Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome and thank you for joining the Turkcell’s conference to present and discuss the Second Quarter 2020 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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, Maria. Hello, everyone. Welcome to Turkcell’s second quarter 2020 results call. Today’s speakers are our CEO, Mr. Murat Erkan and our CFO, Mr. Osman Yilmaz. We will 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 second quarter 2020 results call. It was a challenging quarter, during which we all felt the impact of the COVID-19 pandemic. I will shortly talk about its impact on our business, but before I do that, I would like to start by mentioning the highlights of the quarter. We recorded solid performance with our strong business model and prudent financial management discipline. On a consolidated basis, we delivered 11.8% revenue growth this quarter. Despite limited mobility during the quarter, we gained 181,000 customers, 144,000 of which were postpaid. Mobile ARPU growth of 14% exceeded the inflation. Our strategy of prioritizing our digital channels has helped us during the period. 11% of our mobile customer sales were through our website and our application. Furthermore, Paycell’s outstanding performance once again proved that we are on the right track with our investment in payment systems. Overall, we generated TRY1.3 billion free cash flow during the quarter, strengthening our balance sheet. We improved the leverage ratio by 0.4 points year-on-year, reaching 0.8x at the end of quarter 2. Moving to next slide, as was the case with all operators, the COVID-19 pandemic has led to a sharp drop in roaming revenues. For us, it was by 2.6 points, down to 0.9% of Turkcell Turkey revenues. We expect this factor to continue impacting us in the third quarter. Mobility was constrained, but still the drop in gross mobile subscriber acquisition was at an acceptable level. Customers have continued to choose our service offering and quality, thanks to our widespread and community channels including digital. On the topic of digital, we encourage our subscriber to use our online platforms for telco services, top-up and technological product purchases. Accordingly, our digital channels revenue share rose to 11%, up…

Thank you, Murat. Now let’s take a closer look into the financials. In the second quarter, group revenues rose by 11.8% year-on-year, corresponding to an incremental TRY733 million. Of this increase TRY740 million derives from Turkcell Turkey. This was possible with the rising share of postpaid subscribers, upsell efforts and strong data demand despite a sharp decline in roaming revenues and slowdown in top-up revenues. Looking at the first half, top line growth was 14.5%. The slowdown in our consumer finance business and exit from the sports business a year ago had a 3.3% negative impact on our top line growth. Next slide. In the second quarter, group EBITDA rose by 10.6% year-on-year to TRY2.8 billion. During this period, the use of digital channels and remote working practices have led to savings in OpEx contributing to our profitability. Meanwhile, the higher share of relatively lower margin segments, such as smart device sales and corporate projects has resulted in a margin decline by 0.4% to 40.8% year-on-year. Turkcell Turkey’s EBITDA rose by 15.8% year-on-year to around TRY2.5 billion. It has continued to improve its profitability margin with a 0.5 percentage point rise year-on-year to 41%. In the first half, EBITDA rose by 16.5% year-on-year to TRY5.6 billion. EBIT rose by 15.6% year-on-year to TRY2.8 billion with a margin of 20.7%. Next slide. Now more detail on our free cash flow generation capacity. As discussed, our operations generated TRY5.6 billion of EBITDA in the first half, up 17% from the previous year. Thanks to a strong collection performance and smart CapEx management, we recorded a TRY1.6 billion free cash flow in the first half. Of this amount, TRY0.6 billion is related to de-leveraging of our consumer finance business with the remaining TRY1 billion being related to telco operation. The major items of…

[Operator Instructions] The first question comes from the line of Cabejšek Ondrej with UBS. Please go ahead. Cabejšek Ondrej: Hi, thanks for taking for my questions and congratulations on the results. I had there questions, please. On your net promoter score, so you are highlighting that in the second quarter, you widened the gap between yourself and your competitors. Can you just explain a bit what contributed to this? Second question is around the sustainability of some of these selling and marketing cost declines with a lot of digitization going on as you are highlighting. What do you think is sustainable of the cost that you have seen decrease? What sort of levels do you think are sustainable long-term relative to sales? And third question regarding the Superbox progress. So you have added something like 90,000 subscribers this quarter compared to something like 70,000 in the first quarter. Is this more or less in line with what you were expecting because your competitor reported record numbers of fixed broadband additions? So, I was wondering how you are looking at this? If perhaps you might be rethinking your approach to the provision of fixed broadband services as opposed to services based on mobile and whether you are currently maybe pushing more for some sort of regulatory changes around fiber provision? Thank you.

Okay. Ondrej. Thank you very much for the question. Let’s start with the Net Promoter Score. This is mainly when the time is challenging, customers looking for quality in terms of network quality, infrastructure quality and service regions. So during this period, COVID-19 period, customers confirm that our quality – infrastructure quality as well as the service quality and high customer experience management quality as well. So I think this is the main driver, especially coverage services, digital services. For the second question, sales and marketing, first of all, in the sales side, I think this is sustainable, but we shouldn’t forget that our sales cost, little bit moved to digital as we expected. But during the COVID-19 period, we see that it become more faster than they expected. For the marketing side, due to COVID-19, we either postponed or canceled part of marketing expense. This will bounce back to normal trend when the things getting normal. So for the marketing side, I think we will get back to the similar level that we are spending before. We are hoping that the COVID-19 will go away. For the Superbox side, it is 91,000 net adds, but we also had 36,000 fiber subscribers as well. So this is – for the broadband, demand is there. And Superbox success shows that customers need higher speed at their home, and they are ready to pay almost – more than double, actually, close to triple ARPU level to our Superbox product to get proper services. This shows fiber is very important in Turkey and customer needs quality service at their home. And when they couldn’t get it, they go for more expensive but higher quality services, I would say. For the fiber footprint, I can a little bit elaborate on this side. We continue investing in fiber infrastructure using existing permits, and we also start to get new permits from the fiber deployment and are still limited in scale through. But this shows that when we get this – the right-of-way license or investment permits, we can go further fixed line investment. In order to accelerate fiber rollout, our goal is to make fiber investment jointly. This view was also supported by our President in his speeches. Since otherwise, there could be a significant waste of resource in the country. We expect development on the infrastructure sharing in upcoming period as well. Cabejšek Ondrej: That’s very clear. Thank you very much.

Thank you.

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

Hi, thank you for the presentation and congratulations on the strong results. I have a few questions as well. Firstly, could you please elaborate on the ARPU growth trends for the second quarter for the postpaid and prepaid segments? And could you also remind us if Superbox ARPU was included under the postpaid segment still? Because given the – around – about 20% price increase year-to-date in the Superbox packages, I was expecting myself a higher postpaid ARPU growth for the second quarter. And how we should see for the third quarter the growth trend on that front? And my second question is on your commitments regarding this automotive project. So I think if I did not hear wrong, you will commit in total €95 million for the project? And how much of it will be in 2020 and 2021? Thank you very much.

First of all, thank you very much for the question. The first part, Superbox ARPU, it is included postpaid segment, but if we look at like-for-like ARPU, it’s like around 13.5% level. So even though Superbox ARPU included, it has limited impact on the ARPU growth of the postpaid. The second thing about the first question for the – in the postpaid ARPU, there is also roaming ARPU as well. Mainly our postpaid customer utilize abroad traffic – abroad services as well. So unfortunately, during COVID, we cannot get this revenue from our postpaid subscribers. So even though Superbox contributed on the one side, but roaming side get another minus for us. But we managed to keep over the inflation, which is very important on our side. For the commitment for the automotive project, I believe – let me check the numbers. The majority of that in the – as our commitment is €95 million, as far as I remember, first €19 million has been released. The rest will be released until 2020 – end of 2020.

‘22.

‘22. Sorry ‘22.

So for 2020, how much issued this year?

It is €19 million so far.

So far.

Yes.

Partly for the second half, we should expect?

Yes. The rest will continue until the end of 2023.

So you highlighted the missing roaming revenues, unfortunately, for the postpaid segment. That will be the case for the third quarter, right? So for the third quarter as well, even though there was an additional price increase in the third quarter for Superbox, you are saying it had a limited effect also probably in the third quarter?

Exactly. Obviously, we shouldn’t forget that inflation is going down quarter-over-quarter in Turkey. So we are trying to be in line with the inflation and the expectation is around maybe single-digit, maximum 11% inflation rate so we are still over and above the inflation, but we would like to keep similar levels, plus and minus on the inflation growth as well on the other hand, with growing number of subscribers. This is also helping our revenue growth on top of revenue.

Okay thank you very much.

But for Q3 – regarding roaming comment, it is valid for Q3, I would say, because we will see roaming impact on Q3 because Q3 is one of the biggest quarter in terms of roaming revenue, we will manage it.

Okay thank you very much.

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

Two questions, please. I firstly just wanted to talk about this letter, comment that you made that inflation is going down. So on top of that, with the roaming falling out, what sort of ARPU – mobile ARPU growth you think you can show in the second half of the year? It doesn’t look like it will be easy to even mention like high single-digit inflation from what I can see. So any comments on that would be highly appreciated. And then secondly, I just wanted to ask about the working capital dynamics in the second half. So first half, obviously, was quite strong. And only part of that is driven by the consumer finance company. There were some trade payables released, too. So what do you expect for the second half of full year, whichever is easier for you to talk about? Thank you.

Is management ready to answer?

Sorry, sorry about that. Let me start with the inflation question. As the inflationary pricing is a key pillar of our business model. Yet, our price actions are reflected in pricing with a lag due to contracted nature of our business. Accordingly, our ARPU growth was much higher than the inflation rate in the last three to four quarters. It’s reasonable to see some normalization in ARPU growth with the decline in inflation over the last year. I would like – I would – reasonable to expect our pricing to converge to a reasonable range around inflation levels in the upcoming quarters. So it’s – I expect higher single digit, maybe double-digit level. For the second quarter, we expect to be stable around this level for the rest of the year for the working – I think the question was related to working capital. So we expect similar level that we are seeing in the first half.

Okay thank you.

The next question comes from the line of Ibragimova Dilya with Citi Bank. Please go ahead.

Hi, thanks very much for the opportunity. I have a question on – just follow-up on your comments on fiber investments and the right-of-way license that you said. Could you maybe give a bit more details first on what the implication would be on your investment – sorry on your investment intensity, especially if you were to get a bit more permits going into 2021? And then just maybe if you could give a bit more color as to you said who is the – which agency issues this license? And how long do you expect this license to be available for? Some color on who it is, how it works, yes, and what changed? Thanks.

First of all, last couple of years, we couldn’t get – I couldn’t say license kind of permanent. So when you try to deploy fiber in Turkey, you need to get permits from ministry of transportation and municipality. That is the area that you would like to roll out. So so far, we couldn’t get – last couple of years, we couldn’t get permit from ministry of communication for rolling out fiber. But recently, we get some of the partners so that we can deploy more fiber for our infrastructure. As everybody knows, fiber is very important for fixed line as well as the 5G that is in front of us. So deploying fiber is very important. For 2021, we would like to see – we would like to invest in fiber, but would like to invest in jointly because investing in infrastructure is not good for the economy of country. So if we jointly invest in fiber infrastructure in Turkey, then we can compete on the services level. As everybody knows that if three party deployed fiber into the same place, then it’s not a very efficient way to deploy fiber. So we would like to push joint investment. And I see that in the government authority level, there is an ambition to do in a joint way as well. So this is good news for us.

Thank you.

We have a follow-up question from the line of Cabejšek Ondrej with UBS. Please go ahead. Cabejšek Ondrej: Yes hi, thank you. Two follow-ups for me, please. One regarding the fiber you mentioned that there is now more political will for some of the sharing or joint venture projects can you just give us a bit more color as to what scenarios are in play, i.e. now that, for example, both you and Türk Telekom have similar or – have a common shareholder? Is there a possibility that the entire network sort of merge somehow over the medium term, for example? Is there a – you mentioned joint ventures in terms of investing, should we expect only that? Or is there a potential for something more, more sort of market-wide to happen? That’s my first follow-up and the second follow-up, just on the inflationary pricing. Do I read – or do we read your answer to the previous question in the way that you feel more comfortable about raising prices currently because at the one quarter results, you were sort of hesitant to comment on inflationary pricing during the pandemics. So is that situation better now?

Thank you for the – first of all, for the first question, my comment is more – I mean I don’t believe that we have common shareholders because shareholder structure is a little different. But on this side, I would like to mention that looking at Telco asset portfolio of Turkish Wealth Fund, we believe that a fair and combined environment for infrastructure sharing is also positive because Turkish Wealth Fund has cable infrastructure, will probably – share in Turkcell and has limited share in Türk Telekom. So in this perspective, it is wise to have common infrastructure for the country. And this is good for the country for the future as well. We can expand our fiber infrastructure and reach equally to the – all over the countries. And coming up, 5G in front of us, other – I mean, high-speed Internet need at home, these are drives – driving force for the common fiber investment. And as I mentioned, Turkey needs more fiber. The Superbox penetration shows the demand. Demand is there. Customer is ready to pay higher for the better services. For the inflation, I mean, the track record of Turkcell shows what we will – we are going to do for next coming quarter. We always say that we’re going to follow inflationary pricing we would like to continue on this side. As we said before, it was difficult to increase the price during pandemic area, but we do see that they are more comfortable times to increase pricing. So we will do our best to meet our inflation and pricing approach. And also, by the way, just to remind that we have already started to increase our acquisition price. And we hope our competition will likely follow us. Cabejšek Ondrej: Okay, thank you.

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

I would like to thank all the participants and have a good evening and good afternoon.