Ladies and gentlemen, thank you for standing by. I am Gaily, your Chorus call operator. Welcome, and thank you for joining the Turkcell's conference call to present and discuss the First Quarter 2020 Financial Results.At this time, I would like to turn the conference over to Mr. Korhan Bilek, Treasury and Capital Markets Director. Please, Mr. Bilek, you may now proceed.

Thank you, Gaily. Hello, everyone. Welcome to Turkcell's First Quarter 2020 Results Call. Today's speakers are our CEO, Mr. Murat Erkan; and our CFO, Mr. Osman Yilmaz. We have a brief presentation and afterwards, we will be taking your questions. Before we start, I would like to kindly remind you to review the last page of this presentation for our Safe Harbor statement.Now I hand over to Mr. Erkan.

Good afternoon, and good evening, everyone. Welcome to Turkcell's first quarter 2020 results call. We have ended tough quarter with several consecutive challenges. Starting the year with unfortunate natural disaster, we began to feel the impact of the COVID-19 pandemic in March in Turkey. The first case in Turkey was identified on March 10, after which things changed rapidly, both our company and in our lives. We responded immediately to protect and support our employee, customer, our distribution channel and those communities in need. I will talk about the impact of COVID-19 later in the presentation.For now, I would like to point out its impact were limited to just two weeks in our first quarter results. With that, I am pleased to deliver a strong start to 2020 in line with our plans. Our outstanding operational performance in the home market played a large role in these results. We gain a total of 614,000 net subscriber, reaching a large part of our annual target of 1 million.Strong ARPU growth continue both in the Mobile and Residential Fiber segment. Accordingly, we generate 17.3% revenue growth, our EBITDA grew by 23.1%, leading to 42.2% EBITDA margin. These results were in line with our guidance announced earlier this year.Next slide. Now some further detail on our financial performance. We recorded TRY6.7 billion top line and TRY2.8 billion EBITDA in first quarter. Our EBITDA margin improved by 2 percentage point year-on-year. Our EBIT reached TRY1.4 billion with a 21.6% margin.Net income was at TRY873 million. Last year in the first quarter there was a Fintur transaction gain of TRY772 million. Excluding this, our net income nearly doubled this year.Next slide. Let's have a look at our operational performance. We gained TRY679,000 net postpaid subscribers. With this the postpaid share in total mobile subscriber reached…

Thank you very much, Murat. Let me start by saying how proud I am to be a part of this dynamic management team. We have swiftly and effectively responded to extraordinary and fast changing conditions. As already mentioned, the COVID-19 pandemic had a limited impact on our first quarter performance. We expect the impact to be felt throughout the second quarter, leaving a headwind.Group, revenues rose 17.3% year-on-year, corresponding to an incremental TRY1 billion per year. Of this increase, TRY900 million comes from Turkcell Turkey operations. This is created by diversified source of revenues, while consumer business contributes close to half of this amount, while fast growth in corporate business and new products, like Superbox were instrumental in this increase.As was the case for several quarters, consumer finance company's contribution was negative given the slowdown in its business. Moreover, termination of our sports betting business Intertek [ph] also creates a drag on growth. Excluding these two, our year-on-year growth is 20.8% in the first quarter.Next slide. Group EBITDA rose 23.1% year-on-year to TRY2.8 billion driven mainly by strong top line growth and disciplined cost controls. EBITDA margin rose 2 percentage points to 42.2%. Turkcell Turkey was the main driver of margin improvement, with its 2.7 percentage point increase. EBIT rose by 30% year-on-year to TRY1.4 billion with a margin of 1.6%.We realized nominal flat G&A expenses and lower sales and marketing expenses versus the first quarter of the last year. The savings in G&A related to personal expenses where we grow our top line with limited headcount increase. Sales and marketing contributes by 1.9 percentage points to EBITDA, 0.6 percentage point comes from marketing and 0.9 percentage point from sales expenses. This was mainly due to [indiscernible] but effective and segment focused campaigns this year.Further, we prioritize the use of…

The first question is from the line of Kim Ivan with Xtellus Capital. Please go ahead.

Yes, good afternoon. Two questions from my side, please. First, on your strong postpaid subscriber base additions, can you talk about how many are coming from other operators, and how many are prepaid customer conversions? And in general, given how strong the postpaid additions over the past couple of quarters, aren't you worried that this can lead to higher price competition from your rivals in the mobile market? That’s the first question. And the second question on free cash generation. It's being strong in the first quarter, as you said, against some adverse seasonality with high frequency payments, for example. [Indiscernible] equity free cash flow in the first quarter was TRY900 million. So I was just wondering what -- do you have a ballpark range number you expect for the year by now, because as you pointed out, too, there will be some more working capital release in the remainder of the year from the unwinding of consumer finance company balance sheet. Thank you.

Okay, Ivan. I believe we hardly hear the second part of the question. But let me start with the first part of the question, regarding postpaid and switch between prepaid to postpaid side. As part of our strategy we have been more focused on strengthening our bond with customer over the past years. We realize the return of our efforts each quarter. We are one of the telco companies leveraging the data analytics skills most effectively using big data, and we follow a micro-segmented approach, which enables us to make the right offer to the right customer at the right time. Please also note that we achieved the performance by registering mobile ARPU growth of 21%. Our solid performance confirm our commitment to gain a million subscriber each year. Nearly half of the postpaid net adds in Q1 is switched from the prepaid. So this is -- this reflects the one of two question.Moving prepaid customer to postpaid segment is one of our key goals and is naturally target of to all operators. I must say it's not easy to as it sounds from the technical definition switch. Therefore, there is a notable performance on our front as well. So this was the first part of the question. Let me give you the word to Osman regarding free cash flow and working capital relation. Osman?

In the beginning of the year, we were expecting about TRY500 million additional free cash flow generation from our consumer finance business. But given the negative impacts of COVID-19 pandemic, we now expect more than TRY700 million free cash flow generation from consumer finance. But part of this additional free cash flow generation will be offset by deteriorating collection performance, mainly in corporate segment.

Sorry, just two quick follow-ups. So do you have a ballpark number for the annual free cash flow you expect right now, or you can share that?

Actually, we prefer not to give a precise number for free cash flow generation, but you can roughly say 20% of the EBITDA, nominal EBITDA -- 25% of the nominal EBITDA can be expected as our free cash flow generated before this year.

Great. Thank you.

The next question is from the line of Drouet Herve with HSBC. Please go ahead.

Yes. Good afternoon. Two question as well on my side. Firstly, in terms of date for the AGM, do you have a date for the AGM? And do you believe there could be -- what is your view on the potential payouts on earnings that you may gave to shareholders? And the second question is, did you see in the beginning of Q2 an impact in terms of bad debt increasing, especially as well as you unwind the portfolio -- your loan portfolio on consumer financing? Do you see an increased portion of difficulties of payment from some of your consumers? Thank you.

Okay, Herve. Thank you very much. For the General Assembly, along with many other listed companies, we are on hold regarding a call for General Assembly. Please also note that our government introduced 25% cap on dividends, which will be effective till end of September. So this is one side. Also this cap overrides our official dividend policy of distribution, minimum 50% of distribution net income. Yet in practice, any present company would wait and see the normalization of this crisis before the dividend decision. At Turkcell, we also believe that it will be reasonable to wait until the removal of this cap, hopefully with this normalization of the condition and removal of this cap, our Board can make a dividend proposal in line with our policy and we can hold our General Assembly in the later months of this year. This is regarding the AGM. For the bad debt, I think, Osman, can response for the bad debt side as well.

Actually until March we had a very strong collection performance not only in consumer finance business, but also in all business segments. And cost of risk in consumer finance declined from 3.2% to 2.8% despite a contracting portfolio. Inevitably, pandemic will have negative consequences on our collection performance. For example, due to regulatory restrictions, we will not be able to make a legal follow-up for our late payments in consumer finance business. Similarly, banks in Turkey cannot conduct legal follow-up actions for their receivables, and we will not be able to do this until mid June. This will have some negative impact on our cost of risk. We expect cost of risk to rise to 4% to 5% in the coming quarters. It's about 1% higher than our initial assumptions in the beginning of this year. Also, please note that more than 90% of the loans that we granted are insured. And these insurances protect us against unemployment, which is expected to rise rapidly in coming months. So we are partially hedged against macroeconomic downturn.

And just a follow-up question on those 90% insured. Does it covered external events such as COVID-19?

It covers only unemployment. It doesn’t cover natural diseases or pandemic. It is not a health insurance. It's against debt and also …

Unemployment.

.. unemployment, yes. And we are not insuring customers above age 65. So we see very few fatalities throughout the year. Most of the compensation comes from unemployment claims.

Okay. I understand. All right. Thank you.

The next question is from the line of Mandaci Ece with Unlu Securities. Please go ahead.

Hi. Thank you very much for the question. I have three questions. One is about the mobile ARPU growth trend going forward. If I'm not mistaken, you mentioned that the ARPU growth should converge the inflation at some point. So when do you expect such a convergence to happen? As far as I believe that’s in the -- in April, you still have the effect of the up-selling and probably that might be higher ARPU growth, particularly in postpaid segment. And on a standalone basis, we are seeing a slower growth compared to previous quarters. But still there's a transition as you have noted from prepaid to postpaid, which also has an effect in the blended ARPU. So combining all those on how much percentage growth we should expect from ARPU for the second quarter and the third quarter? This is my first question in detail. And the second question is about the corporate segment revenues, which represent like 60% of your total consolidated revenues. We have seen 30% growth in this segment in the first quarter, but you’re seeing slower sales. Should we expect sharp contraction or slight growth or still high teens growth in the segment for the second quarter? How we should make assumptions for that segment, specifically. And thirdly, you highlighted the working capital requirements, an increase in working capital requirements for the whole year, given this SME business. I think it had below [indiscernible] share in your total revenues. Why you considered this effect? Would you still expect an improvement in your net debt over EBITDA ratio or leverage ratio for 2020. Thank you.

Okay. Thank you. Thanks for the questions. First of all, let me start on ARPU side and let me give you a little bit broader answer on the ARPU side, because ARPU impact on fixed and also mobile front. On the mobile side, our mobile ARPU rose to 1.5%, driven by large postpaid subscriber base and offset effort on the back of increased data consumption. Inflationary pricing is a key pillar of our business model. Due to contracted nature of our business, our price actions are reflected in ARPU with a lag. Please note that Turkey has been a -- in a declining inflation path since last year and this trend is to be accelerated with the falling commodity prices as well as a drop in demand in various industries as a result of COVID-19 pandemics. Declining inflation, together with our aim to support our customer in these difficult times, puts a limit on pricing. Has it reasonable to expect our ARPU growth to convert to a reasonable range around inflation level in the upcoming quarters.On the fixed side, we registered fiber ARPU growth of 13.4% in Q1. The slowdown in fiber ARPU growth is also a reflection of declining inflationary environment. Please also note that we renew our offering portfolio with the removal of fair uses policy at the beginning of 2019 and increased our pricing. As we have longer term contracts in fixed segment and as the base FX diminish, this also impact our ARPU growth. Regarding corporate revenue side, obviously, we don't expect sharp contraction, but we will see business lockdown because there are, especially in the SME side, the shops are closed, the SMEs are not working at this point of time. So this impact our revenue side. On the other hand, roaming also has a big, big revenue declining position since our corporate customers aren't going abroad and doing business with their abroad companies. So that's why our corporate segments will hit more than the consumer side in this COVID-19. But to be honest, I would expect the corporate business will recover sooner than the other business because the demand is not canceled, it's just postponed. For the working capital side, Osman, will take care of the question.

Thank you very much. First, let us clearly stated, rather than being rigid on collections with a short sighted vision, we rather believe that we should be providing the flexibility to our customers during these difficult times and we thus we can build stronger bonds with them. In the corporate segment, certain industries and in particular, SMEs, have been directly impacted by the pandemic. We see lower risk for large enterprises and public accounts, but we see risk -- high risk for SME segment.We have been extending the payment terms for several customers in the industries that are directly impacted. At this point, THE number of these requests are limited and insignificant given the total number of clients. Yet if we have a prolonged scenario, we can expect additional deferral on payments. As I try to figure in the previous questions. we don’t expect a significant impact in terms of networking capital requirements. And if this will rip off more than offset by the flexibility in our consumer finance business. There will be additional release from this lockdown in this business and this will more than offset the working capital requirement in SME segment.Final question on net debt to EBITDA. Unless we see a further depreciation in lira, we expect our leverage ratio to remain below 1.0 time throughout this year. And if the currency stays stable at these levels, we will -- potentially we will see lower net debt to EBITDA figures approach into 0.7x.

Thank you. Ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to Mr. Bilek for webcast questions. Thank you.

So we have a list of questions coming from the web. We are going to touch on a couple of them and try to address the rest, that’s one-to-one. Some of them have already been answered. So one is related with the impact of prepaid top up. So what’s the COVID and social, mobility impact on the prepaid top up?

Let me take care of this question. The usual online channel has an increased trend in the last couple of months. As people spend more time in their homes, we have seen a decrease in our top up revenue from our stores. Bu since our top up rates has increased significantly through our digital channel. We don't see a negative effect on prepaid top ups in total. So to give you some information, our digital share increased from 6% to 13% in terms of top up.

Thank you, Murat. Thanks. And one last question. Regarding our credit line, how much do you have in committed and uncommitted credit lines?

Actually, we have utilized almost all of our committed lines, but we are working on additional committed lines and we are planning to announce it very soon. In addition to that, we have US$50 million lift from an ECA facility with [indiscernible] And in the beginning of April, we have utilized TRY50 million from this facility. Moreover, we have around 4.5 billion credit lines from various banks both in Turkey and outside Turkey.

Thank you, Osman. So this brings us to the end of the call. We thank Murat and Osman for their presentations and everyone for their participation.

Have a safe and healthy days.

Thank you. Thank you, all. Bye, bye.