms of risks going forward? Most possibly, it's going to be critical for the next 2, 3 years? And what are the plans on your sites? And I would like to understand the hedging costs. Did you see any increase in the hedging cost in April compared to March? And do you see any risk on your guidance for CapEx considering the risks on the FX side? This could be very helpful from the CapEx and FX position side. And the other question is about the business side. We see some decline in the mobile side, could you also further elaborate that? And connected with this, how do you see the outlook so far for the second quarter in terms of the business lines.

Thank you. For your first question of the FX position. Actually, we have -- we don't have a short position. We have long position if we exclude our future 5G and concession payments. So that means for our net sales financial debt, financial payments, we are securing our FX position. And for the -- when these payments happens, so the next schedule is the December of this year, I am reporting our which payments -- the installments of the 5G and the concession payments that will be made in December. After we have made these payments, we will also hedge this open position. We are planning to hedge this open position. So right now, our main strategy is to hedge our financial debt. Based on the hedging cost, actually, we are using the cost costs declining instruments for our hedging policy, and we have access to onshore, offshore and also Central Bank NDF channel we are using the lowest cost for these hedging transactions. So the average cost of hedge didn't change compared to last quarters of 2025. And it is -- it was -- I mean, it was similar for the first quarter. But in April, we have seen some in at, I mean, from the payment side from the cost side. In April, we have witnessed slightly an increase for hedging costs. But the main factor of our expenditure for this hedging transactions comes from the hedge volume. The payments for 5G and concession in the first quarter with the VAT. As a total, it is USD 1.1 billion. That's increased our total hedge amount. The main difference comes from this hedge volume. But with the help of this inflation program of Central Bank and the government as we have witnessed in the second half of the last year, the hedging costs, we are expecting to decline in the hedging costs but hedging volume will be similar until the end of this year. I hope this answers your first question. For your second question, CapEx guidance. You know, we have -- our guidance was -- our guidance is -- for this year is 23% to 24%. It was realized -- sorry, 33% to 34% for this year. The last year's realization was somewhere 29%. The main difference was coming from our mobile investments for the 5G rollout. The first quarter's realization is 26.3% as we have announced based on the FX increase, unexpected FX increase, we -- our budget numbers, budget numbers are in nominal terms. So we try to limit -- we try to be in the boundary of this budgetary volume. In case of an unexpected FX shock. So right now, we are still stick to our guidance for the CapEx. But we cannot predict easily what's going happen since there is a regional conflict and it will, of course, affect the supply chain we haven't seen it is effects in our CapEx spending at the moment but there will be some effects. We are admitting that. But on the other -- hence, our contracts are not 1 year term. They are 2 to 4 years of term that fixed the price of CapEx spending that will also have us. And for your third question, the business side of mobile, our revenue growth is -- the total revenue growth is almost 6%. And the inflation was for the first quarter, almost 10% that was beyond our expectations. That affects the revenue growth, the increase in the inflation higher than the expectation. But we are still in line with our budget target for the first quarter since the fixed broadband compensated our mobile site. But basically, for the mobile maybe you are referring to our ARPU growth.

Yes.

The mobile parts, there are 2 main effects we can state. One is base effect. The other is inflation for the base FX, we have realized many higher ARPU growth in the late 2024 and 2025. That is one reason. But another reason is the competitive environment in 2025. That happened, let's say, in the middle of the year. But we saw a rationalization and normalization at the end of the last year. And for this year, we are also witnessing -- we are also witnessing continuation of this normalization since we and other operators to be able to make their price division for January, we have 30% of increase in mobile. And for April, we have 15% with the half of this price adjustments -- and with the half of this normalization in the market, we can expect to -- we can expect a recovering revenue growth that ARPU growth. But it will be in the second half of the year, I can say.

The next question comes from the line of Maddy with HSBC.

Yes. I have a few quick questions. The first is on -- maybe I missed it in the comments, but what has been the price actions this year if you could share that. I think the last price hike was in Jan, but if you could talk about any further price actions you have seen so far? And then the second question is on your energy cost. I understand that most of your network is on grid power. So have you seen any price hikes from the -- on the electricity side -- so if you could share that, any anticipation of higher electricity prices, that will also be great. And then the final one is on the -- under the new fixed construction and licensing, which we have issued for 5G and all. Is there any in the asset ownership clauses or is the asset still owned by the government and you just have the right to operate it? So if you could share any color around that.

So for your last question, is it for fixed or mobile side?

For the ownership of both.

Thank you. For your first question about our projections of this year, for the mobile, we have 30% adjustments in January and 13% in April for the mobile. We have 2 price actions for the mobile side. For the fixed side, in January, for 21% for new activations and 17% in March for the existing customers. These are our projections of this year. For energy costs, yes. We are both operating in fixed and mobile interest structure. So we have electricity consumption in our business. as we meet the major of our electricity needs from the 3 markets and national tariffs. Although we observed increased volatility in the market prices from mid-February onwards and the first quarter results were in line with our expectations. The energy markets regulatory authority increased retail electricity price by 6% for the lower tier and 18% for the higher tier of the public and private services sector subscriber groups, and it's effective in fourth of April. And I mean it is lower than our expectations, the increase in electricity by the government. And our energy expenses while decreased by 14% year-on-year constitute almost 5% of our OpEx base in the first quarter of 2026. This rate was 6% for the whole year of 2025. And also, we have a solar power plant. It is now operational and installed capacity of 96 megawatts. It is operational in the beginning of this year. and it will meet 15% of our whole consumption, and we will have 2 more power plants. And as a total, we are expecting to meet 65% of our whole consumption from this solar power plant. And additionally, for the climate environment, climate environment of truck for this year because of the rains, the hydroelectricity plants are fully operational. There is -- the cost of producing electricity is lower than the -- than their peers. So this is also an advantage for us. And in briefly, we haven't witnessed an energy cost up to now. And the last -- and for your last question, the ownership. For the fixed -- the ownership is government. We have this concession -- I'm sorry, the -- for the mobile, all the assets are our own, but for the mobile but we will transfer to government at the end of the license period -- we have additional comments from our [indiscernible]. As [indiscernible] said, the fixed line concession is a great achievement because as you know, the new concession they added a new scope. So as you know, we have the leading operator. We have all the assets. And as Türk Telekom, we developed a brand marketing everything at the end of the concession, if it is not extended, we have to transfer the assets to the government. But obviously, we always extend it and keep our investments. And it is similar and same -- not similar same for all operators.

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

Thank you all for joining us today. Have a good evening.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. Good afternoon.