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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
As filed with the Securities and Exchange Commission on April 1, 202026, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
WASHINGTON, D.C. 20549
FORM20-F
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
OR | ||
ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 |
For the fiscal year ended December 31, 2019
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
For the transition period from to
OR
OR | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission File Number:1-15092
TURKCELL ILETISIM HIZMETLERI A.S.
(Exact Name of Registrant as Specified in Its Charter)
TURKCELL
TURKCELL
(Translation of Registrant’sRegistrant's Name into English)
Republic of Turkey (Jurisdiction of Incorporation or Organization) | Mr. Ali Serdar Yagci Telephone: +90 212 313 18 88 Facsimile: +90 216 504 4058 Turkcell Kucukyali Plaza Aydinevler Mahallesi Inonu Caddesi No:20 Kucukyali Ofispark Maltepe Istanbul, Turkey (Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person) | Turkcell Kucukyali Plaza Aydinevler Mahallesi Inonu Caddesi No:20 Kucukyali Ofispark Maltepe Istanbul, Turkey (Address of Principal Executive Offices) |
Republic of Turkey (Jurisdiction of Incorporation or Organization) Turkcell Kucukyali Plaza Aydinevler Mahallesi Inonu Caddesi No:20 Kucukyali Ofispark Maltepe Istanbul, Turkey (Address of Principal Executive Offices) Mr. Zeynel Korhan Bilek Telephone: +90 212 313 8150 Facsimile: +90 216 504 4058 Turkcell Kucukyali Plaza Aydinevler Mahallesi Inonu Caddesi No:20 Kucukyali Ofispark Maltepe Istanbul, Turkey (Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) ofthe Act:
Title of each class | Trading symbol | Name of each exchange on which registered | |||||||
---|---|---|---|---|---|---|---|---|---|
Ordinary Shares
| TKC | New York Stock Exchange
|
|
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’sissuer's classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary Shares, Nominal Value TRY 1.000 2,200,000,000
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ý No ☐o
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐o No ☒ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ý No ☐o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ý No ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated"accelerated filer and large accelerated filer”filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | Accelerated Filer | Non-Accelerated Filero | ||||
Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act. ☐o
|
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP | International Financial Reporting Standards as issued
| Other |
If “Other”"Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐o Item 18 ☐o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒.ý
ITEM | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | |||||
ITEM | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | |||||
ITEM | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | |||||
ITEM | CONTROLS AND PROCEDURES | |||||
ITEM | 195 | |||||
16.A | ||||||
16.B |
This is the 20192020 annual report for Turkcell Iletisim Hizmetleri A.S. (“Turkcell”("Turkcell"), a joint stock company organized and existing under the laws of the Republic of Turkey. The “Company”"Company", “we”"we", “us”"us", “our”"our", “Group”"Group" and similar terms refer to Turkcell, its predecessors, and its consolidated subsidiaries, except as the context otherwise requires.
Our audited Consolidated Financial Statements as of December 31, 20192020 and 20182019 and for each of the years in the three-year period ended December 31, 20192020 included in this annual report have been prepared in accordance with International Financial Reporting Standards (“IFRS”("IFRS") as issued by the International Accounting Standards Board (“IASB”("IASB").
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly, and figures shown as totals in certain tables may not total exactly. In this annual report, references to “TL”"TL", “TRY”"TRY" and “Turkish Lira”"Turkish Lira" are to the Turkish Lira, and references to “$”"$", “U.S. Dollars”"U.S. Dollars", “USD”"USD", “U.S. $”"U.S. $" and “cents”"cents" are to U.S. Dollars and, except as otherwise noted, all interest rates are on a per annum basis. In this annual report, references to “Turkey”"Turkey" or the “Republic”"Republic" are to the Republic of Turkey.
Statements regarding total market size in Turkey are based on the Information and Communication Technologies Authority’s (“ICTA”Authority's ("ICTA") or operators’operators' announcements, and statements regarding penetration are based on the Turkish Statistical Institute’s (“TUIK”Institute's ("TUIK") announcements pertaining to the Turkish population.
References to the Information and Communication Technologies Authority or the ICTA include its predecessor entity, the Telecommunications Authority.
We have not independently verified the information in industry publications or market research, although management believes the information contained therein to be reliable. We do not represent that this information is accurate.
The methodology for calculating performance measures such as subscriber numbers, average revenue per user (“ARPU”("ARPU") and churn rates varies substantially among operators, and is not standardized across the telecommunications industry, and reported performance measures thus vary from those that would probably result from the use of a single methodology. In addition, subscriber numbers in the mobile communications sector may be difficult to calculate as a result of individuals having more than one SIM card, or SIM cards being removed due to periods of inactivity. The differing methodologies for calculating these performance indicators make it difficult to draw comparisons between these figures for, and to determine the relative market share of, different mobile operators.
This annual report includes forward-looking statements within the meaning of section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this annual report, including, without limitation, certain statements regarding our operations, financial position, and business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”"may", “will”"will", “expect”"expect", “intend”"intend", “estimate”"estimate", “anticipate”"anticipate", “believe”"believe", “continue”"continue", or similar statements.
Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, we can give no assurance that such expectations will prove to be correct. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements. Important factors that could cause actual results to differ materially from our expectations are contained in cautionary statements in this annual report, including, without limitation, in conjunction with the forward-looking statements listed below, and include, among others, the following:
pandemic on the Company and Turkish economy;
Turkcell’s complex ownership structure and ongoing disagreements among our main shareholders;
major shareholder has recently changed;
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
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Not Applicable.
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Our audited annual Consolidated Financial Statements including our consolidated statements of financial position as of December 31, 20192020 and 20182019 and our consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for the three years in the period ended December 31, 2019 (“2020 ("Annual Consolidated Financial Statements”Statements") included in this annual report have been prepared in accordance with International Financial Reporting Standards (“IFRS”("IFRS") as issued by the International Accounting Standards Board (“IASB”("IASB").
Effective from the fourth quarter of 2015, our financial statements have been presented in TRY only, the currency in which we recognize the majority of our revenues and expenses. We no longer present financial statements in USD. This change has allowed us to align our Turkish and US reporting.
The following information should be read in conjunction with “Item"Item 5. Operating and Financial Review and Prospects”Prospects", our audited consolidated statement of financial position as of December 31, 20192020 and 2018,2019, and the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for the years ended December 31, 2020, 2019 2018 and 2017,2018, and the related notes appearing elsewhere in this annual report.
The following table presents our selected consolidated statements of profit or loss, financial position and cash flows data as of and for each of the years in the five-year period ended December 31, 2019,2020, presented in accordance with IFRS as issued by the IASB which have been derived from our audited Consolidated Financial Statements as of and for the year ended December 31, 20192020 and as of the respective years.
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||
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| (TRY millions, except share data and certain other data) | |||||||||||||||
Selected Financial Data Prepared in Accordance with IFRS as Issued by the IASB Consolidated Statement of Profit or Loss Data | ||||||||||||||||
Total revenue(1) | 29,103.7 | 25,137.1 | 21,292.5 | 17,632.1 | 14,285.6 | |||||||||||
Total cost of revenue(2) | (20,336.1 | ) | (17,083.5 | ) | (14,146.0 | ) | (11,350.2 | ) | (9,236.6 | ) | ||||||
Total gross profit | 8,767.7 | 8,053.7 | 7,146.5 | 6,281.9 | 5,049.0 | |||||||||||
Other income | 96.6 | 140.7 | 241.4 | 74.4 | 78.6 | |||||||||||
Administrative expenses | (749.6 | ) | (779.8 | ) | (673.4 | ) | (645.2 | ) | (721.8 | ) | ||||||
Selling and marketing expenses | (1,373.0 | ) | (1,555.2 | ) | (1,626.7 | ) | (2,005.4 | ) | (1,910.9 | ) | ||||||
Net impairment losses on financial and contract assets | (349.6 | ) | (338.9 | ) | (346.4 | ) | — | — | ||||||||
Other expenses | (619.8 | ) | (487.3 | ) | (381.5 | ) | (773.3 | ) | (312.8 | ) | ||||||
Operating profit | 5,772.3 | 5,033.3 | 4,359.9 | 2,932.4 | 2,181.9 | |||||||||||
Finance income | 2,119.5 | 297.5 | 1,677.1 | 597.2 | 618.3 | |||||||||||
Finance costs | (3,251.2 | ) | (2,025.1 | ) | (3,364.1 | ) | (920.1 | ) | (791.1 | ) | ||||||
Net finance costs(3) | (1,131.7 | ) | (1,727.7 | ) | (1,687.0 | ) | (322.9 | ) | (172.8 | ) | ||||||
Share of loss of equity accounted investees | (13.8 | ) | (15.7 | ) | (0.1 | ) | — | — | ||||||||
Profit before income tax | 4,626.8 | 3,289.9 | 2,672.8 | 2,609.5 | 2,009.1 | |||||||||||
Income tax expense | (387.2 | ) | (785.6 | ) | (495.5 | ) | (571.8 | ) | (423.2 | ) | ||||||
Profit from continuing operations | 4,239.6 | 2,504.3 | 2,177.3 | 2,037.8 | 1,586.0 | |||||||||||
Gain/(loss) from discontinued operations(4) | — | 772.4 | — | — | (42.2 | ) | ||||||||||
Total profit for the year | 4,239.6 | 3,276.7 | 2,177.3 | 2,037.8 | 1,543.8 | |||||||||||
Attributable to: | ||||||||||||||||
Owners of the Company | 4,237.1 | 3,246.5 | 2,021.1 | 1,979.1 | 1,492.1 | |||||||||||
Non-controlling interests | 2.5 | 30.2 | 156.3 | 58.6 | 51.7 | |||||||||||
Total profit for the year | 4,239.6 | 3,276.7 | 2,177.3 | 2,037.8 | 1,543.8 | |||||||||||
Basic and diluted earnings per share—from continuing operations(5) | 1.94 | 1.14 | 0.93 | 0.90 | 0.68 | |||||||||||
Consolidated Statement of Financial Position Data (at period end) | ||||||||||||||||
Cash and cash equivalents | 11,860.6 | 10,238.7 | 7,419.2 | 4,712.3 | 6,052.4 | |||||||||||
Total assets | 51,498.4 | 45,715.0 | 42,765.3 | 33,982.5 | 31,600.2 | |||||||||||
Long-term debt(6) | 16,353.7 | 12,677.4 | 13,119.6 | 8,258.0 | 6,935.1 | |||||||||||
Total debt(7) | 21,586.4 | 20,305.7 | 20,155.5 | 12,536.1 | 9,781.2 | |||||||||||
Total liabilities | 30,713.5 | 27,632.0 | 26,711.7 | 18,937.4 | 15,531.8 | |||||||||||
Share capital | 2,200.0 | 2,200.0 | 2,200.0 | 2,200.0 | 2,200.0 | |||||||||||
Total equity | 20,784.9 | 18,082.9 | 16,053.6 | 15,045.1 | 16,068.4 | |||||||||||
Weighted average number of shares(8) | 2,183,106,193 | 2,183,922,483 | 2,184,750,233 | 2,193,184,437 | 2,193,184,437 |
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
(TRY millions, except share data and certain other data) | ||||||||||||||||||||
Selected Financial Data Prepared in Accordance with IFRS as Issued by the IASB Consolidated Statement of Profit or Loss Data | ||||||||||||||||||||
Total revenue(1) | 25,137.1 | 21,292.5 | 17,632.1 | 14,285.6 | 12,769.4 | |||||||||||||||
Cost of revenue(2) | (17,083.5 | ) | (14,146.0 | ) | (11,350.2 | ) | (9,236.6 | ) | (7,769.5 | ) | ||||||||||
Gross profit | 8,053.7 | 7,146.5 | 6,281.9 | 5,049.0 | 4,999.9 | |||||||||||||||
Other income | 140.7 | 241.4 | 74.4 | 78.6 | 44.5 | |||||||||||||||
Administrative expenses | (779.8 | ) | (673.4 | ) | (645.2 | ) | (721.8 | ) | (625.3 | ) | ||||||||||
Selling and marketing expenses | (1,555.2 | ) | (1,626.7 | ) | (2,005.4 | ) | (1,910.9 | ) | (1,901.9 | ) | ||||||||||
Net impairment losses on financial and contract assets | (338.9 | ) | (346.4 | ) | — | — | — | |||||||||||||
Other expenses | (487.3 | ) | (381.5 | ) | (773.3 | ) | (312.8 | ) | (270.4 | ) | ||||||||||
Operating profit | 5,033.3 | 4,359.9 | 2,932.4 | 2,181.9 | 2,246.8 | |||||||||||||||
Finance income | 297.5 | 1,677.1 | 597.2 | 618.3 | 455.5 | |||||||||||||||
Finance costs | (2,025.1 | ) | (3,364.1 | ) | (920.1 | ) | (791.1 | ) | (499.0 | ) | ||||||||||
Net finance costs(3) | (1,727.7 | ) | (1,687.0 | ) | (322.9 | ) | (172.8 | ) | (43.4 | ) | ||||||||||
Share of loss of equity accounted investees(4) | (15.7) | (0.1) | — | — | — | |||||||||||||||
Profit before income tax | 3,289.9 | 2,672.8 | 2,609.5 | 2,009.1 | 2,203.3 | |||||||||||||||
Income tax expense | (785.6 | ) | (495.5 | ) | (571.8 | ) | (423.2 | ) | (667.1 | ) | ||||||||||
Profit from continuing operations | 2,504.3 | 2,177.3 | 2,037.8 | 1,586.0 | 1,536.2 | |||||||||||||||
Gain/(loss) from discontinued operations(4) | 772.4 | — | — | (42.2 | ) | 367.3 | ||||||||||||||
Profit for the year | 3,276.7 | 2,177.3 | 2,037.8 | 1,543.8 | 1,903.6 | |||||||||||||||
Attributable to: | ||||||||||||||||||||
Owners of the Company | 3,246.5 | 2,021.1 | 1,979.1 | 1,492.1 | 2,067.7 | |||||||||||||||
Non-controlling interests | 30.2 | 156.3 | 58.6 | 51.7 | (164.1 | ) | ||||||||||||||
Profit for the year | 3,276.7 | 2,177.3 | 2,037.8 | 1,543.8 | 1,903.6 | |||||||||||||||
Basic and diluted earnings per share – from continuing operations(5) | 1.14 | 0.93 | 0.90 | 0.68 | 0.94 | |||||||||||||||
Consolidated Statement of Financial Position Data (at period end) | ||||||||||||||||||||
Cash and cash equivalents | 10,238.7 | 7,419.2 | 4,712.3 | 6,052.4 | 2,918.8 | |||||||||||||||
Total assets | 45,715.0 | 42,765.3 | 33,982.5 | 31,600.2 | 26,207.3 | |||||||||||||||
Long-term debt(6) | 12,677.4 | 13,119.6 | 8,258.0 | 6,935.1 | 3,487.8 | |||||||||||||||
Total debt(7) | 20,305.7 | 20,155.5 | 12,536.1 | 9,781.2 | 4,214.2 | |||||||||||||||
Total liabilities | 27,632.0 | 26,711.7 | 18,937.4 | 15,531.8 | 11,788.4 | |||||||||||||||
Share capital | 2,200.0 | 2,200.0 | 2,200.0 | 2,200.0 | 2,200.0 | |||||||||||||||
Total equity | 18,082.9 | 16,053.6 | 15,045.1 | 16,068.4 | 14,418.9 | |||||||||||||||
Weighted average number of shares(8) | 2,183,922,483 | 2,184,750,233 | 2,193,184,437 | 2,193,184,437 | 2,200,000,000 |
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||
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| (TRY millions, except share data and certain other data) | |||||||||||||||
Consolidated Cash Flows Data | ||||||||||||||||
Net cash inflow from operating activities | 13,092.8 | 9,026.6 | 5,829.9 | 3,101.3 | 607.1 | |||||||||||
Net cash outflow from investing activities | (6,780.6 | ) | (3,027.3 | ) | (4,535.6 | ) | (3,304.6 | ) | (2,976.7 | ) | ||||||
Net cash (outflow)/ inflow from financing activities | (4,267.8 | ) | (3,478.0 | ) | (534.4 | ) | (1,566.7 | ) | 4,839.0 | |||||||
Other Financial Data | ||||||||||||||||
Dividends declared(9)(10) | 2,585.8 | 811.6 | 1,010.0 | 1,900.0 | 3,000.0 | |||||||||||
Dividends per share (declared)(10) | 1.18 | 0.37 | 0.46 | 0.86 | 1.36 | |||||||||||
Gross margin(11) | 30% | 32% | 34% | 36% | 35% | |||||||||||
Adjusted EBITDA(12) | 12,270.3 | 10,426.4 | 8,788.0 | 6,228.3 | 4,619.5 | |||||||||||
Capital expenditures(13) | 9,078.9 | 7,224.7 | 7,643.0 | 4,087.4 | 3,494.4 |
Net cash inflow from operating activities Net cash (outflow) from investing activities Net cash (outflow)/ inflow from financing activities Other Financial Data Dividends declared or proposed(10)(11) Dividends per share (declared or proposed)(11) Gross margin(12) Adjusted EBITDA(13) Capital expenditures(14) 2019 2018 2017 2016 2015 (TRY millions, except share data and certain other data) Consolidated Cash Flows Data(9) 9,026.6 5,829.9 3,101.3 607.1 1,901.3 (3,027.3 ) (4,535.6 ) (3,304.6 ) (2,976.7 ) (3,563.0 ) (3,478.0 ) (534.4 ) (1,566.7 ) 4,839.0 (4,887.4 ) — 1,010.0 1,900.0 3,000.0 — — 0.46 0.86 1.36 — 32% 34% 36% 35% 39% 10,426.4 8,788.0 6,228.3 4,619.5 4,140.5 7,224.7 7,643.0 4,087.4 3,494.4 8,536.2
("AGM") on March 29, 2018 and paid in three installments. The dividend paid amounting to TRY 1,010.0 million in 2019 relating to the year 2018 was approved by the AGM on September 12, 2019, and paid on October 31, 2019. The dividend paid relating to the year 2019 amounting to TRY 811.6 million in 2020 was approved by the AGM on October 21, 2020, and paid on November 30, 2020. The dividend relating to the year 2020 amounting to TRY 2,585.8 million was approved by the AGM on April 15, 2021 which will be paid in three installments.
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Non-IFRS measures
Non-IFRS measures
Adjusted EBITDA is a non-GAAP financial measure that is defined as the profit of the Company for the period before finance income, finance costs, income tax expense, other income, other expenses, gain or loss from discontinued operations, share of profit or loss of equity accounted investees and depreciation and amortization. Our management reviews Adjusted EBITDA as a key indicator each month in monitoring our financial performance. Net income is also considered by our management as an indicator of our overall business performance, which includes results from our operations, financing and investing activities. Adjusted EBITDA is not a measurement of financial performance under IFRS and should not be construed as a substitute for profit for the period as a measure of performance, or cash flow from operations as a measure of liquidity.
Adjusted EBITDA, among other measures, facilitates performance comparisons from period to period and management decision making. It also facilitates performance comparisons from company to company, subject to differences in the way it is calculated by different companies. Adjusted EBITDA as a performance measure eliminates potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates on periods or companies) and the age and book depreciation and amortization of tangible and intangible assets (affecting relative depreciation and amortization expense). Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in evaluating the performance of other mobile operators in the telecommunications industry in Europe, many of which present Adjusted EBITDA when reporting their results.
Nevertheless, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation from, or as a substitute for analysis of, our results of operations, as reported under IFRS.
Some of these limitations are:
We compensate for these limitations by relying primarily on our results under IFRS and using Adjusted EBITDA measures only supplementally. See “Item"Item 5. Operating and Financial Review and Prospects”Prospects" and the Consolidated Financial Statements contained elsewhere in this annual report.
The following table provides a reconciliation of Adjusted EBITDA, as calculated using financial data prepared in accordance with IFRS as issued by the IASB, from net profit, which we believe is the most directly comparable financial measure calculated and presented in accordance with IFRS as issued by the IASB.
| Year ended December 31, | |||||||||||||||
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| 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||
| (Million TRY) | |||||||||||||||
Profit for the year | 4,239.6 | 3,276.7 | 2,177.3 | 2,037.8 | 1,543.8 | |||||||||||
Gain or (loss) from discontinued operations | — | 772.4 | — | — | (42.2 | ) | ||||||||||
Income tax expense | (387.2 | ) | (785.6 | ) | (495.5 | ) | (571.8 | ) | (423.2 | ) | ||||||
Consolidated profit before income tax | 4,626.8 | 3,289.9 | 2,672.8 | 2,609.5 | 2,009.1 | |||||||||||
Share of loss of equity accounted investees | (13.8 | ) | (15.7 | ) | (0.1 | ) | — | — | ||||||||
Depreciation and amortization | (5,974.8 | ) | (5,046.6 | ) | (4,288.0 | ) | (2,597.0 | ) | (2,203.3 | ) | ||||||
Other operating (expense), net | (523.3 | ) | (346.6 | ) | (140.1 | ) | (698.9 | ) | (234.2 | ) | ||||||
Net finance (costs) | (1,131.7 | ) | (1,727.7 | ) | (1,687.0 | ) | (322.9 | ) | (172.8 | ) | ||||||
Adjusted EBITDA | 12,270.3 | 10,426.4 | 8,788.0 | 6,228.3 | 4,619.5 |
Year ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
(Million TRY) | ||||||||||||||||||||
Profit for the year | 3,276.7 | 2,177.3 | 2,037.8 | 1,543.8 | 1,903.6 | |||||||||||||||
Gain or (loss) from discontinued operations | 772.4 | — | — | (42.2 | ) | 367.3 | ||||||||||||||
Income tax expense | (785.6 | ) | (495.5 | ) | (571.8 | ) | (423.2 | ) | (667.1 | ) | ||||||||||
Consolidated profit before income tax | 3,289.9 | 2,672.8 | 2,609.5 | 2,009.1 | 2,203.3 | |||||||||||||||
Share of loss of equity accounted investees | (15.7 | ) | (0.1 | ) | — | — | — | |||||||||||||
Depreciation and amortization | (5,046.6 | ) | (4,288.0 | ) | (2,597.0 | ) | (2,203.3 | ) | (1,667.8 | ) | ||||||||||
Other operating income/(expense), net | (346.6 | ) | (140.1 | ) | (698.9 | ) | (234.2 | ) | (225.9 | ) | ||||||||||
Net finance (costs) | (1,727.7 | ) | (1,687.0 | ) | (322.9 | ) | (172.8 | ) | (43.4 | ) | ||||||||||
Adjusted EBITDA | 10,426.4 | 8,788 0 | 6,228.3 | 4,619.5 | 4,140.5 |
The following table presents selected operational data:
I. Operating Results
| As of and for the year ended December 31, | |||||||||
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| 2020 | 2019 | 2018 | |||||||
Industry Data | ||||||||||
Population of Turkey (in millions)(1) | 83.6 | 83.2 | 82.0 | |||||||
Turkcell Data(2) | ||||||||||
Number of mobile postpaid subscribers at end of period (in millions)(3) | 22.0 | 20.4 | 18.8 | |||||||
Number of mobile M2M subscribers at end of period (in millions) | 2.8 | 2.6 | 2.4 | |||||||
Superbox subscribers at end of period (in thousands)(4) | 591.2 | 323.2 | 33.5 | |||||||
Number of mobile prepaid subscribers at end of period (in millions)(3) | 11.5 | 12.4 | 14.9 | |||||||
Number of fiber subscribers at end of period (in thousands) | 1,664.3 | 1,484.7 | 1,385.6 | |||||||
Number of ADSL subscribers at end of period (in thousands) | 707.6 | 719.1 | 905.6 | |||||||
Number of IPTV subscribers at end of period (in thousands) | 871.3 | 719.7 | 613.4 | |||||||
Total Turkcell Turkey subscribers at end of period (in millions) | 36.7 | 35.7 | 36.7 | |||||||
Total Turkcell Group subscribers at the end of period (in millions)(5) | 47.9 | 46.7 | 48.9 | |||||||
Mobile average monthly revenue per user (in TRY)(6) | 45.5 | 39.8 | 33.9 | |||||||
Postpaid | 59.1 | 56.5 | 48.3 | |||||||
Postpaid (excluding M2M) | 67.0 | 64.3 | 55.0 | |||||||
Prepaid | 21.8 | 18.3 | 16.9 | |||||||
Fixed residential average monthly revenue per user (in TRY)(6) | 69.6 | 63.2 | 55.2 | |||||||
Mobile average monthly minutes of use per subscriber(7) | 518.7 | 415.3 | 359.5 | |||||||
Mobile churn (monthly)(8) | 2.3% | 2.7% | 2.1% | |||||||
Fixed churn (monthly)(9) | 1.9% | 2.1% | 1.8% | |||||||
Number of Turkcell employees at end of period | 4,028 | 4,060 | 4,065 | |||||||
Number of employees of consolidated subsidiaries at end of period(10) | 24,675 | 21,813 | 20,120 |
As of and for the year ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Industry Data | ||||||||||||
Population of Turkey (in millions)(1) | 83.2 | 82.0 | 80.8 | |||||||||
Turkcell Data(2) | ||||||||||||
Number of mobile postpaid subscribers at end of period | 20.4 | 18.8 | 18.5 | |||||||||
Number of mobile M2M subscribers at end of period | 2.6 | 2.4 | 2.3 | |||||||||
Number of mobile prepaid subscribers at end of period | 12.4 | 14.9 | 15.6 | |||||||||
Number of fiber subscribers at end of period (in thousands) | 1,484.7 | 1,385.6 | 1,204.3 | |||||||||
Number of ADSL subscribers at end of period (in thousands) | 719.1 | 905.6 | 921.4 | |||||||||
Number of IPTV subscribers at end of period (in thousands) | 719.7 | 613.4 | 505.9 | |||||||||
Total Turkcell Turkey subscribers at end of period (in millions) | 35.7 | 36.7 | 36.7 | |||||||||
Total Turkcell Group subscribers at the end of period | 46.7 | 48.9 | 50.2 | |||||||||
Mobile average monthly revenue per user (in TRY)(5) | 39.8 | 33.9 | 29.8 | |||||||||
Postpaid | 56.4 | 48.2 | 43.0 | |||||||||
Postpaid (excluding M2M) | 64.1 | 54.9 | 48.5 | |||||||||
Prepaid | 18.3 | 16.9 | 14.9 | |||||||||
Fixed Residential average monthly revenue per user (in TRY)(5) | 64.5 | 55.7 | 53.6 | |||||||||
Mobile average monthly minutes of use per subscriber(6) | 415.3 | 359.5 | 347.1 | |||||||||
Mobile Churn(7) | 2.7% | 2.1% | 1.9% | |||||||||
Fixed Churn(8) | 2.1% | 1.8% | 1.8% | |||||||||
Number of Turkcell employees at end of period | 4,060 | �� | 4,065 | 3,967 | ||||||||
Number of employees of consolidated subsidiaries at end of period(9) | 21,813 | 20,120 | 19,768 |
mobile TV revenues are generated by mobile subscribers. IPTV revenues will continue to be recorded under Turkcell Superonline and included in fixed residential ARPU. For comparability purposes, we provide ARPU data for the last three years, revised to reflect this change.
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3.B Capitalization and Indebtedness
Not applicable.
3.C Reasons for the Offer and Use of Proceeds
Not applicable.
The following is a discussion of those risks that we believe are the principal material risks faced by our Company and its subsidiaries. No assurance can be given that risks that we do not believe to be material today will not prove to be material in the future. Consequently, the risks described below should not be considered to be exhaustive.
Competition in the Turkish telecommunications market may adversely affect the growth of our business and our financial condition, and the competition that we face may evolve with our business strategy.
The majority of our revenue comes from our operations in Turkey. Competition in this market and regulatory actions, in particular those that limit our ability to respond effectively to competitive pressures, may adversely affect the growth of our business and our financial condition. If the competition we face intensifies or the market slows or develops in unexpected ways, this could harm our business and financial condition.
In our conventional Turkish telecommunications market, we currently face price competition on telecommunication services, in particular from two other operators, Vodafone Telekomunikasyon A.S. (“Vodafone”("Vodafone") and Turk Telekomunikasyon A.S. (“("Turk Telekom”Telekom"). Turk Telekom’s majority shareholder,In 2018, following a default by Oger Telecom has defaulted on the bank loans it used to finance its stake in Turk Telekom. Accordingly, the ownership ofTelekom, Oger Telecom’sTelecom's 55% stake was transferred to a special purpose company established by the creditor banks in late 2018. Itsbanks. The creditor banks have announced the launch of a sale process for their stake in September 2019. We cannot predict how this situation will be resolved or whether there will be changes in its strategy or ownership in the meantime.
The outcome of this situation could have a significant impact on the competitive environment in which we operate. More generally, we expect to experience continued price driven competition in our main markets. If we do not respond effectively to this competition, the growth of our business and our financial condition may be negatively affected.
A key element of our strategy is to offer digital services. As a result, we expect to find ourselves increasingly in competition with companies that specialize in the development of internet applications and services (namely “over-the-top”"over-the-top", or “OTT”"OTT" services). The leading companies in these businesses have the advantage of operating in morerelatively lightly regulated environments and are generally global entities (WhatsApp,
YouTube, Spotify, Netflix, etc.), while our Company is, as of today, primarily a Turkey-based telecom company with a smaller global footprint operating in a heavily regulated market. Most of these global players have entered the Turkish market, thereby creating a highly competitive environment in these businesses, which may negatively affect the growth of our digital services businesses. Several of these global players' platforms are now offering local Turkish content in addition to their market-leading international content offerings, thereby improving their competitiveness. Notably, Netflix offers content that they produce locally which competes with the offering of our multi-screen TV platform TV+.
In addition, newer applications from less well-known developers are constantly being introduced and may disrupt areas of the digital services industry in which we compete or seek to compete. These established and newer applications and services make use of the internet as a substitute for some of our more traditional services, such as messaging and voice. Reduced demand for these telecommunications services has had and are expected to continue to have an adverse impact on our revenues. Furthermore, other “traditional”"traditional" operators in Turkey also offer such services that they have developed independently or in partnership with global OTTs as part of their offerings, thereby further increasing competition in the local market. Moreover, pirated digital content is provided by multiple online platforms in Turkey, some of which offer a large selection of high-quality content that is readily accessible online and through dedicated apps, which has significantly, and may continue to negatively, affect the demand for the digital content we offer, in particular our TV and music services, which has had and may continue to have an adverse impact on our revenues generated through these services. A further obstacleOne of the keys to our digital services growth is that certain apps offered by our competitors are already embedded in the phonescompetitiveness of our customers,apps is their accessibility through smart phones, which increasescould be adversely affected if their visibility and accessibility in comparison with the apps we offer. For example, the Apple Music app, which is a competitorwere not equal to that of our fizy app, is embedded into iPhones and is thus significantly more accessible. Additionally, ascompetiting apps. As a result of Huawei being placed on a US trade blacklist in 2019, resulting in Google removing the licensed version of its Android mobile operating system from future Huawei devices, the development of the mobile apps we offer willmay become more costly and time-consuming as these will have to be adapted for Huawei’sHuawei's upcoming Harmony app ecosystem.
In our conventional telecommunications business, in the past, Turkey’sTurkey's principal telecommunications regulator, the ICTA, has interfered with our ability to price our services and respond to competitive pressures. Regulatory actions, in large part from the ICTA, have been a significant factor in shaping the development of the Turkish market and in our ability to respond to changes in the market. Regulatory actions have often favored our competitors, such as interconnection rates which have been set asymmetrically and have facilitated increased competition. It is possible that the ICTA may also act to regulate other areas of our business, including data and digital services, and we cannot predict the impact that such regulation would have on our ability to execute our strategy and on our competitive position. Furthermore, sub-brand initiatives of the existing competitors, and new licenses and authorizations issued by the regulator such as fixed telephony service and mobile virtual network operator (“MVNO”) licenses have made it easier and/or more attractive for new direct and indirect competitors to enter the market.
In some businesses, we are dependent on our competitors for certain services that we provide. For example, we are reselling XDSL from the incumbent operator Turk Telekom and we are dependent on their sales service quality in this business. Therefore, any delay or negligence of Turk Telekom could result in dissatisfaction of our customers and lead to churn of our XDSL subscribers. Competition in the market may also be adversely affected by changes in a number of other areas that are not specific to telecommunications, such as taxes (in particular taxes on our services and on mobile devices), increases in interest rates, depreciation of the Turkish Lira against the U.S. Dollar or Euro, adverse macroeconomic developments and unfavorable changes in consumer behavior. Any one of these could in turn adversely affect the development of our business and consequently, our financial results.
Our growth strategy is partly dependent on new investment opportunities, which could affect our business and financial condition, and the return on our investments cannot be guaranteed.
In addition to growing our existing business, our strategy for growth involves selectively seeking and evaluating new investment opportunities and participating in those meeting our criteria. We may pursue inorganic growth opportunities, principally in Turkey and in countries in which we are already present, in order to leverage our experience and technological base in mobile or fixed telecommunications and/or services. We may also pursue opportunities which include alliances, such as MVNOs, management service agreements, branding and know-how support services, digital services cooperation and marketing partnerships. In accordance with our convergence strategy, theThe opportunities that we pursue in some markets, including Turkey, may include services that would be adjacent or complementary to the services that we already offer in such markets.
Further, we may provide services in related areas and also consider investing or increasing our investments in business areas outside of the scope of our core business. Examples of opportunities that we are currently considering or investinghave invested in outside of our traditional telecommunications activities include the following:
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("Lifecell Ventures") and BiP Digital Communication Technologies B.V. ("BiP Digital"), both based in the Netherlands. Lifecell Ventures offers Turkcell's digital communications, entertainment and transactional applications and BiP Digital leads the global sales of our digital communication platform, BiP. Lifecell Ventures' business model is based on charging for implementation, support, maintenance, revenue sharing and license fees for the provision of digital service technology and know-how to other operators with re-branding option. We cannot ensure the commercial success or profitability of this business, which depends on our and our partners' ability to compete against global and local players in these markets, as well as the local competitive environment, consumer trends and preferences and market conditions, all of which may be significantly different from the Turkish market. Furthermore, as this business grows and expands into new markets, namely through additional digital services commercial agreements and similar agreements, we will face increasing reputational, regulative and commercial risks in those new markets, both directly and through our local partners.
addition, as the owned capacity in solarrenewable energy investments of Turkcell Enerji increases, this might bring in additional operational, financial, regulatory and other risks.
We also are involved in various other "techfin" businesses, for example relating to financing and insurance activities, in particular through our Turkcell Finansman A.S. ("Financell" or "Turkcell Finansman") subsidiary.
Additionally, we have enteredbeen using our digital platforms more actively, namely our corporate website, our Digital Operator application, the smart device (smartphone, tablet, notebook) operational leasing business as an alternative to providing consumer finance loans for smart devices. This is currently offered to theTurkcell My Company app (for corporate segment only. The commercial success of this business is largely dependent on our ability to successfully collect the operational leasing payments,curstomers) and their web versions as well as our new initiation of a technology and electronic goods marketplace, Turkcell Pasaj that was launched in December 2020. Growth in digital platforms has expanded our service and products offering which, in return, has brought along logistics and brand perception risks. Any failure in delivering any of these services or products on-time, for which we mainly depend on third-party service providers, may result in customer dissatisfaction, increase customer complaints and impact our capacity to lease the devices, service the devices through third party partners during the term of the loan,brand perception, and then sell the devices that have been previously leasedresult in additional operational, financial, regulatory and refurbished on commercially viable terms. In particular, we will face the risk that the Banking Regulation and Supervision Agency’s (“BRSA”) current regulation imposing a cap on the number of installments with regard to consumer loans for mobile phones and smart devices might be applied or be deemed to apply to, the device leasing business, which could negatively affect demand and consequently the development of this business. This business will also lead to an increase in our inventory balance coupled with a higher capital expenditure requirement.
New investments may not achieve expected returns or returns that are in line with those of our core business in Turkey, which may result in high value erosion. In many of the markets and businesses in which we have invested, may invest or may increase our investment, it may take several years and significant expenditures to achieve desired profitability, if at all. As part of our strategy as a converged player offering multiple telecommunications services, we may consider acquiring fixed operators in certain of the markets in which we operate. Any such acquisition would increase our exposure to the risks associated with these countries and these types of businesses. If we becomeAs a minority shareholder in an investment or a participant in a joint venture, we might encounter difficulties in protecting our shareholder rights. Furthermore, we may face risks in respect of the actions of the other parties in the investment or venture, for example violating anti-corruption laws such as the U.S. Foreign Corrupt Practices Act ("FCPA") and European Union regulations as well as applicable economic sanctions and embargoes and other risks. For further information relating to the corruption and sanctions laws to which we are subject, see—"If we, our local partners with whom we enter into cooperation agreements or similar agreements, or one of our key suppliers fail to comply with laws and regulations regarding unethical business practices, including bribery and corruption, and international sanctions, this could adversely affect our business and financial condition." below. In addition, if an asset in which we have invested does not provide the expected returns, we may consider disposal at a sale price that may be below carrying value or liquidation.
Any instability in the political environment and/or downturn in the economy, as well as volatile international markets, in particular as a result of the ongoing COVID-19 global outbreak,pandemic, in Turkey and/or internationally may have an adverse effect on our business and financial condition.
With a substantial portion of our revenues, assets and business derived from and located in Turkey, and denominated in Turkish Lira, adverse developments in the Turkish economy and political environment have had and are likely to have a material adverse effect on our business and financial
condition. The performance of the Turkish economy has been and may continue to be affected by global, regional and domestic economic and political developments. In particular theThe COVID-19 global outbreakpandemic has introducedcreated additional uncertainty regarding the outlook for Turkey and for our business.
Turkey has, from time to time, experienced volatile political, economic and social conditions. Since 2002, the AKPAK Party (the Justice and Development Party) won governing majorities four times during a period in which Turkey’sTurkey's economy generally enjoyed growth and stability. Turkey held its inaugural presidential election in 2014, based on the constitutional changes implemented following the constitutional referendum held in 2007. Recep Tayyip Erdogan, leader of the ruling AKP,AK Party, won the election in the first round. On April 16, 2017, a majority of Turkish voters approved a referendum amending certain articles of the Turkish Constitution to expand the powers of the president to create an executive presidency. Turkey’sTurkey's political stability has been affected by the coup attempt against the government in power in 2016. In June 2018, Turkey held its first dual parliamentary and presidential elections, and then-President Recep Tayyip Erdogan won in the first round and became the Executive President for the next five years.
In August 2018, the Turkish economy experienced currency volatility where the Turkish Lira depreciated sharply due to growing tensions between the US and Turkey over the detainment of US pastor Andrew Brunson, in addition to the tightening of the financial markets monetary policy expectations. During this period, the TRY experienced an important depreciation and inflation reached double digits. The Turkish economy experienced further volatility as a result of the U.S. Executive Order 13894 of October 14, 2019 “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria” (“Executive Order”) following Turkey’s military operation in Syria and the Office of Foreign Assets Control (“OFAC”) adding some Turkish ministers and ministries to its Specially Designated Nationals List (“SDN List”). Although OFAC removed the sanctioned ministries and ministers from the SDN List on October 24, 2019, the Executive Order could potentially at any time be reactivated against Turkey. Also, sanctions stemming from the U.S. legislative branch, notably the Protect Against Conflict by Turkey (PACT) Act and the Promoting American National Security and Preventing the Resurgence of ISIS Act, and the judicial branch, such as the ongoingU.S. v. Halkbank case involving criminal charges against the Turkish state-owned bank Halkbank alleging that it helped Iran evade U.S. sanctions, pose a constant threat to the Turkish political environment and its economy. Draft bills primarily involve sanctions against the Turkish Government’s top management and Turkey’s energy and finance sectors, along with regulations to activate the sanction provisions under the 2017 Countering America’s Adversaries Through Sanctions Act. Furthermore, the U.S. National Defense Authorization Act (NDAA), which was approved by President Trump on December 31, 2019, involves sanctions against Turkey and notably bans the delivery of F-35 fighter planes and imposes sanctions against the TurkStream natural gas pipeline project. Turkey also faces risks relating to EU-based sanctions, such as those stemming from EU Council Regulation (EU) 2019/1890 of 11 November 2019 concerning restrictive measures in view of Turkey’s drilling activities in the Eastern Mediterranean. These and other sanctions and legislative or judicial actions may individually or in the aggregate adversely affect the Turkish economy and, in turn, result in a material negative effect on our business, financial condition and results of operations.
In 2019, policymakers introduced easing through a number ofseveral channels in a bid to rapidly return the Turkish economy to growth. Starting in July 2019, the Central Bank of the Republic of Turkey (“CBRT”("CBRT") cut its policy rate by 1200 bps in total to 12% by the end of the year. The CBRT also designed a new reserve requirement mechanism
to encourageGrowth continued in the growthfirst quarter of banks’ loan books by as much as 15%2020, 4.46% year-on-year. Combined with the hike in real terms. In 2019, primary expenditures have grown by 18.9% y-o-y, compared to a 8.3% rise in tax revenues. As a result, after registering negative y-o-y growththe demand for three consecutive quarters,US dollar, global volatility and fragility of emerging markets, the Turkish economy saw positive growthLira depreciated by 18% between March and May of 2020. The second quarter of 2020 reflected the adverse effects of the COVID-19 pandemic with a 10.30% contraction in the thirdeconomy. In May 2020, the Turkish government began lifting COVID-19 restrictions gradually and fourth quarterseased fiscal policy by namely introducing short-time working allowance and expandedtax deferrals. Also, the economy has been supported with credit-channel stimulus by 0.9% y-o-y in 2019. Inflation eased substantially throughout the year, slowed from 20.35% y-o-y in January to 11.84% in December.state-owned banks and through monetary expansion. As a result of fiscal and monetary support, the Turkish economy grew 6.29% year-on-year in the third quarter of 2020. On the other hand, these steps resulted in deterioration in current account deficit and inflation. Year-end 2020 inflation reached 14.60%. Turkey tightened its monetary policy in response to the rise in inflation. The CBRT and the Turkish Banking Regulation and Supervision Agency ("BRSA") implemented normalization steps including increasing the policy rate to 17%, implementing orthodox policies by funding banks with only one-week repo channels, emphasizing financial stability, changing banks' reserve requirement regulations to discourage them to grow their Lira loan books and increasing swap limits with foreign banks. Moreover, the asset rule ratio was removed starting December 31, 2020 which may lead to a strong easingslowdown in future credit growth. These positive steps helped Turkish assets to gain value and Turkey's credibility to improve in the eyes of foreign investors. Due to the pandemic, the 12-month cumulative budget deficit widened to around 3.42%. Turkey had 5.87% growth in the fourth quarter year-on-year. In January and February 2021, CBRT kept policy loan growth increased from -9.7%rate constant at 17% in January and February. CBRT increased policy rate by 200 bps on March 18, 2021 to 19.5%19%, because of inflationary risks stemming from international developments and accelerating domestic loan growth. On the other hand, in December, the ratio of nonperforming loans reached 5.3%, and according to the International Monetary Fund (“IMF”) definition, the headline budget deficit increased by 5.3% of GDP. Along with these leveraged figures, U.S sanctions and deterioration of risk appetite towards Turkey could negatively affect the economy. Additionally,March 2021, the Turkish Lira could face massive sell-off,depreciated by approximately 13% following an unanticipated change at the governor of the CBRT on March 20th. New governor stated that policy rate will be above inflation figuresuntil permanent decline in inflation is secured. Exchange rate developments which are driven by changes in global financial conditions and expectations could spikeTurkey's risk premium is likely to affect monetary policy. Furthermore, Turkey faces the ongoing possibility of U.S. sanctions against Turkey since the detainment of Pastor Brunson and international investors’ worries about Turkey’s foreign currency debt obligationsthe ongoing Halkbank case involving criminal charges against the Turkish state-owned bank Halkbank alleging that it helped Iran evade U.S. sanctions. Moreover, the acquisition of Russian S-400 air defense systems caused the U.S. to impose sanctions through the Countering America's Adversaries Through Sanctions Act (CAATSA) on Presidency of Defence Industries in Turkey. While these sanctions have not had a significant impact on the Turkish economy, the scope and intensity of U.S. sanctions, and, in turn, their effect on the Turkish economy, may be triggered.evolve. Additionally, Turkey faces the risk of sanctions from the European Union, namely in as a result of its drilling
activities in the Eastern Mediterranean, as well as its decision to reopen the coastline of Varosha in Northern Cyprus in October 2020. These and other sanctions or the perceived threat of sanctions may result in a weakening of capital inflows or in capital outflows, external liabilities and pressure on inflation and may individually or in the aggregate adversely affect the Turkish economy and, in turn, our business, financial condition and results of operations.
Any deterioration in loans or in the general economic outlook may negatively affect our mobile and consumer finance businesses along with other industries. Geopolitical and domestic political factors are other sources of uncertainty and impose further risks on the country’scountry's economy. More generally, in our view, among the major threats to the global economy in 20202021 are inefficient or low efficacy of vaccination, new variants of the virus, weak global growth, and trade tensions between U.S. and China, the potential for a significant slowdown in the Chinese economy and European and US political uncertainty, notably in light of the upcoming US presidential elections. A number of institutions, such as the IMF, are updating their growth forecasts downward mainly as a result of the negative effects of tariff increases enacted in the U.S. and China. According to the recent indicators and surveys, the Eurozone economy has been slowing from previously high levels, due to weakening domestic demand due to decreased industrial production following the introduction of revised auto emission standards, subdued foreign demand in Germany as well as the uncertainty surrounding Brexit. As the largest exporting partner, a slowdown in Germany and the Eurozone presents an important risk to the Turkish economy. The effect of prolonged low energy prices on commodity-exporting countries in the region such as Russia, Saudi Arabia and Iran may negatively affect the terms of trade between these countries and Turkey. Also, fragile growth outlook in Turkey’sTurkey's key export destinations and geopolitical risks stemming from instability in Iraq, Syria, Iran, Georgia, Cyprus, Egypt, Tunisia, Israel, Armenia, Ukraine and Russia are additional sources of risks for Turkey. Since December 2010, political instability has increased markedly in a number of countries in the Middle East and North Africa, such as Libya, Tunisia, Egypt, Syria, Jordan, Bahrain and Yemen. As a result of the conflicts in Syria, millions of Syrian refugees have fled to Turkey and more can be expected to cross the Turkish-Syrian border if the unrest in Syria continues or escalates. Any continuation or escalation of political instability or international military intervention in Syria may act as a destabilizing factor for Turkey. The high number of refugees within Turkey’sTurkey's borders and foreign intelligence agents infiltrating both refugee camps and local communities remain current threats. Also, tensions between Armenia and Azerbaijan over the disputed region Nagorno-Karabakh, disputes over Mediterranean gas exploration of Turkey and growing tension between Russia and Ukraine in Donbass are possible threats.
The recent global outbreak of the Coronavirus (“COVID-19”), a virus causing potentially deadly respiratory tract infections,COVID-19 pandemic has caused and may cause additionalsubstantial slowdown in the global economy, as is evidenced by the ongoing sharp fall in investments, exports and industrial production. On March 27, 2019,production in the International Monetary Fund officially declared thatsecond quarter. As the global economy has entered recession as a result of theCOVID-19 spread of COVID-19. As COVID-19 spreads globally, financial markets are factoringfactored in higher risk in their prices and experiencingexperienced historical levels of volatility and selloffs.sell-offs. As also indicated in the above paragraphs, Turkey has been and will continue to be affected. A series of measures have been announcedaffected by this pandemic. Although the current vaccine roll-outs in Turkey to combatand internationally may decrease the negative effects of the pandemic, low efficacy and new variants of COVID-19, such asamong other factors, may lead to renewed lockdowns and a slowdown in global economic activity. Should the Central Bank of Turkey’s targeted additional liquidity facilities to banks aimed at securing uninterrupted credit flow tomeasures taken by the corporate sector, tax cuts and primary debt and interest payments deferments; however, we cannot predict the impact, if any, of these measures on the Turkish economy. Should these measuresgovernmental bodies be ineffective in countering the effects of the outbreakpandemic on the economy, customers in our home market and abroad, both individuals and corporates, could, namely, experience a significant deterioration in purchasing power, leading to a material negative impact on our revenues and a surge in corporate bankruptcies. A decrease in the financial condition of our existing and/or potential customers could in turn lead them to opt for cost-feasible tariffs, thereby negatively affect our upselling potential, or to ask for freeze of our services, which may ultimately result in higher level of churns. In addition, theseGovernment's measures will be costly and will thus add to Turkey’sTurkey's state debt and may eventually result in additional pressure on the value of the TRY relative to other currencies. Moreover, measures taken by the public and private sectors both in Turkey and abroad in response to COVID-19 pandemic, including travel restrictions, the closure of stores (including ours), the promotion of social distancing and the adoption of work-from-home by companies and institutions, could have a material impact on the amount and ways our customers use our networks and other products and services and, in turn, on our business and ourthe level of investment requirement. Notably, the closure of our stores, whether partial or complete, has and is expected to continue to have a negative impact on our sales. As such, we have experienced a decrease in gross mobile subscriber acquisitions as well as a decrease in the use of some of our mobile applications resulting from a decrease in the mobility of our customers. Further, our subscribers' use of home internet services has increased, resulting in lower use of our mobile data services. Although we have
made significant investments to adapt our network to the increase in internet traffic, no assurance can be given that we will successfully meet demand or that we will monetize this investment. In particular,addition, no assurance can be given that additional unexpected cash outflows will not be required in response to COVID-19 has resulted in apandemic, which could further erode liquidity and increase borrowing requirements. Furthermore, the substantial decrease in international travel, which has had and will continue to have an adverse effect on our roaming servicesrevenues (inbound and outbound) and if continued for a long duration, willresults of operations. Additionally, our mobile network has experienced increased traffic, which in turn might result in a materialan increase in capex requirements and have an adverse effectimpact on our roaming revenuescost of providing competitive capacity and also on our results of operations. Although we are monitoring the potential impact of COVID-19have been able to adapt our business operations in Turkey and abroad to the conditions under the COVID-19 pandemic, its impact on our business and financial condition is unknown at this time.may be more detrimental than we can envisage should the duration and severity of the pandemic be beyond our assumptions.
Slower growthLow efficacy of vaccination and inflationary pressures as a result of the factors described above may have a negative impact on consumer sentiment, resulting in a decrease in sales which could have an adverse effect on our business, financial condition and results of operations. Furthermore, geopolitical risks are currently prevailing, primarily on the basis that relations with the U.S. continue to be fragile on various fronts, and this could potentially lead to volatility in the future. There can be no assurance that the political and more importantly geopolitical situation within Turkey or its neighboring countries will not deteriorate. The rise of protectionism and the threat to globalization is likely to impact political and economic affairs. These coupled with rising geopolitical risks, might deter politicians from implementing economic programs, may individually or in the aggregate adversely affect the Turkish economy and, in turn, our business, financial condition and results of operations.
Foreign exchange rate risks could affect the Turkish macroeconomic environment and could significantly affect our results of operation and financial position in future periods if hedging tools are not available at commercially reasonable terms.
We are exposed to foreign exchange rate risks becauseas a result of the fact that our income, expenses, assets and liabilities are denominated in a number of different currencies, primarily Turkish Lira, U.S. Dollars, Euros, Chinese Renminbi (“CNY”("CNY"), Ukrainian Hryvnia (“UAH”("UAH"), and Belarusian Ruble (“BYN”("BYN"). FluctuationsIn particular, fluctuations of Turkish Lira, Ukrainian Hryvnia, Belarusian Ruble, and Chinese Renminbi versus U.S. Dollars and Euros, have had and may have an unfavorable impact on us. In particular, a substantial majority of our equipment expenditures is currently, and is expected to continue to be, denominated in U.S. Dollars and Euros, while the revenues generated by our activities are denominated largely in local currencies, in particular the Turkish Lira, Ukrainian Hryvnia and Belarusian Ruble and Euro.Ruble. As of December 31, 2019,2020, our total debt was TRY 20,30621,586 million (including TRY 1,5332,099 million of lease obligations). Consolidated debt breakdown (excluding lease obligations), as of December 31, 2019,2020 was as follows: Turkcell Turkey’sTurkey's debt was at TRY 15,99417,469 million, of which TRY 9,09610,197 million (US$ 1,5311,389 million) was denominated in US$, TRY 5,4255,624 million (EUR 816624 million) in EUR, TRY 201283 million (CNY 237.2253 million) in CNY and the remaining TRY 1,2721,364 million in TRY. Our consumer finance company debt was TRY 1,7331,038 million, of which TRY 1,194259 million (US$ 20136 million) was denominated in US$, and TRY 214465 million (EUR 3252 million) in EUR with the remaining TRY 325314 million in TRY. The debt balance of lifecell LLC (“lifecell”("lifecell") was TRY 1,044980 million, all denominated in UAH.
In addition, Additionally, we are exposed to currency mismatches with respect to certain capital expenditures and off-balance sheet obligations, in particular with our universal service obligations for the installation of infrastructure in uncovered areas of Turkey, a service that we have contracted to provide for an amount in TRY, but which requires expenditures in foreign currencies (primarily in USD, but also Euro and Chinese Renminbi). Also, the financing of infrastructure investments, potential license fee payments and any other potential investment opportunities could lead to an increase in our U.S. Dollar and/or Euro debt, further increasing our currency exposure. The effect of the depreciation in TRY is typically reflected in inflation rates in 3-6 months on average. According to the research of the CBRT, theThe exchange rate pass through realization in
Turkey is around 10-15% and this figure might be well over 20% in an overheated economy. High exchange rate pass through creates increasing production prices which is eventually reflected in consumer prices. Between 2011 and 2015the inflation rate with an additional point impact on inflation was 1.8 when average inflation was 8.2%.1.5-2.0 points in response to 10%-15% depreciation in domestic currency. See “Item"Item 8. Financial Information”Information" and Note 3536 to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F. Devaluations that are not matched by adjustments in our tariffs have had, and may continue to have, an adverse effect on our results of operations and our liquidity. See “Item"Item 4B. Business Overview—IV. Tariffs”Tariffs". We are also exposed to currency exchange rates on the prices of the smartphones that we rely on for the promotion of our digital and data services. After the 2008 financial crisis, with the flow of cheap funding, the Turkish economy experienced import driven growth. Therefore consumption patterns have shifted towards foreign currency denominated goods along with raw materials and intermediary goods used in production. Production has been negatively impacted by the price inflation of raw materials and intermediary goods. Depreciation in TRY triggered inflationary pressures which resulted in a deterioration in the purchasing power of consumers. Coupled with slow growth and low purchasing power, consumer demand has fallen. Turkish Lira depreciation has made smartphones that are procured in hard currencies more expensive for our customers, thus potentially reducing new sales of such devices and curbing the market for the services, which has and may continue to have a negative impact on our profitabilityrevenues and financial position.profitability.
According to the CBRT, the TRY depreciated by 12.9%23.6% against the U.S. Dollar and 10.3%35.4% against the Euro in 2019.2020. As of March 20, 2020,April 12, 2021, according to the CBRT, the TRY has depreciated a further 9.7%10.9% against the U.S. Dollar and 6.1%7.4% against the Euro compared to the closing rates on December 31, 2019.2020. Our currency hedging strategy includes derivative transactions and accumulating hard currency by using Turkish Lira cash from our operations. In addition, we have been further diversifying our currency exposure by entering into agreements with our vendors in local currencies, particularly in Chinese Renminbi.
While we are currently able to hedge our principal TRY exposure to the U.S. Dollar and the Euro on commercially reasonable terms, no assurance can be given that we will continue to be able to do so under all circumstances in the future, in particular taking into account the context created by the COVID-19 epidemic,pandemic, which has had, and is likely to continue to have, a material impact on the volatility of global markets which, in turn, may lead to a material increase in our financing costs. The increase in public debt in Turkey may also result in increased pressure on the value of the TRY. For further information relating to our financing obligations, see—“"Reduction in cash generated from operations and increased capital needs may increase our borrowing requirements, which may increase our financing costs and our exposure to the risks associated with borrowing”borrowing" below. In several of the other countries in which we have businesses, in particular Ukraine and Republic of Belarus (“Belarus”("Belarus"), there are no or few tools to hedge foreign exchange rate risks effectively due to restricted and undeveloped financial markets in these countries. Any significant fluctuations in the value of the TRY relative to other currencies could have an adverse effect on our business, financial condition and results of operations.
Reduction in cash generated from operations and increased capital needs may increase our borrowing requirements, which may increase our financing costs and our exposure to the risks associated with borrowing.
We continue to experience challenging macroeconomic, regulatory and competitive conditions in our markets that may reduce cash generated from operations, and we may continue to face increased funding needs, in particular to finance our technological expansion and investments. In the previous three years, this included the payment of the Turkish 4.5G license fee, Ukrainian 4.5G license fee and related capital expenditures in Turkey and Ukraine, as well as having a consumer finance company in Turkey. Furthermore, in 20182019 and 2019,2020, we paid TRY 1.91.0 billion and TRY 1.00.8 billion dividend, respectively, and made capital expenditures and debt repayments, which significantly reduced our available cash.repayments.
Looking ahead, we expect to continue to experience moderate cash outflows in relation to new licenses and network roll-out, as well as continuing fiber development and potential dividend payments. The ongoing disputes among our shareholders may also have an impact on our liquidity position, to the extent that they may affect dividend payments. In the past, as a result of such disputes, dividends were not paid for several years and then the resulting backlog was eventually paid in a short period of time. Our liquidity position may also be negatively impacted if our shareholders request dividend payments which are higher than the trend of our historic dividend policy.pay-outs. Our working capital requirements have increased in the last three years in particular after our consumer finance company began its operations. The BRSA’sBRSA's existing regulation imposing a cap on the number of instalmentsinstallments with regard to consumer loans for mobile phones significantly decreased the demand for new loans and thus has reduced our related working capital requirement accordingly.accordingly in the recent years. However, working capital requirements could once again increase should the BRSA increase the maximum number of instalments on mobile phone related loans or should we enter into the device leasing business for consumers, both of which could drive the demand up considerably. These cash outflows have in the past reduced, and may continue to reduce, our liquidity. Reduced liquidity may lead to an increase in our borrowing requirements and thus our borrowing costs. Our borrowings may expose us to foreign exchange rate risk, interest rate risk and possibly, to increases in our total interest expense, each of which could have a material adverse effect on our consolidated financial condition and results of operations.
We enter into derivative transactions and keep our cash in hard currencies to manage the risk with respectrelating to the Turkish Lira. For the year ended December 31, 2019,2020, as a result of fair value changes in derivative instruments, net derivative assets of TRY 7.6798.3 million are recognized in our consolidated financial statements. However, derivative transactions might have costs and may not fully cover all of ourthe risks faced by the Group, and significant judgment is used by the Company’sour management to determine the fair value of these instruments due to the use of an internally-developed model, which includes significant assumptions related to the treasury curves and credit spreads. For a discussion of our critical accounting policies, see “Critical"Critical Accounting Policies”Policies" in Part III, Item 5- 5—Operating and Financial Review and Prospects. Furthermore, no assurance can be given that we will continue to have access to financing, or be able to conduct derivative transactions, on terms that are economically viable, or at all.
As of December 31, 2019,2020, our total debt was TRY 20,305.7 million. TRY 10,188.521,586.4 million, of our debt portfoliowhich TRY 13,281.7 million consisted of financing obligations paying interest at fixed rates. The remainder of our debt portfolio pays interest at floating rates, which has been decreasing within the last year but could expose us to increased costs if rates increase. In 2015, we arranged a number of financing facilities with a principal amount of approximately $2.9 billion (partly in U.S. Dollars and in Euro) for the refinancing needs of the Company and our subsidiaries and to fund infrastructure investments and any other potential investment opportunities, which has significantly increased our indebtedness. Of this financing amount, we issued a 10-year Eurobond with an aggregate principal amount of $500 million and utilized $500 million in October 2015, which was followed by a
EUR 1.25 billion 10-year loan facility from the China Development Bank (“CDB”("CDB"). EUR 500 million of this facility was immediately utilized. EUR 195 million, USD 325 million and RMB 251 million were subsequently utilized from this facility until its availability period expired in April 2019. Furthermore, in June 2016 we utilized USD 500 million and EUR 445 million under a 5-year club loan agreement with five international banks. Repaymentsbanks, the repayment of the CDB and club loan facility, on a semi-annual basis, have already started and further, on February 11, 2020, our Company announced the prepayment of the club loan facility. Accordingly, the outstanding two principal repayments of the loan, which are originally due in June 2020 and September 2020 and which in total amount to EUR 148.4 million and USD 166.7 million, werewas completed on March 23, 2020.
In April 2018, we issued another 10-year Eurobond bond with an aggregate principal amount of $500 million and a fixed coupon rate of 5.80% per annum in order to finance upcoming debt service. In 2019, we signedentered into a USD 150 million 10-year export finance facility covered by Exportkreditnämnden (EKN) of Sweden in order to finance our procurement from a global vendor, and a EUR 50 million 3-yearthree-year sustainability linked loan with an international lender in order to refinance existing indebtedness. In March 2020, we signed a EUR 50 million 5-yearfive-year green loan to be utilized to finance sustainable investments such as renewable energy, energy efficiency, green digital services and green buildings under the internationally recognized Green Loan Principles. In addition, noAugust 2020, we signed a EUR 500 million loan package with CDB which can be utilized in both EUR and RMB terms for financing Turkcell Group's infrastructure investments in the next three years. In
December 2020, we entered into a USD 90 million, 10-year export finance facility in order to finance our procurement from a global vendor between 2021 and 2023. No assurance can be given that unexpected cash outflows will not be required, which could further erode liquidity and therefore increase borrowing requirements.
In February 2020, a law was enacted in Turkey (Law No. 7222 regarding Amending Banking Law and other Laws) which enables investors to act collectively according to changing conditions, and issuers and investors to agree on changing the terms and conditions of debt instruments in accordance with their interests, which may have a negative effect on our consolidated financial condition and results of operations.
As we understand from what we observe in On July 27, 2017, the market, theUK Financial Conduct Authority (FCA) plans(the "FCA") announced that it will no longer persuade or compel banks to phase outsubmit rates for the calculation of the LIBOR by the end ofbenchmark after 2021 and, from then on March 5, 2021, the Secured Overnight Funding Rate (SOFR) is expectedFCA further announced the dates on which panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available (immediately after December 31, 2021, in the case of all GBP, EUR, Swiss franc and Japanese yen settings and the 1-week and 2-month USD settings, and immediately after June 30, 2023, in the case of all remaining USD settings). Drawings under the EUR 690 million CDB facility signed in March 2018, first tranche of USD 150 million export finance facility signed on February 25, 2019 and USD 50 million JP Morgan facility signed on March 19, 2018 will bear rates of interest linked to, replace LIBOR. Furthermore, regulators are also discussingamong other benchmarks, LIBOR, and the agreements related to these facilities will include a rate-replacement mechanism providing for the replacement of EURIBOR, although it is expected to remain in place for another period of 5 years. As of March 20, 2020, we have neither discussed with nor been approached by any financial institution to replace LIBOR and/or EURIBOR with a newrisk-free rate plus a credit adjustment spread. The elimination of the LIBOR benchmark will result in the rate of interest in respect of LIBOR-linked borrowings under the EUR 690 million CDB facility signed in March 2018, first tranche of USD 150 million export finance facility signed on February 25, 2019 and USD 50 million JP Morgan facility signed on March 19, 2018, being determined with reference to such applicable compounded risk-free rate, which could result in such borrowings being subject to a rate of interest that differs from what LIBOR would have been for an equivalent period.
Moreover, subsequent changes in regulatory guidance, industry standards or market practice could result in further changes to ways in which LIBOR replacement mechanisms or risk-free rates are drafted, implemented or interpreted. In addition, the potential elimination of any other benchmark, changes in the manner of administration of any benchmark, or actions by regulators or law enforcement agencies could result in changes to the manner in which EURIBOR or similar benchmarks are determined, which could require an adjustment to the terms and conditions, or result in other consequences, in respect of any debt linked to such benchmark. Any such change, as well as manipulative practices or the cessation thereof, may result in a sudden or prolonged increase in reported EURIBOR or similar benchmarks (including any LIBOR replacement), which could have an adverse impact on our existing loan or hedging agreements.ability to service debt that bears interest at floating rates of interest.
In the last three years, we have also borrowed to finance the business of Financell, our consumer finance company and the working capital requirements of our subsidiary in Ukraine. We may continue borrowing to finance our infrastructure investments, consumer finance company (depending on how the market evolves), loan repayments and any other potential investment opportunities. Additionally, we have continued to make excess TRY cash of Turkcell available to other group companies located in Turkey as short-term TRY loans at arm’son an arm's length basis in line with prevailing market conditions under the framework shareholder loan agreement signed with respective group companies in 2018.
Some of our borrowing agreements contain cross default clauses, which could trigger an event of default under such agreements in the event of a default by a Group company under its own borrowing agreements (such default by that Group company being subject to certain thresholds).
Regulatory decisions and changes in the regulatory environment in the sectors in which we operate could adversely affect our business and financial condition.
We are subject to a significant range of legislative and regulatory requirements, both in Turkey and internationally. Compliance with new and existing laws and regulations has had, and is likely to continue to have, a significant impact on the ways in which we do business. This may include but is not limited to the impact on our ability to set our pricing and offer new and existing services, including converged services, on customer use of our services and ability to terminate subscriber contracts, the way we handle, process and store customer data, the terms of our subscriber contracts, the way we can communicate with customers, including in particular our ability to contact subscribers with our offers, our ability to implement any planned or future network or infrastructure sharing initiatives andas well as our ability to obtain and maintain licenses. Furthermore, the laws, regulations, regulatory orders and licenses under which we operate are subject to interpretation and enforcement by regulators with which we are not always in agreement. Complying with regulations may be costly, and failure to comply, whether or not we agree that such failure took place, may lead to significant penalties, criminal prosecution, adverse publicity and the loss of licenses in the affected line of business or country and could adversely affect our business, financial condition and cause significant reputational and brand damage with customers, investors and regulators. Furthermore, our licenses generally have specified terms and renewal is not assured. For more information on regulation and how it may impact our business, see “Item"Item 4.B. Business Overview—XII. Regulation of the Turkish Telecommunications Industry”Industry".
Pricing is one of the areas in which we are subject to regulation. In the recent past, the ICTA and Ministry of Transport and Infrastructure regulations and actions relating to our voice, SMS, data and value added/digital services have negatively affected our pricing and our ability to design and launch campaigns and offers. One of these regulations regarding the retail pricing per voice minute has been lifted and the regulatory burden has consequently been significantly reduced. The ICTA reintroduced the “mobile retail price cap” obligationsFor example, in 2018 from which Turkcell had been exempt since 2016. Thethe ICTA adopted a decision, which sets new price caps applicable to fees for activation/ deactivation, name/title change, account takeover, MSISDN change, SIM card change and detailed bill information, effective as of October 1, 2018.information. Following this decision, at the start of 2019 new price caps applicable to calls, SMS, international calls and directory assistance service have also been introduced, effective as of January 1, 2019. Turkcell applied for withdrawal of this decision, which was rejected by the ICTA. Turkcell filed a lawsuit for stay of execution and the cancellation of Article 1 of the decision. The case is pending as at March 20, 2020. Further, with the decision taken by the ICTA on April 12, 2018, operators are now subject to new processes related to the reimbursement of the remaining balances to prepaid subscribers whose subscriptions are terminated for various reasons, which may be material depending on the size. ICTA, through a board decision taken at the end of 2018, has imposed obligations on operators to record and to keep up-to-date identity information on their subscribers (both consumer and corporate segments), matching this information with the products/numbers that are being used. ICTA also requires that operators complete missing information on existing subscribers and to terminate these subscriptions if the information is not provided within a given date. Likewise, foreigners are required to register their subscriptions with their “foreign identity number” if they are to use their subscription for more than 90 days, otherwise their subscriptions must also be terminated. These new obligations have resulted in a one-time bulk deactivation of subscriptions, especially of the subscriptions of foreigners, impacting our churn rates in the third quarter and particularly in the fourth quarter of 2019. New subscriptions are completed only if the required identity information is given upfront.introduced.
In addition, interconnection rates are still set by the ICTA, and there is a possibility that further regulatory actions may adversely affect our Company’sCompany's wholesale revenues. In addition,Namely, the ICTA has determined and may in the future determine that we are an operator with significant market power and as a result impose certain constraints on us, while imposing less stringent ones on other mobile telecommunications operators in the market, both of which may adversely affect our business and financial condition. For more information, see “Item"Item 4.B. Business Overview—XII. Regulation of the Turkish Telecommunications Industry”Industry".
On 28 July 2020, Turkey amended Law No.5651 on the Regulation of Broadcasts via the Internet and the Prevention of Crimes Committed Through such Broadcasts effective from October 1, 2020, thereby imposing significant obligations on major social media providers, such as the requirement to appoint a representative in Turkey and to host local user data in Turkey, as well as process content removal requests and report these to ICTA. Social media providers that do not comply may face throttling of their traffic bandwidth by up to 90%, which may affect data usage on our networks and, in return, data revenues.
Expectations and standards with regard to privacy and data protection have been increasing both globally and in Turkey. Stricter privacy laws and regulations are being adopted or existing legislation is being more strictly interpreted and enforced by the authorities, which require companies to invest more diligence and effort towards ensuring compliance. While we are primarily subject to Turkish data protection legislation, the European General Data Protection Regulation and other foreign privacy legislation also have the potential to affect our business through some of our subsidiaries established in the EU and other countries, as well as some of our products and services provided to persons in the EU. Breach of such regulation may potentially result in penalties up to a maximum of 4% of global
annual turnover or EUR 20,000,000.20 million. Ensuring compliance with these various privacy legislations is a long-lasting commitment, which requires substantial costs, and it is possible that despite our efforts, governmental authorities or third parties will assert that our business practices fail to comply. Changes in privacy legislation or in interpretation of the existing legislation could have an adverse effect on our business and data processing operations and/or subject us to significant civil and criminal penalties, business disruption or reputational harm.
Furthermore, given that we process personal data, namely of our customers and employees, we are subject to several data protection laws, among which the Law No."No. 6698 on The Protection of Personal DataData" and the regulations of the Turkish Personal Data Protection Authority, as well as data protection legislation under the Electronic Communications Law and the ICTA’sICTA's data protection regulations. We are further subject to the Capital Markets Board’sBoard's ("CMB") Communiqué on Information Systems Management numbered VII-128.9 and Communiqué on Independent Audit of Information Systems numbered III-62.2, which entered into force on January 5, 2018 and introduced new obligations with regards to information systems for certain legal persons. For more information, see “Item"Item 4.B. Business Overview-RegulationOverview—XII. Regulation of the Turkish Telecommunications Industry”Industry". Should we fail to properly implement and comply with these data protection laws and regulations, we mightmay face administrative fines of up to approximately TRY 1,000,000 (this amount2.0 million (as at April 12, 2021 and as is subject to a legal revaluation increase each year) per breach, depending on the nature of the failure(s), as well as criminal sanctions orfailure. We may also face other regulatory actions by the Personal Data Protection Authority, and faceas well as administrative fines equal to up to 3% of yearly net sales of the ICTA-regulated companies in breach.sales. Changes to such data protection laws may impose more stringent requirements for compliance and imposeresult in significant penalties for non-compliance. In particular, we are facing increased risks with regard to these laws and regulations as the number of our Paycell customers in relation to whom we hold
sensitive data such as credit card information- increases rapidly. Additionally, our Company collects a significant amount of personal data, notably credit card information, from our digital service products users, such as BiP, fizy, lifebox and TV+, and the scope of this data collection has increased significantly following our recentthe implementation of artificial intelligence implementationacross our platforms aimed at providing personalized content to our customers. If we or those with whom we share informationpersonal data fail to comply with these laws and regulations, our reputation could be damaged, possibly resulting in losta loss of future business. In addition, the cost and operational consequences of respondingrelating to the response to breaches and implementingthe implementation of remediation measures could be significant.
The On June 7, 2018, the Ministry of Transport and Infrastructure informed the operators on June 7, 2018such as Turkcell that they must primarily have to request from the most prevailing operator in terms of infrastructure in Turkey—which is Turk Telekom—to perform the excavation work on their behalf. Although Turkcell filed a lawsuit to removeannual this measure, no assurance can be given that we will be successful in doing so,so. This situation has negatively affected our ability to expand our fiber network and may affect our future investments.
Taxation and charges are also areas in which we are subject to specific regulations. WeNotably, we are for example, subject to a Special Communication Tax (“SCT”("SCT"), which iswas set at 7.5% across all product lines throughout the year 2020 and transceiverwas further increased to 10% effective January 30, 2021. Transceiver and receiver unit surcharge payments are set at 5% of monthly net sales since January 2018. Such taxes have affected, and could continue to adversely affect, consumer demand for products and services, and, therefore, our results of operations.
We are increasingly involved in providing financial services to our customers. As a result of the establishment of our insurance agency company and our participation finance company (not operational yet) as well as our existing operations in consumer finance, payment and e-money services, and insurance, we are subject to a variety of banking and finance laws and regulations (the principal regulators include the BRSA, the CBRT and the Insurance Directorate under Undersecretariat of the Treasury). Moreover, pursuant to our focus on services such as TV and music, we are subject to broadcasting and copyright laws and regulations. Additionally, Turkcell Enerji, which we fully ownis indirectly wholly-owned, holds an electricity supply license from EMRA for the purposes of electricity energy trading and wholesale and retail electricity sales. This company is subject to laws and regulations governing the electricity market in Turkey. These regulations are different from those that we currently encounter in our core communications business in TurkeyFurthermore, Turkcell Foundation is
exposed to various Turkish regulatory and we will needlegal obligations specific to obtain and develop the expertise required to comply with these laws and regulations, which may be costly.foundations. As we enter new businesses, such as the automotive industry, service coupons and meal cards, we will also be exposed to the regulatory regimes and decisions specific to those businesses.
Notably, in February 2020, the Law No. 7222 Amending Banking Law and Certain Other Laws, Capital Markets Law Article No. 103 was amended so that administrative fines imposed by the Capital Markets BoardCMB are indexed to public companies’companies' financial performances instead of yearly updated fixed administrative fines so far. Accordingly, administrative fines are calculated up to a maximum of the greater of 1% of gross sales proceeds or 20% of pre-tax profit, which may have a significant negative impact on our results of operations.
If we, our local partners with whom we enter into cooperation agreements or similar agreements, or one of our key suppliers fail to comply with laws and regulations regarding unethical business practices, including bribery and corruption, and international sanctions, this could adversely affect our business and financial condition.
We are subject to various laws and regulations relating to unethical business practices, including bribery and corruption, and international sanctions. Bribery and anti-corruption laws in effect in many countries prohibit companies and their intermediaries from making improper payments to public officials for the purpose of obtaining new business or maintaining existing business relationships. Certain anti-corruption laws such as the FCPA also require the maintenance of proper books and records, and the implementation of controls and procedures in order to ensure that a company’scompany's operations do not involve corrupt payments. Since we operate in several countries, and given that some of our clients, or local partners with whom we enter into cooperation agreements or similar agreements, are government-owned entities and that our projects and agreements often require approvals from public officials, we face the risk that our employees, local partners, consultants or agents may take actions that are in violation of our policies and of anti-corruption laws. In many parts of the world where we currently operate or seek to expand our business, local practices and customs may be inconsistent with our policies, and could violate anti-corruption laws, including the FCPA and European Union regulations, as well as applicable economic sanctions and embargoes. Our employees, local partners or other parties acting on our behalf or with whom we enter into cooperation agreements or similar agreements, or our suppliers, could violate policies and procedures intended to promote compliance with anti-corruption laws or economic sanctions,
regardless of whether we had participated in such acts or had knowledge of such acts at certain levels within our organization. Any of the foregoing could result in criminal prosecution and sanctions, fines, penalties, withdrawal of licenses against us, companies in which we invested, and our and their officers and employees and significant damage to our reputation, and negatively affect our competitive advantage and financial position. There can be no assurance that acts of corruption will not occur or be alleged in respect of any of our activities or those of our current or past affiliates.
We have strong commercial ties to several Chinese vendors from which we have in the past purchased network equipment, and currently have a significant installed base of their equipment, including in the context of the development of our 5G network infrastructure and cloud and IT infrastructure. We also have access to financing from the China Development BankCDB which facilitates the purchase of Chinese equipment. Should any one of themthese Chinese entities become subject to U.S. sanctions, or should we or any entity in our supply chain be compelled to terminate a relationship with a vendor as a result of the direct or indirect reexport restrictions implications resulting from an entity being added to the Entity List prohibitions of the U.S. Commerce Department’sDepartment's Bureau of Industry and Security (BIS), which would affect our ability to purchase their equipment in the future and require us to find alternative suppliers, or should we be compelled to terminate or suspend our relationships with these vendors for any other reason, namely as a result the ongoing tensions between China and the U.S., this may lead to an increase in our costs or otherwise affect our ability to develop and maintain our increasingly advanced network infrastructure and negatively affect our competitive advantage and financial position.
We hold interests in several companies that may expose us to various economic, business, political, social, financial, liquidity, regulatory and legal risks and may not provide the benefits that we expect, and our pursuit of acquisition opportunities may increase these risks.
Our investments in subsidiaries and associated companies within Turkey and internationally have and are likely to continue to expose us to economic, political, social, financial, regulatory, currency devaluation and legal risks. These risks have affected and could adversely affect our result of operations and the carrying value of assets in our financial statements.
Through our subsidiaries in Turkey and internationally, we engage in businesses outside of the scope of our core mobiletelecom business. These other businesses are subject to risks that are in some respects different from those of our mobiletelecom business. WeIn order to succeed in these new businesses, we will need to obtain the expertise required to compete and operate in these new businesses, which may be costly. No assurance may be given that we will succeed and that we will not incur losses that could adversely affect our business and financial condition. For example, several of our subsidiaries are providing financial services including, for instance, insurance, providing credit, payment intermediation and bill payment services, which are different from those in our traditional telecommunications activities and increase our exposure to certain risks that are common to both. Providing financing and financial services to our customers exposes us, notably, to liquidity and market risk, credit risk, fraud risk and cyber-attack risks, in particular with respect to credit cards and personal information that we process and hold. For additional information on the risks relating to the personal information that we process and hold, see—"Regulatory decisions and changes in the regulatory environment in the sectors in which we operate could adversely affect our business and financial condition". This includes through the expansion of our mobile payment business,services company, Paycell in Turkey, Ukraine and the Turkish Republic of Northern Cyprus (limited services).
We also have a consumer finance company, Turkcell Finansman A.S. (“Financell” or “Turkcell Finansman”),Financell, which manages the high working capital requirements and bad debt expenses arising from the high demand in the Turkish market for “bundled”bundled offers featuring both communications services and a communications device, particularly a smartphone.smartphone or a tablet. Having commenced operations in 2016, Financell carried a total of TRY 2.1 billion in loans outstanding at December 31, 2019, which totaled TRY 2.52 billion.2020. Our cost of risk has improved to 2.4% in December 2020 from 3.2% in December 2019 from 1.97% in December 2018; this2019. This may increase in the event that our various lending criteria fail to preserve the quality of our assets, and/or in the event of economic activity and macroeconomic slowdown in Turkey and in Turkish Republic of Northern Cyprus, where, for the latter, we have offered consumer financing up until June 1, 2019. The foregoing may lead to losses and eventual tightening of lending criteria, which in turn may causelead to a reduction of theour loan portfolio, which is likely to affect the profitability of our profitability.finance company. Furthermore, the demand for consumer loans might be negatively affected by prolonged lockdown measures limiting our store traffic, and financial conditions, particularly interest rates and FX rates since most smartphones’devices' pricing is largely dependent on hard currencies. With regard to Financell’sFinancell's swap agreements, ifaimed at neutralizing the FX rates are volatile and, for example, resultposition created by FX funding, any volatility in a substantial difference between the rates forecasted by our treasury and the spot rates at maturity, thisfinancial markets may create mark to market gains or losses which could result in significant losses and a decrease in revenue and otherwise affect our profitability. We have reduced the paid-in capital of Financell from TL 575 million to TL 200 million in February 2021. Although this is intended to raise our debt to equity leverage, the funding need arising from this move may negatively affect our profitability if there is a significant hike in market interest rates.
The large part of the Turkish financial sector, including banks, financial leasing and factoring companies, payments and e-money institutions and consumer financing companies, is regulated by the BRSA. The BRSA may enact changes in regulations regarding consumer finance activities, which might restrict part of our consumer finance business.
As such, initially on August 15, 2018, later on February 26, 2019 and most recently on January 14, 2020, restrictions on the number of installments depending on the purpose of the loan have been adopted through amendments in the relevant legislation. The maturity of certain type of loans (other than loans to consumers for housing finance and complementary goods and services in relation to home renovation/improvement, the financial leases for homes leased to consumers, other loans for the
purpose of purchasing real estate, loans for the purpose of financing education and learning fees and loans for any refinancing of the same) are explicitly determined under the Regulation on the Principles regarding Incorporation and Activities of Financial Leasing, Factoring and Financing Companies. Accordingly, Financell may provide loans of up to three months for mobile phones with a retail price of TRY 3,500 and above and up to twelve months for mobile phones with a retail price of below TRY 3,500, down from twenty-four months on average up until mid-2018. This has negatively affected the numbergrowth of smartphone sales and the frequency of renewals in the Turkish market, which has had and is expected to continue to have a negative effect on the size of the digital services and solutions market. The long term growth prospects of our mobile and digital services and solutions businesses depend in part on the continuing expansion of the number of smart phone users in the market. Furthermore, on November 14, 2018, the BRSA noticed the factoring, leasing and financial institutions via an article, restricting the distribution of dividends for 2018 and dividends earned before 2018 to only be distributed by prior approval of the BRSA. On January 28, 2021, the BRSA promulgated an additional article which restricted the distributions of dividends for 2020 and limited by 10% of the net profit of 2020 by prior approval of the BRSA. Further, to a recent decision, starting from March 19, 2020, a “cultural fund”"cultural fund" of 1% over import value shallis to be paid for imported or manufactured mobile phones which have voice recording qualifications. The President of Turkey was given the authority to increase the Special Consumption Tax rate on mobile phones from 25% to up to 50% since February 2019. An increase in this tax may negatively impact the number of mobile phones sold in Turkey. We cannot rule out the possibility of further increases in tax rates or new taxes and charges, including on mobile devices, data, and services. These restrictions may include a prohibition on financing of specific goods or services in the future. Further, we are diversifying Financell's portfolio with new products as well as new customer segments such as fiber/adsl customers, SMEs and corporates for their digital infrastructure needs, where the return on investment may not meet our expectations. More generally, the consumer financefinancing sector is rapidly evolving and no assurance can be given that we will be able to adapt to market trends and that new competitors will not emerge. If this were the case, we may not be able to realize the synergies that we expect from our consumer finance business.
Furthermore, our subsidiary Kule Hizmet ve Isletmecilik A.S. (“("Global Tower”Tower") operates a large portfolio of telecommunication towers in several countries. In the event of expiry, non-renewal or termination of certain concessions or licenses of Turkcell, Turkcell may be forced to transfer to the ICTA the tower assets it owns where ground lease agreements are executed by Global Tower, which would lead to a loss of revenue and have an adverse effect on our business and results of operations.
Turkcell Group has investments in several emerging or developing markets, including Belarus, the Turkish Republic of Northern Cyprus and Ukraine and has activities that involve other emerging or developing markets. Legal systems, institutions, commercial practices and economies in emergingthose markets tend to be relatively underdeveloped and some may also suffer from relatively high rates of fraud and corruption. Were we to be affected by fraud of corruption, we could incur significant penalties under applicable anti-corruption legislation, including the U.S. Foreign Corrupt Practices Act, as well as reputational harm. Turkcell Group also retains relevant risks with regards to its divested businesses.
In some countries, we hold our investments with another shareholder or local government. Should there be a disagreement between us and other shareholders, no assurance can be given that we will be able to take the course of action we believe is appropriate. In these cases, we may consider exiting, or alternatively increasing our investment in order to take control, which may be costly. There can be no assurance that political, legal, economic, social or other actions or developments in these countries or involving such companies and individuals will not have an adverse impact on our investments and businesses in these countries. Investors may be reticent to invest in a company doing business in such countries or other countries that may be at risk due to the political instability. These factors could have an adverse effect on the demand for and the price of our shares. In this regard, we have and are likely to continue to experience issues in some of our Turkish and international businesses that adversely affect our Company. Recent issues include the following:
Crimea region following its annexation by the Russian Federation, we were eventually obliged to discontinue services therein that region in the fourth quarter of 2014. We completely wrote-off our assets in the Crimea region, while retaining our license and frequency rights. We continue to evaluate our options with respect to the disposal of lifecell’slifecell's assets in Crimea and the actions that we may take may raise challenges with respect to compliance with lifecell’slifecell's license requirements. Furthermore, the current military and political crisis in the Eastern part (mainly in Donetsk and Luhansk, otherwise referred to as the ATO zone) with Russia remains unresolved and could lead us to evaluate our options in the Eastern region. The ongoing crisis may adversely affect the Ukrainian economy and our results of operations in Ukraine and/or the value and security of our assets and operations there. We are unable to predict the likely course or duration of these events, or the extent of the adverse impact that they have had and are likely to have on the telecommunications market dynamics and composition, our investment in Ukraine and our operations there.
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2020.
Additionally, the official process for the redistribution of radio frequencies in the 900 MHz range was completed by Ukraine’sUkraine's National Telecommunications Authority (“NKRZI”) on March 18, 2020. Accordingly, the frequency band of lifecell in 900 MHz was increased from 3.8 MHz to 5.6 MHz for UAH 121.2 million, effective as from July 1, 2020 for five years. The license fee has been fully paid. This new license will requirehas required further investment in Ukraine, increasing our exposure in this market and may consequently negatively affect our profitability.
In another development, the Mobile Number Portability (“MNP”) has been launched in Ukraine asTable of May 1, 2019. Due to the lengthy and cumbersome practice of MNP, as at March 20, 2020, a negligible number of subscribers have changed operators. We are in a continuous effort to improve this process; however, we may not be successful in doing so.Contents
Recent ownership change in Vodafone Ukraine may change the dynamics in the competitive environment to our disadvantage, which may adversely affect our financial and operational performance. Apart from these economic and political risks, our operations in Ukraine could also expose us to operational, competitive, regulatory and legal risks, all of which may prevent us from delivering our strategic targets. These risks have affected and could adversely affect our result of operations.
The Belarusian economy returned
The country still remains vulnerable to global shocks which may trigger renewed weakness indata provided by the country’s ability to service its external debt and any depreciationNational Statistical Committee of the local currency, BYN, which couldRepublic of Belarus. The National Bank of the Republic of Belarus has been on an easing trajectory since the beginning of 2018, bringing the refinancing rate down to 10% from 17% with gradual rate cuts in turn lead2018, to a reduction in the value of our investment in this country. Inflation decelerated relatively9% in 2019 by decreasingand to 4.7% from 5.6%. According7.75% in 2020. While headline inflation increased to 8.7% in February 2021, in order to limit inflation, the National Bank of the Republic of Belarus (NBRB)may strengthen control over the BYN depreciated againstgrowth of the U.S. Dollar by 9.5%broad money supply or increase the policy rate in 2018 and appreciated in 2019 by 2.6%. The BYN depreciated by 20.8% as2021. Economic activity continues to recover, even though the momentum of March 20, 2020 as comparedthe growth diminished slightly. Macroeconomic stability is still fragile due to the closing ratecountry's reliance on
December 31, 2019. The recent slowdown in inflation and the dovish shift of global and neighbor (Russia) central banks make space for gradual policy easing in Belarus. The NBRB cut the refinancing rate by 100bps to 9.0% in 2019. The NBRB expects inflation to be at the 5% target at end-2019, and
sees the next year’s environment as dovish / disinflationary given the lower inflation in Russia and globally, as well as the expectation for the economy to be close to its steady state. Devaluation risks still remain, as limited currency reserves, high debt repayments and the current account deficit coupled with the close ties to the Russian economy putand political instability. The European Union imposed three packages of sanctions since October 2020, including Alexander Lukashenko and high-ranking officials. Another source of political uncertainty is the recent BYN stabilization atcontroversial presidential election which caused protests and strikes. On the external side, the key risk and creates inflationary and devaluation pressure. Belarus has suffered from hyperinflationfactor is the disruptions in the past and may again in the future.
In line with our strategic priority of improving our balance sheet structure, debt of our subsidiary, CJSC Belarusian Telecommunication Network (“("Belarusian Telecom”Telecom") was restructured in 2015. As part of the restructuring, Belarusian Telecom’sTelecom's total existing intra-group loans were converted into subordinated loans, provided directly by Turkcell. As of December 31, 2019,2020, Belarusian Telecom’sTelecom's debt (excluding lease obligations) was BYN 0.9 million1.5billion (equivalent to TRY 2.4 million as of December 31, 2019) owed to financial institutions and a BYN 1.5 billion (equivalent to TRY 4.14.2 billion as of December 31, 2019)2020) subordinated loan owed to Turkcell. This subordinated loan was converted to the local currency, BYN, from EUR on April 1, 2019.
In Belarus, as the third operator in the market, we also face regulatory and operational difficulties and no assurance can be given that the situation will change in our favorfavorably in the future. These risks have affected and could adversely affect our reputation and results of operations.
Turkcell Foundation of our Company (“Foundation”), established in October 2018 in Turkey, intends to bring mainly all charities and donations, namely in respect of technology and education, under one roof on a voluntary basis. The board of directors of the Foundation consists of five members, all of which have been appointed among the high-level executives of Turkcell. The Foundation may be exposed to various Turkish regulatory and legal obligations specific to foundations.
Our international and Turkish subsidiaries may not benefit us in the way we expect for the reasons cited above, as well as other reasons, including general macroeconomic conditions, poor management and legal, regulatory or political obstacles. For manysome of these subsidiaries, we do not expect to achieve desired levels of profitability in the near or mid-term. We may also in response to such conditions consider increasing, restructuring or exiting certain of our investments and we may be required to establish new legal entities or engage in new business lines due to our business needs or recently introduced regulations. In addition to the foregoing, the new Turkish Commercial Code and related legislation may require us to provide new capital or other financial support to certain of our controlled subsidiaries, which may divert resources from other needs.
Furthermore, in addition to investing in our international operations, we also engage in business through roaming agreements in a number of countries. In international markets in which monopoly or duopoly markets exist, such as Monaco, the United Arab Emirates or the Maldives, operators tend to increase their roaming prices despite the overall global trend of declining roaming prices, in the world, which could increase our roaming costs. TheMoreover, the terms on which we enter into roaming agreements may change over time, adversely affecting our ability to sustain or enter into such agreements on commercially viable terms.
We face risks related to our dependence on network and IT systems and the products and services we provide through third party suppliers as well as our exposure to technological changes in the communications market, including industries where we traditionally do not compete.
We are dependent on certain systems and suppliers for information technology (“IT”("IT") and network technology (“NT”("NT") services, and also carry a significant inventory, and our business continuity is at risk due to our exposure to potential natural disasters, sabotages, regular or severe IT and network failures, human error, security breaches and other cyber security incidents and IT migration risk, any of which could have an adverse effect on our operations, damage our reputation and affect our relationships with our customers and/ or our employees and result in a fine under relevant data protection legislation.
We are heavily dependent on IT and NT systems as well as their suppliers and employees for the continuity of our business. Although we devote significant resources to the development and improvement of IT and NT and of security, backup and continuity systems, we could still experience IT and NT failures and outages due to system deficiencies, human error, natural disasters such as floods and earthquakes, unsuccessful migration to alternative or improved IT and NT systems, or other factors including but not limited to unintentional third party interruptions. Notably, a significant portion of Turkey’sTurkey's population and most of its economic resources are located in a first-degree earthquake risk zone and Turkey has experienced a large number of earthquakes in recent years, which may result in significant damages to the IT and NT systems our business depends upon. These factors also put at risk the substantial inventory that we hold which, if damaged, could adversely affect business continuity and our results of operations.
Mobile networks are migrating towards internet protocol (“IP”("IP") technology to transport information. These networks open up the possibility for IP-based services. However, once these services are introduced into the IP domain, the mobile network may be harmed by potential attacks. The threats on the mobile network can originate from external sources, such as the public internet, or internal sources, such as terminals connected to our mobile network. Despite the systems and infrastructure which we have put in place to address these security concerns, we could encounter successful attacks on our infrastructure, which could have an adverse effect on our operations, damage our reputation and affect our relationships with our customers.
Our IT and NT services are exposed to hacking, sabotage and other cyber security threats, and terrorist or other destructive acts, any of which could have an adverse effect on our operations, damage our reputation
and affect our relationships with our customers and/or our customers, incur substantial additional costs and result in a fine under relevant data protection legislation and lawsuits from affected customers.
Our commercial success is heavily dependent upon the security and continuity of our services, and maintaining the security of our customers’customers', employees’employees' and suppliers’suppliers' personal and financial data, intellectual property, and other confidential and sensitive data is essential to our business. In common with other high-profile businesses which are targeted for cyber-attacks, our networks and systems are constantly exposed to a variety of different cyber threats and we have experienced an increased number of sabotage incidents, as well as attempted cyber-attacks of varying degrees of sophistication by unauthorized parties attempting to obtain access to our computer systems and networks. We believe that no such attacks have succeeded in obtaining access to our critical systems, although in practice such attacks may develop over long periods of time during which they can remain undetected.
Based on our Cyber Defense Center practices, we have experienced many privilege theft and escalation attempts which have been stopped before causing any harm to our services and products. Also, many phishing and malware activities were detected and stopped, notably a global malware attack in October 2018 aimed at several telecommunication companies including Turkcell,those which aimed at taking control over our clients and servers. So far, none of these attacks are regarded as material incidents. A successful hack could disrupt our network and our ability to provide services and/or could result in, for example, unauthorized access to, misuse, loss, or destruction of our data or systems and theft of sensitive or confidential data, including personal information of our employees and customers, and theft of services and/or funds. Our data and systems are currently particularly vulnerable to cyber-attacks due to the fact that a significant proportion of our employees work remotely in the context of the ongoing COVID-19 crisis.pandemic. Additionally, many phishing and malware activities were detected and stopped, notably ransomware attacks are aimed at several technology companies including Turkcell, which aimed at taking control over our clients and servers. While we are in the process of reviewing the cyber security incident insurance alternatives that are available to us, we currently do not have such insurance, and a compromise of our security systems or those of our business associates, that results in the information we hold being accessed by unauthorized persons, could adversely affect our reputation with our customers and other stakeholders, as well as our operations, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. In addition, a breach could require that we expend significant additional resources related to the security of information systems and could disrupt our operations.
Although we closely follow general technological trends in communications and technology, we may be unable to adapt to rapid technological changes in communications and information technology, which could result in higher capital expenditures and a greater possibility of commercial failure.
Rapid technological changes in communications and information technology are redefining the markets in which we operate and the products and services we offer, shortening product life cycles and facilitating the convergence of various segments, including in our core mobile communications businesses. If we fail to anticipate, invest in and implement new technologies with the levels of service and prices that customers demand or to respond effectively to technological changes, our business, financial condition and results of operations could be adversely affected. In addition, such new technologies require significant capital expenditures and it is impossible to predict with any certainty
whether the technology selected by us will be the most economical, efficient or capable of attracting customer usage, or whether such technologies will be developed according to anticipated schedules, will perform according to expectations or will achieve commercial acceptance. Although we are following general technological trends in communications and technology, there can be no assurance that we will be able to develop new products and services that will enable us to compete efficiently.
We have become active in providing products and services for industries other than telecommunications, many of which are developed and/or maintained by third party providers. Our reliance on these third party providers to help us navigate the regulatory, security and business risks of industries where we traditionally do not compete adversely affects our business.
The operation of our business depends, in part, upon the successful deployment of continually evolving products and services, including for applications in industries other than telecommunications, such as TV, music, energy, mobile financial and payment services, insurance agency services, corporate services such as meal coupons, mobile education solutions, authentication solutions, data center services and entertainment and community services. We are reliant upon third party providers to help us navigateeffectively manage and respond to risks relating to security, regulations and business in the industries where we do not traditionally compete. Changes in such industries may impair our partners’partners' business and/or negatively impact the content we are developing, such as for entertainment, which, in turn, could have a material adverse effect on our business and financial condition.
We are subject to a variety of risks with respect to our Base Transceiver Stations (“BTSs”("BTSs") performance.
Spectrum limitations and frequency costs may adversely affect our ability to provide services to our subscribers and the cost to us of providing such services.
Our spectrum licenses have specified terms and are subject to renewal upon a payment of a fee, but renewal is not assured. The loss of, or failure to renew, our licenses could have a material adverse effect on our business and financial condition. Those licenses have also specified radio spectrum. The spectrum is a continuous range of frequencies within which the waves have certain specific characteristics. The number of subscribers that can be accommodated on a mobile network is constrained by the limited amount of spectrum allocated to the operator of the network and is also affected by subscriber usage patterns and network infrastructure. After the IMT Advanced (known commercially as “4.5G”"4.5G") auction held on August 26, 2015 in Turkey we have 2x10 MHz of FDD spectrum in 800 MHz band, 2x12.4 MHz of FDD spectrum in 900 MHz band, 2x30 MHz of FDD spectrum in 2100 MHz band, 10 MHz of TDD spectrum in 2100 MHz band, 2x29.8 MHz of FDD spectrum in 1800 MHz band, 2x25 MHz of FDD spectrum in 2600 MHz band and 10 MHz of TDD spectrum in 2600 band. Although the acquired spectrum can potentially be used for the next generation network technology known as 5G, some services that are specific to 5G and our future capacity needs will require us to eventually obtain new spectrum. If we are unable to maintain or obtain licenses for the provision of 5G specific telecommunications services or if our licenses are not renewed or are renewed on less favorable terms, our business and results of operations could be harmed. On the other hand, an earlier than expected 5G spectrum tender by the ICTA with the possibility of excessive prices can result in additional costs and investment, including capital expenditures. If the demand for 5G services fails to materialize at a level in line with the industry assumptions, the return on investment may not meet our expectations. Any of the foregoing factors could affect our profitability and our competitive position.
Spectrum-usage right of 2x11 MHz FDD band in 900 MHz expires on April 2023, after which it will be subject to renewal. All other frequencies that Turkcell has will be available until April 2029. In-line with technological and societal changes, traffic on the 2G network is expected to shift to the 3G and 4.5G networks. Although we aim to migrate our 2G customers to the 3G and 4.5G networks before the expiry of our 2G license, we might not be successful in doing so. If our prospective 2G
license extension request to the ICTA—which is to be made within 24 months to 6 months prior to the expiry date—is denied, we would face the risk of losing the 2G traffic and the corresponding revenue, which in turn could affect our profitability and competitive position. According to the relevant regulation, Turkcell is required to transfer—free of charge—to the ICTA or another public institution to be determined by the ICTA, the 2G equipment and the immovable possessions on which the equipment have been built when the GSM Concession Agreement expires. A clause in Law No. 5809 allows operators to continue using these equipment and immovables for UMTS and IMT technologies, on the condition that operators pay the fees and abide by certain obligations that are to be determined by the ICTA. Due to technological developments, almost all network technologies work integrated on the same equipment and it is technically impossible to separate or isolate a specific technology from the others. If the GSM Concession Agreement is not renewed or extended after the expiry date, a payment will need to be made to the ICTA and we may face some new obligations.
As we experience growth in our subscriber base and demand for mobile services and data, and as we offer a greater number of services, we will require additional capacity.capacity, which in turn might result in an increase in capex requirements and have an adverse impact on our cost of providing competitive coverage and also on our results of operations. We may face capacity problems, which may in turn lead to deterioration in our network’snetwork's quality, andwhich, in turn, may negatively impact our operational results.
We were awarded a license allowing us to deploy an IMT advanced network (“4.5G”("4.5G") in Turkey in October 2015. There are certain coverage and local productionprocurement obligations imposed by the tender. Potential increase in coverage requirements or failure to abide by the requirements of our licenses or applicable regulations may have an adverse effect on our business and financial condition.
Our 4.5G build-out has required significant financial investments and there can be no assurance that we will be able to meet all of the 4.5G license terms and conditions. The cost of the 4.5G license as well as the capital expenditure required in connection with our 4.5G build-out has been significant. Furthermore, the license agreement contains certain terms that may weigh on the profitability of this investment and may have an adverse effect on our 4.5G investment plans in the future. These include terms regarding minimum required use of local equipment and procurement from local small and medium sized enterprises engaged in production in Turkey in meeting infrastructure obligations, terms warranting our network equipment suppliers to employ a certain number of engineers and local researchers in their local R&D centers, an active network sharing obligation for a portion of the population, high coverage obligations for roads and railroads and significant taxes and spectrum usage fees. With respect to the local procurement requirement, whereas local telecommunications equipment and software production capacity has shown some progress in recent years, there is still not enough research and development, product development and production capacity in the local market to meet the license requirements and thus it has not been possible to fully comply. We have requested ICTAOperators' requests to waive this requirement initially for 2015-2016, 2016-2017, 2017-2018 and 2019. However,the reporting periods between 2015- 2019 has been rejected by the ICTA, has not yet responded to our Company. In addition to the above obligations, we must ensure that our network equipment suppliers employ a certain number of engineerswhich may result in administrative fines and, local researchers in their local R&D centers. Although efforts have been made, we do not believe that compliance has been achieved. No assurance can be given that ICTA will not find us to be in breach of our license as a result of the foregoing, which could harm our competitive position and our profitability.
In addition, if we fail to obtain additional frequencies in the future at a reasonable cost, the competitive coverage advantage of our Company may be adversely impacted. The cost of obtaining new frequencies has increased significantly in recent years and is expected to continue to increase. This has had and is likely to continue to have anturn, material adverse impacteffects on our cost of providing competitive coverage and also on our results of operations.financial results.
Consistent with the nature of terminal technology development, traffic on the 2G network is expected to shift to the 3G and 4.5G networks. Although we aim to migrate our 2G customers to the 3G and 4.5G networks before the expiry of our 2G license in 2023, we might not be successful in doing so, and in such case we would face the risk of losing the 2G traffic and the corresponding revenue should our 2G license extension request to the ICTA be denied, which could affect our profitability and our competitive position.
There are alleged health risks and zoning limitations related to our BTS which may adversely affect our ability to provide services at certain areas. The fiber business is also affected by local limitations.
We are aware of allegations that there may be health risks associated with the effects of electromagnetic signals from BTS and from mobile handsets. While we believe that there is currently no substantiated link between exposure to electromagnetic signals at the level transmitted by our BTS and mobile handsets and long term damage to health, the actual or perceived health risks of mobile communications devices could adversely affect us through a reduction in subscribers, reduced usage per subscriber, increased difficulty in the leasing and acquisition of site locations for base stations and exposure to potential liability. Furthermore, we may not be able to obtain insurance with respect to such liability on commercially reasonable terms or at all.
In recent years, legal proceedings have been brought against mobile operators seeking the removal of base station sites for health reasons. In addition, the Turkish Supreme Court overruled the decisions of some local courts, finding that a base station in question could have negative effects on human health over the long term. If the number of those cases increases or if new regulations were to result, these could have a material adverse effect on our operations and financial results. Such legal proceedings may make it more difficult for us to establish and maintain such sites. Furthermore, from time to time, there are conflicting and confusing reports in the media about the health effects of BTS. These reports have even caused local residents in certain regions to form large protests in strong objection to the BTS sites. Such obstacles have made it increasingly difficult to build new BTS sites and maintain our existing sites. The ICTA has issued an updated regulation which further tightened electromagnetic field limits. This may negatively impact network quality and increase our capital expenditures.
There are zoning limitations related to our BTS that require operators to obtain construction permits and certificates, which may be costly and may have an adverse effect on our operating results. Zoning law in Turkey
requires mobile operators to obtain certifications for all existing and new BTS, which may result in significant compliance costs and/or closing of BTS for which certification cannot be obtained, negatively impacting our financial condition. An exception to this requirement for base stations was rescinded by a court decision. As a result of this situation, some municipalities take actions to suspend the construction of BTS or order their demolition. The amendments madeadopted in the Planned Areas Zoning Regulation cameLaw have entered into force in November 2020, under which telecommunication masts and towers are subject to a license or permissions depending on July 25, 2019. With the related amendments, rooftop cellular systems and tower installations were separated. Towers and reinforced concrete station installations are excluded from the scope of the license exemption. On the contrary, a building license will not be required for rooftop BTS. However, there are certain ridge limitations for rooftop BTS. Also, there remains some uncertainty regarding the provisions on building aesthetics and silhouette, permits of the flat owners and the project implementation.their height. Any difficulty in maintaining or building BTS due to health concerns and our inability to obtain the required permission and certificates, may negatively impact the quality of our network, including our ability to expand and upgrade it, and affect our operational performance.
In 2012, metropolitan municipalities were authorized to consider the requirements of city and building aesthetics and electronic communication services when certifying BTS sites. Municipalities regulate the choice of operators’ BTS locations, and if we do not have, or are unable to obtain, a site selection certificate in our preferred location, we may be compelled to move our BTS to another less desirable location. In addition, the Site Selection Certificate Regulation entered into force in January 2018, applicable only to BTS sites established after December 2012. This fee is updated on a yearly basis and is set at TRY 3,640 for the year 2020. Such regulation is likely to lead to additional operational costs, and the certificate processes for implementation of sites may delay the permit process.
Our fiber business must excavate to lay new cables and repair existing cables, and there is an obligation to getobtain permission for excavations from authorized municipalities or institutions. In some areas, excavations may have to be stopped due toterminated as a result of the high cost of tariffs requested from municipalities. Our investment plans may be affected due to excavations being banned during certain seasons within the administrative boundaries of municipalities. Also, since June 2018 operators primarily have to request from the most prevailing operator in terms of infrastructure in Turkey—Turk Telekom—to perform the excavation work on their behalf, which might negatively affect our ability to expand our fiber network and our future investments (see—"Regulatory decisions and changes in the regulatory environment in the sectors in which we operate could adversely affect our business and financial conditioncondition"). In some cases, we could face the risk that, although we get the approval of the Ministry of Transport and Infrastructure, institutions subordinatethat are subordinated to the Ministry of Transport and Infrastructure do notrefuse to recognize these approvals and do not give permissiongrant permissions to excavate. In addition, a law in force has increased the number of metropolitan municipalities and in some cases, the size of their territory was increased, which may have the effect of increasinglead to an increase in our coverage obligations and the number of BTS required to meet such obligations. Furthermore, right of way conflicts with major municipalities to establish fiber optics infrastructure may affect our ability to provide services and to maintain operational excellence. Related regulatory actions in the future are likely to increase our costs and affect results of operations, in many cases, adversely.have a material adverse effect on our business and financial condition.
We are dependent on a small number of suppliers for network equipment, information systems and handsets and for the provision of data and services. We also rely on a small number of distributors. The failure of any of our counterparty such as suppliers or distributors may have an adverse effect on our business and financial condition.
We purchase our communications network equipment from a limited number of major suppliers. Our business is dependent on a small number of critical suppliers in areas such as network infrastructure, information systems and handsets and distribution. Further, although starting from January 2021 onwards this has changed to include additional distributors for technology products other than smartphones and tablets, we have workedbeen working with only two exclusive distributors in Turkey since 2015, which creates concentration risk. Any financial difficulty or failure of any of our suppliers and/ or our distributors in terms of timing and quality may adversely affect our business and financial condition. Such suppliers and distributors could fail to provide equipment or service on a timely basis as a result of a disruption to the global supply chain due to the ongoing COVID-19 global pandemic. If such failures occur, we may be unable to provide products and services as and when requested by our
customers, or we may be unable to continue to maintain or upgrade our networks. Because of the cost and time lag that can be associated with transitioning from one supplier to another, our business could be substantially disrupted if we were required to, or chose to, replace the products or services of one or more major suppliers with products or services from another source, especially if the replacement became necessary on short notice. Any such disruption could increase our costs, decrease our operating efficiencies and have a material adverse effect on our business and financial condition.
Our competitive position could also be adversely affected if our suppliers fall behind technological developments compared to the suppliers of our competitors. Adverse economic conditions have negatively affected and may continue to affect our domestic and international suppliers, leading to a contraction in their
business, which in turn may lead to a decrease in the quality of the services that they render to us and adversely affect timely delivery of such services, thereby negatively impacting our business and operations. In particular, if prices at which we purchase products from our domestic and international suppliers increase, namely as a result of currency depreciation and inflation—both in Turkey and internationally—, we need to pass on all or a large portion of these additional costs to our customers to be able to maintain our margins. However, we may be unable to increase the selling price of products or services to fully or partially offset the price increases by our suppliers (some of which have considerable negotiating power), particularly if our main competitors choose not to implement such price increases. In addition, our existing license agreements or new regulations may require us to purchase network equipment from specified suppliers or meet certain specifications regarding our existing suppliers. Equipment from these suppliers may not always be compatible with our existing equipment or the supplier may fail to integrate it, and our employees may not be familiar with the technical specifications and maintenance requirements of equipment from these suppliers. Furthermore, if our suppliers fail to meet the requirements, we may end up violating the terms of our license agreements. These factors could also have a material adverse effect on our business and financial condition.
Turkcell’s complex ownership structure and ongoing disagreements amongOur major shareholder has recently changed.
In October 2020, Turkiye Varlik Fonu ("TWF"), the wealth fund of the Republic of Turkey, acquired control of 26.2% of the outstanding shares of our Company. This stake is held through its wholly owned company, TVF Bilgi Teknolojileri Iletisim Hizmetleri Yatirim Sanayi ve Ticaret A.S. ("TVF BTIH"), now our largest shareholder. The current Chairman of TWF, Recep Tayyip Erdogan, is the President of the Republic of Turkey. Huseyin Aydin, who is a member of our Board of Directors, is also a member of the TWF Board of Directors.
TWF has a 6.68% stake in our main shareholders have adversely impactedcompetitor Turk Telekom, and the Ministry of Treasury and Finance of the Republic of Turkey has a golden share in that company. More generally, TWF is an important investor in the pastTurkish economy and may impact decision-making onholds important mattersstakes in numerous other major Turkish companies, including companies that we have business relationships with. This includes several major banks and financial services companies, including Borsa Istanbul, the future. These ongoing disputes may lead to further regulatory or legal actions,operator of the Istanbul Stock Exchange, Turksat, and affectenergy and infrastructure operators.
As of the ownership and control of our Company.
Our principal shareholder is Turkcell Holding A.S.,filing date, LetterOne, which controls the telecom company VEON, holds 51% of Turkcell’s shares as of March 20, 2020, based on the Company’s share book. Sonera Holding sold 13.07% of our shares to the market in two tranches (May 10 and September 21, 2017) which led tovia IMTIS Holdings an increase of 48.95% in our publicly held shares.
Turkcell Holding A.S. is 52.91% owned by Cukurova Telecom Holdings Limited and 47.09% by Telia Finland Ojy. Cukurova Telecom Holdings Limited is 51% owned by Cukurova Finance International Limited and 49% by Alfa Telecom Turkey Limited. According to public filings (a Schedule 13D filed in November 2009), Alfa and Telia Company entered into an agreement regarding a possible consolidation of their holdings in Turkcell into a new company. In a Schedule 13D filed on December 16, 2014, Alfa has deleted references to this agreement.
Cukurova and Alfa are involved in a long-running dispute regarding, in summary, amounts due by Cukurova to Alfa and Alfa’s claim to take ownership of Cukurova’s indirect 13.8%19.8% economic interest in our Company in settlementthrough its stichting.
Following the amendment of such amounts. In 2014, as a result of a court decision, Cukurova paid Alfa $1.6 billion to release this claim. Cukurova has been provided loan financing amounting to $1.6 billion by the Turkish state-owned Ziraat Bank for which an indirect 13.8% interest in our Company has been provided as collateral. According to the latest publicly available information, Alfa and Cukurova remain in a stalemate over a right given to Alfa to buy Cukurova’s stake and rights of Cukurova to either buy Alfa’s stake or sell its own stake to Alfa. This dispute and other disputes have effectively blocked shareholder decision-making on important corporate matters, and could have an adverse effect on the ability of our management to execute business decisions and take other actions. We cannot predict how the resolution of this dispute will affect our Company, whether other disputes will be resolved and whether our shareholders will be able to achieve agreement on matters regarding the operation of our Company.
The shareholding structure and the ongoing disputes have adversely affected our Company in a number of ways and present a number of risks, including in particular:
Our Articles of Association contain quorum and majority requirements, at various levels, for shareholder meetings and decisions. Failurethe general assembly on October 21, 2020, a new class of Group A shares has been created with special rights. TVF BTIH, as the sole holder of shares in this class, has the right to achieveappoint a quorum ortotal of five of the required majority vote can block decisions that require shareholder approval. Prior to our shareholders’ meeting held in 2015, we have had difficulty convening shareholder meetings and numerous items submitted to our shareholders have not been approved, including the distribution of dividends, the approvalnine members of our dividend policy,Board of Directors, including its Chairman. Under the electionBoard's current quorum rules, the affirmative vote of independent boardat least five members is required for a decision to be taken. In the release of directorsevent that the Group A shares cease to be held by a single shareholder, all privileges in voting and nomination for actions taken and the approval of financial statements. In 2012, 2013 and 2014, due to lack of quorum, the annual general assemblies could not convene on time. A general assembly was eventually convened on March 26, 2015. The annual general assembly meeting for 2016 and 2017 convened on May 25, 2017 and March 29, 2018; respectively, but in both instances did not approve all items submitted to it. It was decided at the annual general assembly meeting for 2017 that three memberselection of the Board of Directors appointed as per the decision of the Capital Markets Board (“CMB”) shall be dismissed and three new candidates proposed by Turkcell Holding A.S., our majority shareholder, shall be appointed in their place.
A number of corporate governance requirements were enactedmembers granted under Turkish regulations by the Capital Markets Board with mandatory effect from June 30, 2012.
We were unable to comply with some of these requirements because of a lack of consensus among our main shareholders, including a requirement that one-third of our Board members and that all of our Audit Committee members be “independent”.
Under the Capital Markets Law, the CMB has the power to take action against the Company, our Board members and our main shareholders in respect of the various governance issues that have arisen or to amend the Articles of Association without general assembly approval. Under such powers, startingto the Group A shares shall automatically terminate.
The Group A shares owned by TVF BTIH are subject to a three-year lock-up agreement, during which TVF BTIH is required to use its reasonable endeavors to cause Turkcell not to terminate its ADR program.
The Turkish law establishing TWF exempts it from March 2013, the CMB directly appointed alla number of our independent Board members so far. The CMB appointed members’ terms of office will last until new appointments are made in accordance with applicable legislation,laws, notably certain capital markets and competition laws, which may as innegatively affect minority shareholders' rights. For example, mandatory takeover rules will not apply to TWF's group and TWF group companies are not be bound by a commercial law that requires compensation of minority shareholders if the past include by CMB appointment. Mr. Ahmet Akca, Mr. Atilla Koc and Mr. Mehmet Hilmi Guler continued to serve as independent Board Members as per the letter of Capital Markets Board dated March 8, 2019, and were subsequently replaced by Nail Olpak, Afif Demirkiran, and Tahsin Yazar as per the resolution issued by CMB dated March 5, 2020.controlling shareholder pursues detrimental policies.
No assurance may be given regarding the impact of past or future CMB actions, future Investor Compensation Center actions, or any future legal actions against our Company, on the overall company strategy, convening of our general assembly or the distribution of dividends.
Compliance with our home country governance rules is an important element of our compliance with the listing requirements of the New York Stock Exchange (“NYSE”). Failure to comply with such rules could jeopardize the continued listing and trading of our ADRs on the NYSE.
For so long as our main shareholders are in dispute and/or unable to achieve consensus, we are likely to continue to experience difficulties obtaining corporate decisions, including with respect to the matters discussed above, and we may have difficulty obtaining decisions regarding our business and operations. This situation may also lead to further regulatory and legal actions being taken in respect of our Company, the nature and effects of which we cannot predict. Ongoing disputes among the shareholders may affect the ownership and control of our shares, the demand for and price of our shares and our ability to manage our business, and no assurance can be given that the interests of these shareholders will be aligned with those of our other shareholders.
We are involved in various claims and legal actions arising in connection with our business, which could have a material effect on our financial condition.
We are subject to investigations and regular audits by governmental authorities in Turkey, including the Competition Board, the ICTA, tax authorities and certain other parties, and governmental authorities in other countries in which we have operations. We are currently involved in various claims and legal actions with such authorities.some of these authorities, as discussed below. We set aside provisions on an as-needed basis with regard to our ongoing disputes in line with applicable accounting standards. However, no assurance can be given that the provisions we set aside will be sufficient to cover any actual losses under these matters, or that new disputes will not arise under which we would face additional liabilities and reputational risk. For a more detailed discussion of disputes that we presently believe to be significant, see “Item"Item 8. Financial Information”Information" and Note 38 to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F.
We face a risk of tax audits and claims in many different areas that are subject to taxation, such as corporate tax, value added taxes, special communication tax and others. Such audits and claims have led to significant tax assessments and penalties in the past and may again in the future. In addition, changes in tax laws and non-tax regulations may lead to the growth of our tax burden and may, as a result, materially adversely affect our financial condition and results of operations. Disputes related to taxation have been particularly significant and major penalties have resulted.
Current tax and other disputes include the following:
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aforementioned rejection act. The Council of State decided to cancel the rejection act regarding the application for the restructuring. The Large Taxpayers Office and Ministry of Treasury and Finance appealed the decision. The appeal process is pending. In the cases regarding the cancellation of the SCT assessment for the year 2011, the Council of State accepted the appeal and decided to reverse the first instance court decisions in favor of the Company. The Large Taxpayers Office applied for the correction of the decisions, which was refused by the Council of State.
In addition, tax investigation reports for the years 2015 and 2016 were delivered to us. Tax Authority imposed tax assessments; (i) TRY 85.1385.1 million in total, comprising TRY 34.0534.1 million in principal and TRY 51.0851.1 million penalty in relation to SCT for 2015 and (ii) TRY 61.7 million in total, comprising TRY 24.6924.7 million in principal and TRY 37.0437.0 million penalty in relation to SCT for 2016.We have concurrently applied for settlement. The successful settlement meeting was held in December 2019 and the assessment has been closed officially following settlement. Our Company remains under investigation on the same matter for the year 2017. Although the Ministry of Finance has addressed this issue through Communiqués enacted on January 1, 2018 for the periods after December 31, 2017, we may be subject to penalties or litigation for the year 2017.
Following a limited tax investigation at our Company with respect to Value Added Tax (“VAT”("VAT") and SCT pertaining to financial years 2015 and 2016, the Large Taxpayers Office made an additional request with respect to the taxation of applications included in some of the bundled offers and packages offered to our customers for financial year 2016 and imposed a tax assessment of TRY 247.8 million in total, comprising TRY 53.8 million in principal and TRY 80.7 million penalty in relation to SCT, and TRY 45.3 million in principal and TRY 68.0 million penalty in relation to VAT. A settlement request related to this assessment has been sent to the Revenue Administration for the period of 2016 in December 2018, and accordingly, a successful settlement meeting was held on December 26, 2019 and the assessment has been closed officially following settlement.Assettlement. As a result of the settlement, a single amount of TRY 199 million was settled (including the late payment interest) in relation to: (i) SCT assessment related to prepaid card TL/package sales made via our sales channels for the years 2015-2016 and (ii) VAT and SCT assessment related to the taxation of applications included in some of the bundled offers and packages offered to customers for the year 2016. The settled amount has been paid within the legal term and assessments were closed.
2020 are on-going.
A Central Commission of Report Consideration meeting was held on January 27, 2021. The evaluation of the Commission is still pending.
filed and for the months thereafter, no TRx fees were calculated over content services. The Court accepted the case in favor of the Company. The ICTA appealed the decision before the Regional Administrative Court, which rejected the appeal request. This case is finalized in favor of the Company. In October 2019, additional TRx amounts relating to content services were requested from the Company by the ICTA. Based on management's opinion in accordance with the relevant legislation of the ICTA, TRY 128.4 million was paid in November 2019, for 2018 and 2019 fiscal years and legal actions has been taken for 2018. These cases are currently pending. On the other hand, additional TRx amount of TRY 13.5 million for the month of December 2018 was paid on January 29, 2021 with regards to notification of the ICTA for the same reason and due to payment.
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As a result of the investigation, the Ministry of Trade decided to impose an administrative fine amounting to TRY 138.2 million against the Company. The Company filed a lawsuit for the cancellation of the administrative fine. The Court accepted the case in favor of the Company and cancelled the administrative fine. Istanbul Governorship appealed the decision.decision before the Regional Administrative Court. The Company replied the appeal request in due time. The Regional Administrative Court rejected the appeal request in favor of the Company. The Istanbul Governorship appealed the decision before the Council of State. The Company replied to the appeal request, and, the Council of State decided to reverse the Regional Administrative Court's decision and decided to send the case is pending.file to the Regional Administrative Court to re-decide after having an expert examination.
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Administrativelawsuits for the cancellation of the administrative fines. There has not been any progress in the cases yet. On the other hand, as a result of the investigation, the ICTA has decided to imposed an administrative fine of TRY 31.1 million to Turkcell, for the period of 2016-2017. The administrative fine notified to Turkcell on 29 January 2021 and was paid on 26 February 2021 as TRY 23.4 million with the early payment discount (1/4). The Company filed totally 7 different lawsuits for the cancellation of the administrative fines. There has not been any progress in the cases yet. In addition to the mentioned investigations, administrative fines were also requested in the contextfollowing reporting period (2017-2018) investigation for similar reasons. Although the investigation process continues, there is a significant risk that as a result of investigation, the ICTA investigation related to some reporting errors (both for 3G and 4.5G) and the failure to fulfill the obligations regarding the minimum required use of local equipment and procurement from local small and medium-sized enterprises for the 2013—2016 and 2016—2017 periods under the 4.5G license terms.may impose a similar or a higher penalty decision.
For a more detailed discussion of our disputes that we presently believe to be significant, see Note 38 to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F.
We have a material amount of deferred tax assets which is subject to significant judgement by our management, and we face risks with regard to the recognitions and recoverability of these assets.
The recognition of deferred tax assets is based upon whether it is probable that future taxable profits will be available against which unrecognized tax losses and temporary differences can be utilized. Recognition, therefore, involves judgment regarding the future financial performance of the particular legal entity in which the deferred tax asset has been recognized.
For the year 2020, a TRY 647.9 million deferred tax asset has been recognised in Ukraine in respect of losses. Please refer to Note 9 to our audited Consolidated Financial Statements included in "Item 18. Financial Statements" of this annual report on Form 20-F. lifecell has recorded positive taxable profits for the year ended 31 December 2020, mainly as a result of increased subscriber numbers and cost management. The Group has concluded that the deferred tax assets will be recoverable using the estimated future taxable profits based on the business plan of lifecell. The tax losses can be carried forward indefinitely and have no expiry date. However, the accuracy of the judgments and estimations that lifecell will continue to generate taxable income in the future based on the business plans and the current Tax Regulations in Ukraine may be subject to change.
Although we maintain and regularly review our internal control over financial reporting, there are inherent limitations on the effectiveness of our controls, particularly as our Company grows and enters into new businesses.
We maintain and regularly review internal control over our financial reporting. However, internal control over financial reporting has inherent limitations and there is no assurance that a system of internal control over financial reporting, including one determined to be effective, will prevent or detect all misstatements on a timely basis. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance regarding financial statement preparation and presentation. This risk is exacerbated by our rapid growth into new activities, which creates additional challenges in identifying risks and designing and implementing systems to control them. In addition, we have entered into an agreement with a vendor that will provide a software solution for replicating accounting data from a variety of systems into a single system to obtain consolidated financial reports, which creates risks associated with transition and implementation and can further complicate the process of identifying risks and designing and implementing systems. Furthermore, we operate in a decentralized structure in which most compliance functions are managed at the level of our operating companies rather than at the parent company level, which can further complicate the process of identifying risks and designing and implementing systems.
Our systems may not always allow us to detect and prevent fraud or other misconduct by our employees, representatives, agents, suppliers, dealers or other third parties. We may be exposed to fraud or other misconduct committed by our employees, representatives, agents, suppliers, dealers or other third parties that could subject us to litigation, financial losses and sanctions imposed by governmental authorities, as well as affect our reputation. Such misconduct could include misappropriating funds, conducting transactions that are outside of authorized limits, engaging in misrepresentation or fraudulent, deceptive or otherwise improper activities, including in return for any type of benefits or gains or otherwise not complying with applicable laws or our internal policies and procedures.
Our latest review as of December 31, 2019,2020, similar to last year, has revealed certain deficiencies in our controls, although none that we believe constitutes a “material weakness”"material weakness". Our controls have, in the past, suffered from deficiencies and no assurance can be given that others will not emerge in the future. A failure to detect or correct deficiencies and weaknesses in a timely manner could have an adverse effect on the accuracy of our financial reporting and on our operations and may also cause financial losses.
Our business consolidated financial results and/or operational performance could be adversely affected unless we retain our key personnel, our partners and their employees.
Our performance depends, to a significant extent, on the abilities and continued service of our key personnel. Competition for qualified telecommunications and technology personnel in Turkey and elsewhere is intense, in particular in the area of cyber-security. In addition, we depend on our dealers, distributors and their employees for the growth and maintenance of our customer base. The loss of the services or loyalty of key personnel could adversely affect our business and financial condition and could lead to breaches of confidentiality, particularly if a number of such persons were to join a competitor. Furthermore, should a significant number of our employees, or certain members of our key personnel, be unavailable due to measures (e.g., quarantine, confinment,confinement, etc.) implemented in the context of COVID-19 or other pandemics, or should we suffer the loss of such employees as a result of COVID-19 or other pandemics, this may have a material adverse effect on our operations, including customer service, sales, and the deployment, operation and maintenance of our networks.
Our ADS price may be volatile, and purchasers of ADSs could incur substantial losses.
The market price of our ADSs may be highly volatile and could be subject to wide fluctuations, in particular due to the fact that trading in the ADSs will take place in different currencies (U.S. dollars
on the NYSE and Turkish lirasLira on the Borsa Istanbul), and mostly at different times (resulting from different time zones, different trading days and different public holidays in the United States and Turkey), resulting in the trading prices of these securities differing on these two markets. Securities markets worldwide experience significant price and volume fluctuations. In particular, the long-term effects to the global securities markets of epidemicspandemics and other public health crises, such as the on-going COVID-19 crisis,pandemic, are difficult to assess or predict, and may include a further decline and volatility in the market prices of our ADSs. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our ADSs in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors due to a number of potential factors, including changes in our quarterly operating results or dividends, additions or departures of key management personnel, failure to meet analysts’analysts' earnings estimates, publication of negative research reports about our industry, failure of securities analysts to cover our sharesstock or changes in financial estimates by analysts, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about the industry we operate in or individual scandals. Consequently, in response to these events, the market price of our ADSs could decrease significantly, and purchasers of ADSs could incur substantial losses. In addition, share sales by major shareholders, and the perception that significant sales could occur, may have an adverse impact on the price of our shares and ADRs.
ITEM 4. INFORMATION ON THE COMPANY
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4.A History and Development of the Company
Turkcell Iletisim Hizmetleri A.S. (“Turkcell”),is a joint stock company organized and existing under the laws of the Republic of Turkey, was formed in 1993 and commenced operations in 1994. Our principal shareholder is Turkcell Holding A.S., which holds 51.00%In July 2000, we completed our initial public offering with the listing of Turkcell’sour ordinary shares based on the Company’s share book. BasedBorsa Istanbul and our ADSs on
publicly-available information, we believe that Turkcell Holding A.S. is 52.91% owned by Cukurova Telecom Holdings Limited and 47.09% by Telia Finland Oyj. Based on publicly-available information, we believe that Cukurova Telecom Holdings Limited is 51% owned by Cukurova Finance International Limited and 49% by Alfa Telecom Turkey Limited.
The address of our principal office is Turkcell Iletisim Hizmetleri A.S., Turkcell Kucukyali Plaza, Aydinevler Mahallesi Inonu Caddesi No:20 Kucukyali Ofispark, Maltepe, Istanbul, Turkey. Our telephone number is +90 (212) 313 10 00. Our website address is www.turkcell.com.tr. In July 2000, we completed our initial public offering with the listing of our ordinary shares on the Borsa Istanbul and our ADSs on NYSE.
We operate under a 25-year GSM license granted in April 1998, a 20-year 3G license granted in April 2009 and a 13-year 4.5G authorization certificate granted in October 2015.
Our GSM license was granted in April 1998. Under our license, we pay the Undersecretariat of the Treasury (the “Turkish Treasury”"Turkish Treasury") a monthly treasury share equal to 15% of our gross revenue. Of such fee, 10% is paid to the Ministry of Transport and Infrastructure for a universal service fund.
In early 2009, we were granted a 20-year type a 3G license, which provides the widest frequency band and we signed the related 3G license agreement on April 30, 2009. The 3G license agreement has similar provisions to the aforementioned 2G license agreement.
In 2013, we won an auction held by the Ministry of Transport and Infrastructure related to universal service, which requires installing sufficient infrastructure to uncovered areas with a population
of less than 500 and the operation of the service in these areas for three years. This contract was extended through December 31, 2019 and the extension contained new requirements to provide mobile broadband services and to operate the new and existing networks together. The Ministry of Transport and Infrastructure extended the contract under the same conditions through June 30,December 31, 2020, and is preparing a new auction for the operation of the universal service beyond June 30,December 31, 2020.
In the 4.5G auction held on August 26, 2015, we were awarded a total frequency band of technology agnostic 172.4 MHz, the largest amount of spectrum of any operator. We commenced offering 4.5G services from April 1, 2016. The 4.5G license is effective for 13 years until April 30, 2029. The total fee of EUR 1,623.5 million (excluding VAT and interest payable on the installments) was paid in four installments, where the last installment amounting TRY 1,535 million (originally EUR 413.8 million, converted by the buying exchange rate on January 2, 2017 announced by CBRT) was paid in April 2017.
Turkcell has a total frequency bandwidth of 234.4 MHz, which corresponds to 43% of total spectrum available to the mobile operators in Turkey. The large spectrum assets, including the wide frequency bands on 1800 MHz and 2600 MHz, along with a strong network deployment, have enabled us to provide the fastest 4.5G speeds over 1 Gbps through carrier aggregation combinationstechniques and availability of advanced user devices supporting new features. In this scope, in April 2018, we showcased 1.2 Gbps peak speed in our live network with a commercial smartphone, aiming to provide our customers with the highest peak speeds in the world provided by the latest technological advancements. Turkcell supports up to 1.2 Gbps1400 Mbps speeds on its network and this allows customers to get better network experience and access mobile services at speeds comparable to fiber broadband.
Following the 4.5G launch, Turkcell focused on providing innovative and pioneeringits own digital services; which differentiatesservices with a view to differentiate its offerings from the competition.competition and tap into new growth areas. We develop and manage digital services and solutionstechfin services to address the diverse needs of both consumers and corporate customers, thereby enriching their lives.corporates.
Our Company has also branched out into the development of fixed line networks, including fiber-optics connecting directly to the home, creating a fiber-to-the-home ("FTTH") network. In order to fill the gap in the areas where fiber cannot be provided, feasibly deployed, or that are constrained by ADSL service, an alternative fixed wireless access ("FWA") solution is also offered.
We have a strong track record of profitable operations with total revenues of TRY 25,137.129,103.7 million, Adjusted EBITDA of TRY 10,426.412,270.3 million and net income of TRY 3,246.54,237.1 million (excluding non-controlling interests) for the year 2019.2020. We have achieved these results while continuing to invest in our network to support our strategy of offering quality services and innovative solutions, with capital expenditures totaling TRY 7,224.79,078.9 million for the year 2019.2020.
Our subscriber base has grown substantially since we began operations in 1994. At year-end 1994, we had 63,500 subscribers, and by year-end 20192020 that number had grown to 46.747.9 million for the Group.
In addition to our operations in Turkey, we have various international operations. For more information, see “Item"Item 4.B. Business Overview—IX. International and Domestic Subsidiaries”Subsidiaries".
Over the past 2526 years, Turkcell has played a central role in the development of the telecom industry in Turkey, first as a traditional mobile operator, then as a converged telecom operator, and finally, also as thea digital operator.service provider. Over recent years, we have strived to pioneer the provision of digital services in the telecom industry and at the same time, have retained our position as the telecom market leader in Turkey on the back of our service quality, value proposition and strong distribution network. We have shifted to anOur organizational structure with thereflects our aim of increasing efficiency and simplifying our business processes, as well as strengthening our position as a provider of converged communications, digital services, digital business solutionsservices (previously referred to as "digital solutions") and techfin services.
We have differentiated our network through its quality and speed of service built on extensive spectrum rights covering 43% of the total spectrum available to mobile operators, and with an extensive network coverage. We have also focused on building an advanced fiber network to support our mobile and fixed offerings, including broadband and television. We have our own fiber network that is currently capable of offering 10 Gbps— a first for Europe.Gbps.
We had 46.747.9 million subscribers in Turkey, Ukraine, Belarus and the Turkish Republic of Northern Cyprus and Germany as of December 31, 2019.2020. In Turkey, we had 35.736.7 million total mobile, fixed and IPTV subscribers as at the same date.
Our business is divided into two main reportable segments: Turkcell Turkey and Turkcell International.
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We have a strong track record of profitable operations with total revenues of TRY 25,137.129,103.7 million, Adjusted EBITDA of TRY 10,426.412,270.3 million and net income of TRY 3,246.54,237.1 million (excluding non-controlling interests) for the year 2019.2020. We have achieved these results while continuing to invest in our network to support our strategy of offering quality service and innovative solutions, with capital expenditures of TRY 7,224.79,078.9 million for the year 2019.2020.
We are the only company listed on both the NYSE and the Borsa Istanbul, and had a market capitalization of TRY 30.435.4 billion as of December 31, 2019,2020, making us the seventhninth most valuable publicly traded company in Turkey at that time.
I. Industry
a.Overview
GSM, one Mobile telecommunications technologies evolve at a very fast pace and, approximately every decade, a new generation of advanced cellular technology becomes available for use in mobile networks. These technology transitions enable an enhanced user experience via the digital standardsintroduction of
higher data speeds, reduced latencies, and larger capacities, thereby paving the way for mobile communications, was developed in 1987 to facilitate the unification and integration of mobile communications worldwide.more advanced applications for end users.
Since Turkcell was founded in 1994, mobile technology has evolved from GSM (2G) to UMTS/HSPA+ (3G) to LTE/LTE-Advanced (4G/4.5G), and recently to 5G, providing new capabilities and extensive improvements in customer experience. 2G was originally intended to carry voice, with some limited data and messaging capabilities, whereas the focus in 3G shifted more to data, along with simultaneous voice and data capability. 4G has brought fully IP-based architecture where everything is considered data. The advent of 4G/4.5G technologies has enabled the introduction of increasingly sophisticated services featuring lower latency and higher data speeds, and capabilitycapabilities to provide a variety of enriched services beyond mobile broadband, especially for vertical markets such as health, smart cities, transportation, agriculture, education and entertainment. Turkcell currently offers services over 2G, 3G and 4.5G technologies. Currently, 5G is not commercially available in Turkey yet, however we are preparingmaking preparations to ensure that we will be ready for 5G.our network architecture and topology are aligned with the needs of a future 5G network. For example, in 2018 we have demonstrated our 5G FWA capability in a millimeter wave band (28GHz), which was the first 5G live network test in Turkey. Since then, we have focused on different usage of 5G, reaching out to as many vertical sectors as possible while maintaining a local R&D focus. Within this scope, we have showcased our 5G capabilities in drone communications, 5G connected ambulances, real-time virtual reality over 5G and 5G live TV broadcasting on our 5G test network. Furthermore, we upgraded our network to be fully ready for NSA 5G (non stand alone—upgraded version of LTE core network to ready 5G) in core network. We are upgrading our LTE base stations to support 5G service in our current frequencies.
Our Company has also branched out in tointo the development of fixed line networks, including fiber-optics connecting directly to the home, creating a fiber-to-the-home (“FTTH”("FTTH") network. In order to fill the gap in the areas where fiber cannot be provided, feasibly deployed, or that are constrained by ADSL service, an alternative fixed wireless access (“FWA”) solution is also offered.
b. b.The Turkish Telecommunications Market
We believe that the Turkish telecommunications market has growth potential due to favorable demographics, including a relatively young population and lower penetration levels compared to Western Europe and other developed markets.
There were 83.283.6 million people living in Turkey as of December 31, 2019.2020. According to a TUIK announcement, the estimated median age of the Turkish population is 32,32.7, which is lower than elsewhere in Western Europe, and the majority of the population liveslive in urban areas.
There are currently threetwo other major operators in the telecommunications sector in Turkey Turkcell Turkey, Vodafone Telekomunikasyon A.S. (“Vodafone”) andapart from Turkcell: Turk Telekomunikasyon A.S. (“("Turk Telekom”Telekom" and together with its mobile segment Turk Telekom Mobil (“("TT Mobil”, formerly known as Avea)Mobil") and TTNET, or “Turk"Turk Telekom Group”Group"), and Vodafone Telekomunikasyon A.S. ("Vodafone"). In 2019,2020, the total revenue of the Turkish mobile and fixed markets was TRY 57.366.5 billion compared to TRY 49.257.3 billion in 2018,2019, according to the operators’operators' announcements (for the calculation of total market revenues, non-group call centers and financial services revenues are added to Turkcell Turkey’sTurkey's reported revenue and Turk Telekom’sTelekom's construction revenue is excluded).
Vodafone entered the Turkish mobile market by acquiring Telsim on May 24, 2006 from the Savings Deposit Insurance Fund. The Republic of Turkey's Ministry of Treasury and Finance owns a 25% stake in Turk Telekom, and our largest shareholder, TWF, holds a 6.68% stake according to Turk Telekom's disclosure. In December 2018, Ojer Telekomunikasyon A.S.‘s' shares in Turk Telekom (representing 55% of the company) were transferred to a special purpose vehicle, Levent Yapilandirma Yonetimi A.S., and on September 2019, a financial adviser was mandated for the sale of those shares.
II. Strategy
Over the past 2526 years, Turkcell has played a central role in the development of the telecom industry in Turkey. This has been achieved as a result of our core competencies, which include our strong brand, excellent customer relations, high quality infrastructure, market-leading technology as well as a skilled work force. In the next three years,Going forward, we will strive to continue the profitable growth of the Group by leveraging our competencies and focusing on three key strategic areas, in addition to growing in our core telecom services: digital services, digital business solutions,services, and techfin services.
The key part of our strategy is growth of our core telecom operations. Our vast home market offers the potential for further growth of our customer base which we intend to increase by focusing on the postpaid segment, while also increasing the revenues generated from these subscribers. We believe the fixed broadband market also offers significant growth potential through fiber and FWA products, which we will pursue accordingly. Furthermore, we aim to maximize the potential of our digital channels both in terms of subscriber acquisitions and device sales. Our core competencies, which are stated above, will prove instrumental in further growth of our key strategic focus areas.
Turkcell began its digital transformation with the vision of becoming a “digital operator”—a provider of the full set of digital experiences for its customers and a leader in the digitization of the economy in countries where it operates. Our unique portfolio of digital services such as TV, music, publishing and communication are made available to our customers through our market-leading telecom capabilities, which set us apart from global over-the-top (“OTT”("OTT") players. Our services in various areas such as TV, music, publishing and communication have played a major role in the improvement of our ARPU and churn levels. We are now focusingfocused on monetizing these services, particularly on their revenue generation on a standalone basis. Already offered by our international subsidiaries, our digital services are set for expansion in new markets through commercial partnerships, mainly with other telcotelecom operators.
We continue to support our digital operatorbusiness model with investments in industries that have synergies with our digital business. WeAs such, we have established a digital business solutionsservices company that provides tailor-made, end-to-end information & technology (ICT) solutions —connectivity,solutions—connectivity, hardware, data center and cloud services, security services, ITsystem integration and solutions using AI,managed services, business applications, Internet of Things (“IoT”("IoT") and Big Data—for enterprise customers particularly in the healthcare,our target sectors including finance, health, education, logistics, manufacturing, retail, energy, publictourism, SMEs and transportation sectorscentral and local authorities by leveraging our ability to combine telecom and IT services and thereby adding value in the course of their digital transformation.
We also focus on techfin services, namely through our digital payment services platform, Paycell, which has established key vertical business lines including mobile wallet, carrier billing, utility payments, money transfer, QR code payment and POS services. Going forward, Paycell will focus on enhancing its product & services portfolio, expanding merchant acceptance with tailored products, and scaling its products, targeting both consumers and over 1.6 million merchants.existing products. We are committed to capitalizing on this well-established payment services platform. In addition, our consumer financefinancing company, Financell, enables users to purchase smart devices.devices, and our insurance agency company, Turkcell Sigorta, focuses on insurtech products.
III. Customer Segmentation and Services
a.Customer Segmentation
In Turkey, as of December 31, 2019,2020, we had a total of 35.736.7 million subscribers including 32.733.4 million mobile subscribers, 2.32.4 million fixed broadband subscribers and 719.7871 thousand IPTV subscribers.
With our digital operatorservice provider vision and as part of our increased focus on customers, we take a number of actions designed to increase customer base and loyalty, and such loyalty actions are designed in line with the targeted segments’segments' lifestyles, needs, priorities, and expectations.
The aims of the segmentation are to:
On a broader scale, Turkcell Turkey divides its customers into three main categories:
Consumer Category
In the consumer category, we manage our mobile customers either under the mass segment or under one of our twothree large sub-segments, youth, women and premium. In addition, a micro segmented approach has been applied throughout the year, meaning that each customer is matched with offers that best suit their needs and expectations. In line with our goal of being a digital operatorservice provider and enlarging our customer base, we provide numerous offers and campaigns enriched with our digital services in accordance with market dynamics and customer demand, such as BiP, fizy, TV+, Dergilik and lifebox.lifebox, in accordance with market dynamics and customer demand.
Fixed broadband customers are consolidated under a single segment (residential) and managed under the consumer category along with mobile consumers. By positioning the residential segment under the consumer category, we aim to enhance convergence between mobile and fixed businesses. Under the residential segment, we have our fiber internet customers, who use our own fiber infrastructure, and our DSL and cable customers, to whom Turkcell is a reseller. Turkcell's FWA business, Superbox, is run under the residential segment.
Corporate Category
The corporate category for our mobile and fixed customers comprises our small and medium business customers and as well as our enterprise customers. We provide differentiated mobile and fixed communication offers for each of these customer groups. Additionally, in 2019 we renewed our portfolio of corporate products
groups and services with a new vision of accompanying our corporate clients through every stage ofsupport their digital transformation process throughwith our system integration, digital business infrastructure, digital business applications, managed services, cloud services, Internet of Things products & solution management and Big Data & analytics services. For this purpose, we transformed and relaunched our subsidiary, Turkcell Satis ve Dijital Is Servisleri A.S. (“Turkcell Satis”) in January 2019.
Wholesale Category
Our wholesale category focuses on managing wholesale voice, data, roaming, tower and roamingdigital services with the national licensed operators, international operators and network-centric business owners such as data centers and content providers.
For roaming services, the wholesale category strives to achieve the best international coverage for customers to have continuous communication wherever they travel and to enable all visitors to enjoy the service quality of Turkcell.
For wholesale data and voice services, our main strategy is to become the regional junction point in an increasingly digitally hyper-connected world, and while promoting our infrastructure in the international market, we are focused on growing as a preferred wholesale partner of local operators in the domestic market as well.
b.Services
We provide high quality mobile and fixed voice, data, TV and digital services to our subscribers throughout Turkey. We provide a range of traditional telecommunication and digital services enabling our customers to call, search, streamunder communication, music streaming,
entertainment, and watch videos.techfin categories. Our mobile subscribers can choose between our postpaid and prepaid services. Currently, postpaid subscribers sign a subscription contract and receive monthly bills for services. Prepaid subscribers must purchase a starter pack, which consists of a SIM card with 3GB of monthly data and a balance of TRY 35, or monthly 750 minutes, 250 SMS and 25GB of data, with 20GB additional quota for their every TRY 34 or more top-up (TRY refill) up to 3 times in 120 days following the opening of the lines. As of December 31, 2019,2020, we had 11.5 million prepaid subscribers and 22.0 million postpaid subscribers, compared to 12.4 million prepaid subscribers and 20.4 million postpaid subscribers compared to 14.9 million prepaid subscribers and 18.8 million postpaid subscribers as of December 31, 2018.2019.
We provide a range of fixed services in Turkey including voice, broadband and IPTV to consumers and a wider range of services to our corporate customers from cloud services to traffic carrying. We provide these services through a combination of our own fiber infrastructure, through sharing agreements and leased copper ADSL lines. As such, we offer fixed broadband services through the cable infrastructure of Turksat, the government-owned provider of cable and wireless broadcasting, high-speed internet services, and direct to home broadcasting services in Turkey. Starting in September 2018, our fixed broadband tariffs are valid for a 12-month commitment (down from 24 months), and we continue to have some customers on 24-month commitments. As of December 31, 2019,2020, we had approximately 2.32.4 million fixed broadband customers of which 1.51.7 million were fiber customers, 719.1707.6 thousand were ADSL customers and 4967.7 thousand were cable customers, compared to 2.3 million fixed broadband customers of which 1.41.5 million were fiber and 905.6719.1 thousand ADSL, and 49.2 thousand cable customers as of December 31, 2018.2019.
(i) Voice Services
Voice services are among the key services that we provide to our customers. Voice services consist of high-quality mobile communication services on a prepaid and postpaid basis and fixed voice services for consumers and corporate customers.
(ii) Broadband Services
Our broadband services consist of mobile broadband, fiber to the home/building and ADSL Docsis, cable, LTE and fixed wireless broadband services over our mobile network.
Our capability to offer 4.5G in 81 cities in Turkey has resulted in increased network abilities and data speeds. We believe that 4.5G services coupled with the wider availability of technological products has contributed to a more connected life for our customers, resulting in an increase in overall internet usage.
Smartphones, which combine the features of a mobile phone with those of other popular digital mobile devices (e.g. personal digital assistants, media players, GPS navigation, digital camera) and have an open operating system (e.g. iOS, Android, Windows Mobile) allowing access to the internet and running a variety of
third-party and owned software applications, are an important component of the growth of our mobile broadband and digital services businesses. Smartphone penetration on our network reached 76%81% by the end of 2019,2020, up from a 74%76% penetration at the end of 2018.2019. This growth resulted mainly from non-smartphone customers shifting to smartphones as a result of the various campaigns promoting 4.5G enabled smartphones. As of December 31, 2019,2020, the number of subscribers who have signed up for 4.5G on our network was 30.731.8 million. This represents 94%95% 4.5G subscriber penetration of our mobile customers in Turkey. With rising 4.5G penetration and the increase in the number of 4.5G penetration,FWA-service users, average mobile data usage reached 11.7 GB per month in 2020, vs. 7.4 GB per month in 2019, vs. 5.2 GB per month in 2018, while average mobile data usage of 4.5G users reached 13.6 GB per month
in 2020, vs. 9.1 GB per month in 2019, vs. 6.8 GB per month in 2018.2019. The table below shows the number of smartphones on our network and smartphone penetration for the periods indicated:
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Number of smartphones on our network (millions) | 22.0 | 22.4 | 22.1 | 19.2 | 16.1 | |||||||||||||||
Number of 4.5G compatible smartphones in our network (millions) | 19.2 | 18.0 | 15.7 | 11.3 | — | |||||||||||||||
Penetration(1) | 76 | % | 74 | % | 72 | % | 64 | % | 52 | % |
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A wide variety of data offers are made available as partsmartphone subscribers (excluding smartphone subscribers with deactivated status) divided by the ending number of ourTurkcell mobile voice and terminal bundled campaigns, where terminals are sold by dealers, to increase LTE available device penetration, and enhance the mobile broadband experience.subscribers (excluding Turkcell subscribers with deactivated status).
Since February 2014, the sale of smartphones through credit cards with installment plans has been banned in Turkey. Turkcell initiated Financell in 2016 to offer its customers consumer loans in their purchase of smart devices. As a macroeconomic prudential measure, the BRSA has introduced a limit to the number of installments for consumer loans, starting from September 2018. As ofSince January 2020, smartphones and tablets with a retail price at or above TRY 3,500 can be offered with a maximum three-month installment plan, whereas the maximum installments is increased to 12 months for thosesmartphones and to six months for tablets with a retail price of up to TRY 3,500.
Distributors, dealers, Financell and Turkcell offer joint campaigns to the subscribers, which may include the sale of devices by the dealer and a communication service to be provided by us. In addition, we are selling handsets ourselves as a principal. A variety of devices are offered through these campaigns, such as smartphones, LTE available modems and tablets and some complementary products such as accessorizes, game consoles, headsets and virtual reality sets. Since 2018, we are deliveringWe deliver attractive joint campaigns with models of brands in high demand such as Samsung, Apple, Huawei and some local handset manufacturers such as Vestel and General Mobile. We believe this contributes to increased smartphone penetration and data usage and further builds customer loyalty by offering a technologically advanced product at a competitive price.
When we sell goods or services as a principal, income and payments to suppliers are reported on a gross basis in revenue and operating costs, respectively. If we sell goods or services as an agent, revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin earned.
We offer fixed broadband internet packagestariffs to our residential customers. We also offer internet, voice and TV bundles, where we benefit from the use of our own fiber. The ratio of customers using multiplay with TV services reached 53.3% as of December 31, 2019, from 48.6% a year ago. We need the incumbent’sincumbent's network to provide services outside our own fiber infrastructure, and in these circumstances, we differentiate our offering with our unique brand and our excellentcompetitive customer service. Therefore, outsideOutside of our own fiber infrastructure we are only able to offer double-play packages with broadband and voice to our customers. We do not offer IPTV service on DSL because our TV technology is IP-based and has a multicast structure, and for technical reasons DSL infrastructure cannot support this type of service. We emphasize our “no"no hidden prices”fees" value proposition with our broadband products by not charging our customers for activation, modem or installation services separately, and by offering high-speed fiber broadband at attractive prices.
In addition to the internet, voice and TV bundles, our residential broadband customers are offered the fixed broadband and fiber device bundled campaigns, where significant discounts on specific models of smartphones, tablets and modems are offered to customers with 1212- or 24 month24-month internet service contracts with our Company. Furthermore, starting from the first quarter of 2020, our residental segment customers are able to benefit from campaigns with devices that match their credit scores and obtain financing from Financell.
We also serve our customers with our FWA service called “Superbox”"Superbox", which offers wireless high-speed internet access for customers and primarily preferred by those who are at locations with no fiber infrastructure. Superbox is the first and the widest FWA service in Turkey. The required equipment is included in the subscription plan and uses the LTE Advanced network as a backhaul to provide internet connectivity. As of December 31, 2019,2020, we reached 323had 591 thousand Superbox customers in Turkey, up from 33323 thousand customers a year ago.
(iii) Digital Services and Solutions
Over the course of the past fourfive years, Turkcell has invested in developingdeveloped its own digital applicationsservices (applications) and services.solutions. Turkcell has a large portfolio of mobile applications which can be downloaded from app markets and are available on both iOS and Android platforms. These applications are available for any user regardless of their choice of mobile operator. Some of these digital services are owned and managed through Lifecell Ventures, a 100% subsidiary of Turkcell incorporated in the Netherlands. All of these apps are created and sustained by our in-house mobile application development team comprised of more than 1,200a thousand R&D engineers.
Turkcell seeks to differentiate itself by providing innovative and pioneering solutions in collaboration with its strong solution providers and various partnerships. We are also focused on marketing our digital services portfolio to trusted telecom operators around the world. Having established stand-alone companies for some of these services, we have taken an important step towards their global competitive positioning. These companies include the ones for BiP, lifebox, TV+ and fizy brands, with which we aim to stand out in the global competitive arena. As part of this structure, these brands aim to conduct their activities in a faster manner and with a greater focus with their own organizational structures.
Among others, below are the strategic In 2020, total digital services onstandalone revenues increased by 26% year-on-year to around TRY 1.3 billion, and c.3 million standalone paid users which we focus our efforts (in no particular order):
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We regularly monitor theinclude subscriptions for IPTV, mobile (OTT) TV, fizy, lifebox and Dergilik. The performance of our digital services portfolio is monitered internally through KPIs, including the number of downloads, three-month active users (number of unique users who, in the past three months, have logged into the app at least once) and other KPIs that are relevant to each individual service.service internally.
BiP
BiP is an integrated IP-based communication platform with the following key features:
“Discover”
Moneyamongst others;
The BiP Discover section offers a connected life experience as a marketplace that consists of various entertainment and information services. This section offers two-way communication between users and services. BiP Discover serves over 200hundreds of different services, including top Turkish banks, TV shows, celebrities, content providers and customer services, with around 5075 million followers. BiP users, independent of operator, can access an online COVID-19 questionarre at the Ministry of Health channel in the BiP Discover section, and access the Ministry of Health Contact Center Information Line free of charge. Users following the channel can also instantly access current news on the pandemic announced by the Ministry of Health, the COVID-19 Live Map showing the latest updates and other relevant announcements.
In 2019, we invested in BiP’s BiP's infrastructure to enableenables Multicloud Architecture, through which operators can build their own digital communication platform, thereby safely storing their communication data in their country as well as customizing their app by changing the brand, app logo and providing their local services. Moreover, all app users (BiP or its customized apps working on this multicloud infrastructure) can seamlessly communicate between each other.
BiP was downloaded 41.6 million timesMeet
We have developed our own video conferencing solution, BiP Meet, in 192 countriesorder to meet the ever-changing needs of consumers and businesses and adapt to the changes brought by the global pandemic. Available as a desktop app and online, BiP Meet is secure, reliable, and user-friendly. We are developing a mobile application version which we aim to launch in 2021. We offer free sign-up to BiP Meet where the trial package provides for up to 50 meetings (limited to 1 hour) per user per month free-of-charge. The trial package includes various features such as secure meetings with 11.1 million three-month active users as of December 31, 2019. In 2019, 274 million messages were sent daily on average.password-protected rooms, screen sharing, hiding & unhiding display, microphone and camera management, group and private messaging and host controls.
TV+
Turkcell’s Turkcell's multi-screen TV platform TV+, launched in October 2014, delivers an enhanced television viewing experience to its subscribers anywhere, any time with more than 150 channels. Its unique features as compared to other platforms include the abilities to pause and rewind live streams, record to cloud and the capability to switch between four screens. TV+ offers the Ultra HD supported 4K content box and 4K content on IPTV platform. With a view to increase TV+ penetration, we have also deployed TV+ on Apple TV, Android TV, TV+ Ready (Android TV Box) and Smart TV applications. AsTV+ Ready is a new generation Android box that is easy to install to any television with any internet connection. TV+ Ready is offered with premium content of December 31, 2019TV+, and we are the first brand to bring content bundle Android TV offer to the Turkish market. TV+ reached 4.1 million subscribers, 719.7 thousand of which were IPTV users. TV+ was downloaded 15.4 million timesReady also enables its user to date.reach and use other apps available at the Google Play store.
fizy
Turkcell’s digital Digital music service fizy enables its users, through the application and the web version, to access more than 35around 33.5 million songs, videos, live concerts and radio channels with high quality sound for a monthly subscription fee with “standard”"student", "standard" and “premium”"premium" options that also includes data available for this service. Premium users can stream music on fizy without any ad interruptions, and have the flexibility to listen to songs offline. The application offers personalization through enhanced-AI technology. As of December 31, 2019, fizy was downloaded 25.9 million times and had 3.5 million three-month active users. Users listen to nine million songs per day on average. Fizy is also available in Ukraine, Germany, Belarus and the Turkish Republic of Northern Cyprus.
lifebox
Turkcell’s Turkcell's personal cloud service, lifebox, is the first local cloud-storage service in Turkey. It enables users worldwide to store their photos, documents, contacts, and videos in one secure,
convenient and personal space with auto sync abilities, and to share them easily. lifebox also offers a phone book synchronizing feature. Each user who downloads and logs into the application is given 5GB of storage space free of charge. In 2019, lifebox began to offeralso offers the PhotoPick feature, which uses AI to suggest the best photo for Instagram. AsLaunched in 2020, lifebox Transfer offers a convenient and free-of-charge experience of December 31, 2019, lifebox was downloaded 13.4 million times and had 3.3 million three-month active users, with 43.5 files uploads per user per day on average.fast file sharing without need for membership, while storing the data in Turkey.
Dergilik
Our digital publishing app, Dergilik, gives users access to more than 1,500400 popular magazines, including international ones, and more than 50 newspapers published in Turkey. Dergilik is offered in two main subscription options: standard subscription with limited access to the content and premium subscription with full access. All magazines and newspapers available on Dergilik are also available for download. The application is enhanced with auto-download features, text to speech (audible articles), spontaneous news feed as well as favorite pages and magazines features.competitive quiz games. Dergilik users can also reach
websites of magazines and newspapers free of data charge. As at the end of December 2019, Dergilik was downloaded by 13.7 million customers and had 3 million three-month active users. Starting from the third quarter of 2019, our reporting of three-month active users excludes those users who utilized the zero-rating benefit of Dergilik magazines and newspapers via browser.
Yaani
Yaani is a search engine and browser, providing a fast, secure and stable browsing experience, combined with a unique set of features through the Yaani browser. Yaani is available for both iOS and Android devices, and is also available as a browser.search engine. Yaani was created based on Turkey’sTurkey's specific user patterns and can access local content first, thereby increasing the relevancy of the searches. Yaani was downloaded 9.7 million times and had 3.7 million three-month active users as of December 31, 2019.
YaaniMail
YaaniMail, Turkey's local free e-mail service, was launched in December 2019 as anserving individual users with the "@yaani.com" domain. This all-access and cross-platform email service offeringprovides a user-friendly emailpure e-mail experience with aits user-friendly and seamless design.
Goals on Your Mobile (Goller Cepte)
Goals on Your Mobile Users' personal and sensitive data is a sports application designed for soccer fans. It provides super league goal videos, VAR (Video Assistant Referee) videos, free mobile sports games, betting analysis and the latest sports news. The application was downloaded 12.0 million times and had 4 million active users as of December 31, 2019.
Turkcell Academy
Turkcell launched the Turkcell Academy servicekept securely at Turkcell's data centers located in 2014. Enriched with Turkcell’s technology and training know-how and content partnerships with leading institutions worldwide, Turkcell Academy provides access to a digital and innovative world of knowledge. Turkcell believes that accessible knowledge with mobility will facilitate equal opportunitiesTurkey. Furthermore, in education and empower its users.
Turkcell Academy offers services for both consumers and corporates. As for consumers, Turkcell Academy has a website and a mobile application that provide digital learning content and services in various categories such as technology, innovation, personal development, marketing, leadership and certificate programs. RegardingApril 2020 the corporate e-mail service YaaniMail Business was launched, providing customized security policies tailored to organizations' needs and offering them the Learning Management System (“LMS”)ability to use their own domains. YaaniMail Business can be used as a cloud service without the burden of Turkcell Academy enables usersmaintaining the infrastructure; alternatively, with the on-premises model, organizations are able to easily prepare trainings, courses, examskeep their data locally. YaaniMail Business is offered at affordable prices coupled with an expert support team for remote and questionnaires. User management on the LMS is easy-to-use and the platform also allows detailed training-tracking and reporting. Further, it is also a highly developed evaluation tool due to its capabilities of simultaneously reporting the responses.on-site assistance.
Digital Operator and My Company
One of our priorities as Turkcell is to drive customer loyalty through the digital platform. Within the scope of this strategy, we have invested in our digital self-service channels. The primary channel is our mobile application called “Digital Operator”"Digital Operator" with which we provide our customers the ability to track their bills, usage and settings and execute transactions and purchases. Digital Operator had 48.656.4 million downloads to date and 21.223 million three-month active users in 2019.2020.
In 2019,2020, we continued to use the Digital Operator app as the platform to offer a successful marketing campaign called “Shake"Shake & Win”Win", which has delivered 1.32.1 billion gifts to date, where most of these gifts were in the form of data, minutes or trial subscriptions to digital services such as TV+, fizy, Dergilik, lifebox, BiP and Paycell.lifebox. We also launched Turkcell Gift Pool, a loyalty and gamification hub within the app where users can browse and claim gifts, rewards and privileges. Since its launch in October 2019, 1214 million customers visited Turkcell Gift Pool over 100210 million times. These have become a substantive medium for Turkcell subscribers to discover and experience our digital services. Since December 2020, Digital Operator serves also as an alternative gateway to our technology and electronic goods marketplace Turkcell Pasaj, where we offer a wide range of technological products.
Our fixed broadband subscribers can also manage their accounts with this application. Nearly 300 thousand Turkcell Superonline customers made 2.5 million transactions monthly using the Digital Operator App.
Turkcell My Company app and web platform feature our digital services and solutions for corporate customers. The platforms are enriched with digital-only campaigns and packages, loyalty scenarios, and a fully digital subscription process. In 2020, 300 million transactions were made by 350 thousand companies from the Turkcell My Company app and web platform.
UpCall
UpCall is an application enriching and facilitating our customers’customers' calling experience with its different features offered through our capabilities as a telecommunication operator. When a call is received from a number that is not saved in the user’suser's phonebook, the caller’scaller's ID is displayed. The UpCall application also offers a smart search feature that enables the access to the identity of the owner of an unknown number based on the Turkish National Telephone Directory. Further, the application is capable of initiating a group call with a single click;
offers the opportunity to add a topic, picture or a sticker to the calls; enables a “do"do not disturb mode”mode", and proposes a set of ring tones for users who want to inform callers that they are currently not able to answer the call. As of December 31, 2019, UpCall was downloaded 8.4 million times.
Kopilot
The Kopilot device, along with its application, was launched in July 2018 with the aim of making cars smarter. It connects cars to smartphones and enables real-time monitoring of metrics on the vehicle’s performance and the driving experience, providing helpful information on driving behavior and preventative maintenance.
Supercam
The Supercam device, along with its application, was launched in June 2018 to ensure the safety of the home and the workplace. This closed-circuit camera system, provides a heightened experience to a growing number of users through its intelligent features.
Digital Society Solutions
Turkcell is not only focused on services that increases ARPU levels but also eager to useleverage its digital and technical competencies to create value for society, help disadvantaged groups to obtainempower society for equal social inclusion and create a better future.future together. This focus resulted in several digital society solutions, includingHello Hope, My Dream Companion, Whiz Kids, DQ, My Dream Companion, My Sign Language, and My Gem Inside.Inside and Arikovani.
Launched in 2016, Hello Hope is a mobile application whichthat aims at facilitatingto facilitate the lives of Syrian refugees in Turkey, through Turkish learning flash cards, instant voice translation and was launched asuseful information. This application became a corporate social responsibility project in September 2016. Previously recognized byhub for delivering information on the GSMA for best useCOVID-19 pandemic, with the collaboration of mobile technology in humanitarianinstitutions including the Turkish Red Crescent and emergency situations, “Hello Hope” received another award from the World Summit for Information Society (WSIS), led by the International Telecommunications Union (ITU), the UN body for the telecommunications industry in 2017. Additionally, “Hello Hope” was selected among globally inspirational projects by the UNESCO-Pearson Initiative for Literacy and by mEducation Alliance.
Health Organization. TheWhiz Kids project was initiated in 2016 under the auspices of the Ministry of National Education,Education. By way of in-classroom setting as well as trainings through mobile applications and is aimed in particularonline platforms, the Whiz Kids app aims at underprivilegedempowering children in rural areas of Turkey who show exceptional talent to realize their potential through the education of new technologies. Within the scope of the project, Turkcell first established technology laboratories for technological productivity; where students are introduced to robotic coding, 3D printers, robots and software equipment as well as Maths, Space Science, Internet of Things and Artificial Intelligence. Turkcell also created theWhiz Kidsmobile application in 2019.
TheDQ mobile application, launched in January 2019, is a project initiated by DQ Institute, is aimed at improving children’schildren's technical, cognitive, meta-cognitive, and socio-emotional competencies that are grounded in universal moral values and to enable individuals to face the challenges and harness the opportunities related toof digital services.
TheMy Dream Companion (“MDC”) application enables the visually impaireddisabled individuals to access information inrapidly and easily, providing them a fast and easy manner, and provides them more active and independent social life. Users can access thousands of daily news items, columns,life through its instant audio books, trainingsdescription and magazines. MDC’s indoor navigation technology provides the visually impaired with and access to detailed information with regard to the stores they are passing by in shopping malls, and directs them to the appropriate store. Transportation technology of the application provides accessible transportation experience. Moreover, MDC provides audio description over a mobile application -a world first- without requiring any extra equipment or software.
technologies. My Sign Language is a mobile application that seeks to improve communication between hearing impaired peopledisabled and people who do not knowthose unfamiliar with sign language. Written or spoken words/expressions can be instantly translated into video by the 3D Sign Language translator. It includes the most comprehensive Digital Sign Language dictionaryalso provides hundreds of accessible content items with more than 3,500 words.
sign language. My Gem Insideis a mobile application offered fully free of charge to everyoneall in Turkey, that supports the cognitive, emotional and behavioral development of children with autism andthrough over 90 educational programs, along with their development through inclusive education.
Arikovani (‘Beehive’ ('Beehive' in Turkish) is a crowdfunding platform that helps entrepreneurs obtainsource funds needed to execute their technology or innovation-oriented projects. The main objectives of Arikovani are to increase Turkey’s domestic technology production and raise social awareness around technology production. By the end of 2019, 73 projects had raised over TRY 5.6 million with individual backers and corporate companies. Turkcell supports every project at the “crowd funding” stage and encourages other corporates to support these projects.
Digital Identity Management Services
Fast Login is a secure universal login solution which allows users to securely access a wide array of digital services and websites using their mobile phone or e-mail account for authentication. It is
powered by GSMA under the Mobile Connect name and was launched in December 2015. Simply by matching the user to their mobile phone, Fast Login allows them to login to websites and applications quickly without the need to remember passwords and usernames. Fast Login is integrated to 6076 Turkcell and 2630 non-Turkcell applications with new technology upgrades. In 2019,2020, Fast Login, having reached 23.228 million registered users, was used 490350 million times with its easy, fast and secure mobile authentication service.
Mobile Signature, launched in February 2007, enables mobile subscribers to sign electronic documents and transactions with a legally-binding digital signature using public key infrastructure (PKI) on SIM cards. Mobile Signature users can easily verify their personal identity in a digital environment and complete transactions remotely.
One Time Password is widely used by service providers as a secondary factor for authentication of transactions. The service allows service providers to send a single-use password via SMS to their end users in order to ensure transaction security. It is commonly used for online banking processes and login transactions.
(iv) Digital Business Services and Solutions
We have drawn up a completely new business model Turkcell Digital Business Services combines the overall telecom service provider strategy of Turkcell with its "Digital Transformation Business Partner" strategy for corporate customers. In this regard, we contribute to offer vertical solutions in transportation, finance, healthcare, education, logistics, production, retail, energy and in similar fields with the aim of meeting needs of all industries. Moreover, added value services will be developed based on advanced technologies such as artificial intelligence, Internet of Things, and big data while alternative financing models will be offered as part of this new business model. We providedigital economy by providing end-to-end digital solutions tofor both private sector companies and public institutions. Thus,enterprise customers. Furthermore, we contribute to Turkey’s growing digital economy offeringimplement projects with high value propositions, which enable enterpriseswhile helping our clients to increase their revenues.profits by either lowering their operating costs or generating higher revenue.
In addition to our connectivity services based on our strong infrastructure, we offer various services such as cloud solutions, data center services, cyber security services, managed services, IoT, big data analytics, business applications, industrial vertical solutions and new generation technologies.
While continuously meeting the telecommunication and IT needs of enterprises with Turkcell assurance, expertise and differentiation, we continue to improve the quality of our products and services with our superior infrastructure, technology investments and well-qualified human resources.
We are planning the future technology investments of our customers together with them, by integrating our ongoing infrastructure investments with the new generation services. Thanks to this approach, in their digital transformation journey, our customers are free to focus on their core business, while having an optimum financial model in their new technology investment plans.
In 2020, total digital business services revenues increased by 30% year-on-year to TRY 1.8 billion.
Digital Business InfrastructureFixed telco & Cyber Security Services
We serve the Turkish market with our 50 thousand km end-to-end fiber infrastructure, enabling us to provide superior quality service. Turkcell's value proposition of connectivity infrastructure has three main components: Fixed data services, fixed voice & unified communications services and cyber security services.
In the second quarter of 2020, Turkcell launched its FlexVPN service. FlexVPN enables enterprises to use Turkcell's mobile infrastructure together with fixed access VPN services. Flex VPN offers a flexible solution for organizations' remote-working capabilities through quota-free mobile package offers. As a result of increased remote working, we believe that the FlexVPN service is likely to become an important network access tool for corporate customers.
SD-WAN (software-defined networking in a wide area network) Services, launched at the beginning of 2019, provides tools for enterprise customers to minimize the time allocated for network management
and to strengthen branch security. With SD-WAN technology, Turkcell enables cloud-based network services such as firewall, security and routing for enterprise customers. SD-WAN also provides multi-tenant architecture, bonding detailed monitoring, and app-based traffic engineering features. Turkcell aims to increase the efficiency of companies through its digital business infrastructure solutions such as Domain, DNS, Web Hostingoffer conventional and Database services.next generation network services together.
Turkcell has two managed Wi-Fi solutions. Smart Wi-Fi provides Wi-Fi Hotspot services to small businesses with certain core features that include the storing of Wi-Fi records, all-access carrier, consumer analytics and customer-oriented marketing. Enterprise Wi-Fi provides customizable Wi-Fi hotspot services for enterprises. It is fully compliant with data privacy regulations and is equipped with online advertising features, Wi-Fi analytics and access-logs storing capabilities.
Turkcell Single Office service enables companies to switch their on-premise PBX hardware to a cloud-based unified communication service. This service is fully managed and operated by Turkcell teams, and customers are provided with IP phones and flexible payment models. Turkcell's Single Office service includes a softclient capability that works both on iOS and Android devices.
Managed Security Services is provided to corporate customers for their cyber-security needs and includes DDOS protection, managed firewall services, penetration and vulnerability services, threat intelintelligence services and a managed security operation center.
SD-WAN (software-defined networking in a wide area network) Services, launched at At the beginningend of 2019, provides tools2020, Turkcell has begun to offer cloud-based security services which will enable Turkcell to provide flexible capacity offers with different security vendors. Turkcell manages over three thousand cyber security services for enterprise customers to minimize the time allocated for network management and to strengthen branch security. With SD-WAN technology,more than 1,500 customers. Furthermore, through its proactive approach, Turkcell enables cloud-based network services such as firewall, security and routing for enterprise customers. SD-WAN also provides multi-tenant architecture, bonding detailed monitoring, and app-based traffic engineering features.has developed its own threat intelligence platform named "Turkcell Bozok".
Digital Business Applications
Business Applications gives corporate customers a competitive advantage by providing non-core industrial solutions. Fleet management, employee tracking, push-to-talk services, cloud-based SaaS products, digital invoicing solutions, and new generation cash register solutions are available to streamline customer processes and provide operational efficiency through new revenue streaming channels, better customer reach and experience.
With the rise of the enterprise applications market as well as improvements in mobile internet, cloud services and mobile devices, businesses have been undergoing a strategically important process of digital and mobile transformation. Turkcell continues to be a strategic business partner to companies in all industries for transformation projects that aim to render all processes manageable via mobile devices anytime and anywhere.
Managed Services – End to End Solutions
We offer our end to end digital solutions that we implement in our corporate business sector. In these projects, we analyze the needs of our customers from every sector and provide tailored solutions to our customers’ individual needs—we have implemented close to 1,000 projects to date. With our project management team, we implement network, security and system management, application management, end-user support, data center services, digital transformation, IoT, mobile applications, mobile user support and many other solutions and services in accordance with the business processes of our customers.
Data Center & Cloud Services
Turkcell offers a wide range of clouddata center solutions for its corporate customers. These services range from co-location solutions to cloud infrastructure (next generation virtual server, virtual data center), backup, disaster recovery and security services. In 2019,As at the end of 2020, Turkcell managed over 8,00011,000 virtual servers and protected more than 520 Petabyte of data for its corporate customers. As of December 31, 2019,2020, our datacenters are based across eight locations in Turkey on approximately 33,50039,500 sqm. of total data center white space area.area, i.e. the area where IT equipments are placed.
In addition to traditional data centers located in Dudullu, Kartal, Davutpasa, Yenibosna and Sogutozu, with a total white space area refers to the area where IT equipment are placed, of approximately 15 thousand sqm., we built our first new generation data center in Gebze in 2016, which has an area of 33 thousand sqm. with 10 thousand sqm. of white space and 30 MVA power capacity, thereby meeting the highest corporate standards. In 2018, we invested in our Izmir data center which has 2,350 sqm. white space. In late 2019, we built a new third generation data center in Ankara, the largest in Turkey with its 12 thousand sqm of white space area. Also, we completed the construction of a new datacenter with 6 thousand sqm white space capacity in Corlu in Turkey's Western Europe side, and it is planned to be operational in the second quarter of 2021.
Turkcell offers cloud-based applicationscloud services from six of its data centers. Apart from the basic hostingcenters with high availability and e-mail solutions, Turkcell offers cloud-based productivity applications, such as e-company, which enable corporate customers to manage their financial processes with already integrated accounting, e-invoice, e-ledger and e-archive invoice products.
reliability standards. We have integrated all of our cloud services on the website, www.turkcellbulut.com. Through this platform, users may configure their infrastructure and software services within minutes and manage them through a self-service portal. Users can use the latest technologies providing business continuity over Turkcell Cloud without undertaking investment costs. Turkcell Cloud is the first cloud platform that is authorized with ISO27017 "Cloud Computing Information Security" certification in Turkey.
Managed Services—End to End Solutions
We provide end to end solutions for customers as part of their digital transformation process, by combining our telecom and IT services capabilities. In these projects, we analyze the needs of our customers from a wide range of industries and provide tailor-made solutions to individual needs—we have implemented almost 1,500 projects to date. With our project management team, we implement system integration projects, IT outsourcing projects, network, security and system management services, application management, end-user services, data center services, digital transformation, IoT, mobile applications, mobile user support and many other solutions and services in accordance with the business processes of our customers.
Digital Business Applications
Business Applications gives corporate customers a competitive advantage by providing non-core industrial solutions. Cloud-based SaaS products such as digital learning, biometric signature, digital archive, domain & hosting solutions and collaborative products, digital invoicing solutions along with new generation products are available to streamline customer processes and provide operational efficiency through new revenue streaming channels, better customer reach and experience. Going forward, we will focus on process automation, remote order and e-commerce solutions as they have become crucial in the context of the COVID-19 pandemic.
With the rise of the enterprise applications market as well as improvements in mobile internet, cloud services and mobile devices, businesses have been undergoing a strategically important process of digital and mobile transformation. Turkcell continues to be a strategic business partner to companies in all industries for transformation projects that aim to render all processes manageable via mobile devices anytime and anywhere.
IoT Products & Solution Management
Since 2009, Turkcell has focused on its Machine-to-Machine (“M2M”("M2M") and IoT business since 2009, whose principal markets in Turkey areinclude car telematics, team tracking, fleet management, POS terminals, security alarms, smart metering, mobile health management, smart agriculture, smart energy and sales force automation applications. Turkcell launched Turkey’sTurkey's first M2M Platform in March 2012. With the M2M Platform, customers can manage their devicesM2M sim cards more effectively. As of December 31, 2019,2020, the number of M2M subscribers increased to 2.62.8 million, compared to 2.4up from 2.6 million as of December 31, 2018.2019.
In addition to the M2M Platform, Turkcell launched its IoT Platform in November 2019, which enables enterprises to transform ordinary devices into connected devices and data into actionable information.devices. It gives them control of their IoT solutions, providing them with the visibility and intelligence required to transform how they dotheir business. An online dashboard of tools and data feeds, Turkcell IoT Platform is a one-stop IoT platform for device management, data collection, data visualization, application development and runtime analytics. Turkcell IoT Platform runs on turkcellbulut.com, which is a fully automated cloud platform. It offers true multi-tenancy, scalability & high availability and security.
Turkcell will continue to pioneer this business line with the release of services on upcoming new technologies such as consumer/corporate IoT and NB-IoT (NarrowBand-Internet of Things). Turkcell aims to launch new end-to-end solutions on specific IoT verticals in the upcoming periods.
Transportation & Energy
Smart transportation, Mobility, a key IoT vertical for Smart Places & Business Applications,Turkcell, refers to the integrated application of smart technologies and management strategies in mobility systems, which includes B2C/B2B team tracking, vehicle tracking, connected car solutions and fleet management. Within the Turkcell Kopilot product family, Turkcell DBS enables firms to track their fleet on maps, access critical reports about their fleet and encourage their drivers to drive safely through a single, user-friendly platform. In addition, corporate customers can monitor and manage their sales forces and fleets with Ekip Mobil ("Team Mobile"). Team Mobile is a management console that allows customers to view their field teams/vehicles on a map, define alarms for specific regions and create direct communication channels to the field. Team Mobile can be used on any mobile device and comes at a minimal investment cost for companies.
Turkcell designs industry 4.0 and energy solutions that increase the productivity of enterprises in the field of intelligent production and integrated energy solutions. Turkcell providesWe provide solutions to create smart factories and has explored various needs and solutions inthat are designed for the overall energy market. We offerTurkcell has launched a new smart energy solutions through partnerships since 2015service named "Turkcell Enerjim", targeting mainly corporates to help corporatesthem monitor their energy consumption and increase their efficiency.
Turkcell has recently launched a new smart energy service named ‘Turkcell Enerjim’"Turkcell Filiz", which targets corporate customers.
Smart Cities & Environmental Solutions
Smart cities and environmental solutions aim to digitally facilitate the lives of citizens and help government institutions deal with challenges raised by urbanization and operate more efficiently. Turkcell aims to expand its role on the smart city value chain through its solutions for transportation, energy, environment, security management, etc. with its strong business partner ecosystem.
Turkcell continues to support farmers by investing in the field of digital agriculture and livestock. In 2019, more than thirty thousand farmers grew their crops more efficiently with the help of Turkcell SMS information services, including village-based daily weather forecasts and right cultivation method recommendations.
Turkcell Filiz, launched in late November 2018, is a mobile application and used with the soil-weather IoT station.station to digitalize agriculture practices. It provides instant data regarding fields and aims to increase the productivity of farmers by assisting them with their irrigation and spraying decisions according to soil and weather conditions.
Smart Ear Tagprovides real-time monitoring and analysis of farm animals in order to enable farmers detect and prevent livestock health issues.
Big Data & Analytics Services
Turkcell offers big data analytics services to companies to help them understand sector dynamics. These services also enable companies to obtain information on their customer base by providing demographic and behavioral analysis or competitor analysis to help them support their marketing strategy through data. We use advanced artificial intelligence, machine learning and data analytics capabilities to create new insights and propositions. We have two main service offerings in Big Data domain: "Insight as a Service" and "Analytics as a Service".
Turkcell(i) Insights as a Service (Business Insights)
Turkcell re-designed its B2B insight services in 2019 to create an end to end solution for B2B customer market research needs. Turkcell provides a comprehensive market research or performance report to several sectors on brands’brands' and competitors’competitors' customer profile, branch visits, crowdedness, and purchasing behavior, etc. This serves as an innovative and data-based alternative to traditional market research. Also, base station signals are used for location analytics and mobility index projects to create data-based decision-making process for transportation and public sectors, or help companies boost their outdoor marketing activities by enabling them to find the best locations that match their brand. At the end of 2020, Turkcell launched its cloud-based Insights as a Service Platform to serve B2B customers.
Turkcell(ii) Analytics as a Service (Business Analytics)
In addition to the Insights as a Service Platform, Turkcell also launched its Analytics as a Service Platform in 2020. By using this platform, Turkcell has developed unique solutions to enrich customer offerings by analyzing the behavioral data of Turkcell users. These services help customers improve their analytics models such as credit risk scoring, fraud scoring, digital customer scoring and customer segmentations.
Location Based Services
Corporate Further, together with SAS, which is the leader in the global analytics market, we launched cloud-based SAS packages for the first time in Turkey in November 2020. We aim to provide advanced analytics services over Turkcell cloud in the industries of focus, so that our customers can monitoruse their big data to create analytics reports that will help them to increase their productivity and manage their sales forcesefficiency.
Industry Specific Solutions
Besides our value-added IT services, we also implement digital transformation projects with industry-specific vertical solutions that address the individual needs of each industry. For the ten sectors in our target market including finance, health, education, logistics, manufacturing, retail, energy, tourism, SMEs and fleets with Ekip Mobil (“Team Mobile”). Team Mobile iscentral and local authorities, we offer a management consoletargeted solution set that allows customers to view their field teams/vehicles onpoints industry specific needs.
As an integrator that provides and operates all the solutions it needs in terms of technology, we hold a map, define alarms for specific regions and create direct communication channels to the field. Team Mobile can be used on any mobile device and comes at a minimal investment cost for companies.
Management of Hospital Information Systems
We are involved in “City Hospitals” projects in cooperation with Ronesans Health Investment (four city hospitals) and Akfen (one city hospital). Five city hospitals currently operate through “Management of Hospital Information Systems” built by Turkcell. Further, we have reached an agreement for two new city hospitals which will be in service in 2020. Through these agreements, we have strengthened our leading position in the public-private partnership (PPP) market in terms of both the number of beds and the number of hospitals. Seven city hospitals—Yozgat, Adana, Eskisehir, Elazig, Bursa, Basaksehir and Tekirdag hospitals—are in operation and the entire technology infrastructure, from hardware to software and from systems to operations, is managed by Turkcell. Besides, Turkcell has established the technological infrastructure of two multi-purpose emergency hospitals in 2020 during the COVID-19 pandemic. As at the end of 2020, total bed capacity of 7 PPP hospitals was over 8 thousand, strengthening our market leadership in terms of these KPIs.
Yozgat Hospital was awarded the HIMSS7 certification, that is the highest level of the HIMSS certification and is the only internationally accepted international standard regarding the digitalization level of a hospital in Turkey.
Partner Ecosystem and Vendors
There are three different categories of business partnerships in our ecosystem: Our subcontractors, those with whom we develop business and/or products and our sales business partners. We manage this ecosystem on an end-to-end basis.
We Through our sales business partners, we focus on creating new sales prospects for hardwareour products, services and system integration projects through Partner Ecosystem.projects. Our wide network of these business partnerscompanies enables our services to achieve sales targets.
In 2020, we launched the "Partner Program" where we created an incremental value of partnership for nearly 150 sales business partners of different competencies in our ecosystem. We aim to grow our ecosystem qualitatively with a win-win approach, through which our partners are positioning our product/services together with their own solutions and services thereby generating revenue through our premium system.
Moreover, through our partnerships with global vendors, we are expanding the solution sets we offer to our customers vis-a-vis technical competence and project diversity. As at the end of 2020, we have also entered into special partnering agreements with21 global IT vendors to provide a wide range of products and services for our customers.vendor partnerships.
See “Item"Item 3.D. Risk Factors”Factors" for a discussion of the regulatory changes affecting our digital services & solutions.for consumers and corporates.
(v) Techfin Services
Turkcell focuses on techfin services through our digital payment services platform, Paycell, and our consumer finance company, Financell.
The vision of Paycell is to be an enabler on financial inclusion with the combination of technology and financial services. Paycell was established to provide techfin services including mobile wallet, direct carrier billing, inter-city subway/bus card uploads (Istanbul-Card)(istanbulkart), utility payments, money transfers, prepaid cards (physical and virtual), QR code payments and POS solutions. We are committed to capitalizing on this well-established payment platform by leveraging our technological know-how as well as our advanced infrastructure. Paycell’sPaycell's aim with end-to-end payment solutions is to bring the merchants and the consumers together, by offering ease-of-use, new technology and tangible benefits to the consumers while facilitating further revenue generation for the merchants through payment and CRM solutions. For its customers, Paycell, through the Paycell mobile application, offers various services including quick and easy payments via QR code, easy money transfers, loyalty advantages and cross-promotions, which position Paycell as a “Super App”"Super App". In the fragmented techfin market in Turkey, where competition is focused on providing solutions in particular verticals, Paycell differentiates and stands out with its strong positioning enabled by its wide portfolio of services as well as its access to its parent Turkcell’s deepTurkcell's advanced technology expertise, largesizeable customer base and extensive sales channel. Meanwhile, Paycell’sFurther, Paycell's core value proposition for merchants is the ability to know their customerscustomer base better, offer targeted deals and offer a quick and easy method of payment which, at the same time, accumulates customer data for the merchant. Paycell also offers online payment infrastructure systems in order to increase its foothold both in online and offline commerce.
Moreover, regulatory environment, which have become more supportive following the introduction of recent legislations mainly on mobile POS usage, open banking, and e-money, also has the potential to positively impact techfin activities.
Our consumer finance company, Financell serves to meet the financial needs of individual and corporate customers for their technology products. Furthermore,Established in 2018 as a subsidiary of Financell, Turkcell Sigorta Aracilik Hizmetleri A.S. (“("Turkcell Sigorta”Sigorta"), established in 2018, is specialized in provides insurance agency services such as device protection, personal accident insurance & bill protection. Turkcell Sigorta intends to expand its services by tapping the field of techhealth and home insurance where technology and insurance meet.markets.
(vi) Wholesale
(i) International Roaming
Our international roaming strategy has always been to achieve the best international coverage for our customers by providing continuous communication wherever they travel and to enable international visitors to enjoy the service quality of Turkcell. Our coverage extends to many countries around the world through our roaming agreements. As of December 31, 2019,2020, we believe we have further enhanced our position as a leading mobile operator of international roaming services in Turkey by expanding our partnership in 208207 destinations throughout the world, pursuant to commercial roaming agreements with 581 operators.
We provide roaming services for prepaid subscribers of foreign mobile operators visiting Turkey since July 2002. As of December 31, 2019, we offered prepaid roaming to the prepaid subscribers of 380 operators from 168 destinations. We offer roaming services for Turkcell prepaid subscribers traveling abroad since October 2004. As of December 31, 2019, we offered prepaid roaming to Turkcell prepaid subscribers through 427 operators in 186 destinations. We also offer GPRS roaming since October 2002. As of December 31, 2019, we provided GPRS service through 201 destinations by 504 GPRS roaming partners. As of December 31, 2019, our subscribers can send SMS to more than 724 mobile operators located in 209 destinations. Since December 2005, our subscribers are able to send and receive MMS to and from subscribers of foreign operators. As of December 31, 2019, our subscribers were able to send MMS to 390 mobile operators in 142 destinations. As of December 31, 2019, our subscribers enjoyed 3G mobile internet connections with 437 operators in 190 destinations. On January 20, 2015, we launched LTE roaming services for our subscribers at many different locations around the world. As of December 31, 2019,2020, our subscribers experienced LTE roaming services with 236258 operators in 124129 destinations. On April 1, 2016, we launched LTE roaming services for visitors from many different countries. As of December 31, 2019,2020, subscribers of 203261 operators from 103116 different locations experienced LTE roaming services on the Turkcell network. We also provide international GPRS, MMS and 3G services. We also provide roaming services for both postpaid and prepaid subscribers of foreign mobile operators visiting Turkey. As of December 31, 2020, our subscribers can send SMS to more than 734 mobile operators located in 209 destinations.
Flight and travel restrictions were imposed globally starting from the beginning of the second quarter of 2020 due to the pandemic. These measures, which partially eased during the summer months, were imposed again in the fourth quarter as a result of the pandemic's second and third waves. The international roaming business was one of the most affected from these measures. In order to minimize this negative impact for future periods, we re-negotiated the commercial roaming agreements with foreign operators in line with revised projections reflecting new conditions, thereby keeping the negative impact of the pandemic at a minimum.
We have entered into direct international roaming agreements with GSM operators around the world, including in Cuba, Iran, Sudan, Libya and Syria. These arrangements have been entered into in the ordinary course of business and on arm’s-lengtharm's-length terms that we believe to be in line with industry standards. Under roaming arrangements in the listed countries, our net revenues for roaming on our Turkish network totaled less than TRY 9.43.5 million in 20192020 while our net expense for our subscribers roaming on the networks of operators in the listed countries was less than TRY 3.54.8 million. In terms of revenue generation, we do not believe that our roaming arrangements with operators in Cuba, Iran, Sudan, Libya and Syria are material. For additional details regarding our international roaming agreements with Syria, please refer to “Item"Item 4.B Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA)”".
(ii) Wholesale Voice
Turkcell and Superonline Iletisim Hizmetleri A.S. (“("Turkcell Superonline”Superonline") together supply wholesale voice service by establishing interconnection agreements with fixed line and mobile operators and international carriers.
As of December 31, 2019,2020, Turkcell Superonline had interconnection agreements with over 50100 national and international carriers. Turkcell has interconnection agreements with Turk Telekom,
Vodafone, TT Mobil and other Fixed Telephony Service Operators and via these agreements, parties connect their networks to enable the transmission of calls to and from their mobile communications system. As of December 31, 2019,2020, Turkcell had interconnection agreements with over 4060 fixed line and mobile operators and carriers.
As of December 31, 2020, Turkcell had agreements with 12 Directory Service Providers.
A full MVNO agreement was signed between Turkcell and Netgsm, a local telecommunications company, on November 5, 2020.
For Turkcell, in Turkey, current interconnection rates are based onsetby the ICTA’sICTA's decision on Mobile Termination Rates (“MTRs”mobile termination rates ("MTRs") and Fixed Termination Rates (“FTRs”fixed termination rates ("FTRs"). ICTA designated Turkcell as an operator having significant market power in the mobile access and call origination markets. Due to this designation, Turkcell is obliged to provide access and call origination service to MVNOs and directory service providers. As of December 31, 2019, Turkcell had agreements with 11 Directory Service Providers. Commercial negotiations in view of reaching agreements with MVNOs are ongoing. For more information, see “Item"Item 4.B. Business Overview—XII. Regulation of the Turkish Telecommunications Industry”Industry".
(iii) Wholesale Data
Our vision on wholesale data is to become a preferred regional player in a digitally hyper-connected world. To do this, we have developed a robust infrastructure which includes 1112 border crossings from Turkey to other jurisdictions. Five border crossings are towards Europe where we offer various options to connect with important European cities through protected and completely separate routes. SixSeven of the border crossings are towards the East, where we offer capacity services to the Caucasus and Caspian region as well to the Middle East.
In accordance with our strategy, Turkcell Superonline is also establishing and executing a domestic wholesale business strategy to provide wholesale products such as bit stream access via its FTTx fiber coverage, infrastructure services, backbone transmission, Ethernet, IP transit capacities, cyber security and VPN services to operators, service providers and data center companies in the domestic market in Turkey.
Turkcell Superonline is leading the localization strategy for Turkey’sTurkey's data and internet traffic by developing partnerships with national operators, internet exchange platforms, Tier-1 operators, global/local content and cloud service providers to enable direct access to all networks and also commercializing internet traffic.
Turkcell Superonline aims to transform the Silk Road into the Fiber Road, and has been taking important steps to develop Istanbul as the world’sworld's newest and important internet and content base due to its geostrategic location.location by successfully handling to transform the "Silk Road" into the "Fiber Road". Accordingly, the company provides a bridge between east and west, which supplies a continuous connection with partnerships with the Tier-1 operators and strategic partners between Asia, the Middle East and Europe, such as RCN.Europe. Turkcell Superonline provides telecom services to more than 100150 international operators including Tier-1 companies.companies, Content Delivery Networks ("CDN") and OTTs. As of December 31, 2019,2020, we have the capacity to carry more than 810 Tbps of international traffic.
IV. Tariffs
Our charges for voice, data and digital services consist mainly of bundles and also monthly fees, usage prices,subscription fees, and volume discount schemes and options under various tariff schemes.
We have various segmented tariff plans for mobile that target specific subscriber groups (postpaid or prepaid, corporate or consumer). A majority of our customers choose all-inclusive packages which include minutes to Turkcell, intra-company calls (for the corporate segment) and all national calls, data and some of our digital services.
“Comfort Packages” "Comfort Packages" is a new payment plan structure launched in 2019 through which subscribers enter into a postpaid subscription contract under which monthly renewal is not mandatory and where add-on packages may be purchased via top-up packages. With Comfort Packages, our aim is to attract new subscribers and also, switch prepaid subscribers to the postpaid payment model. In 2020 we launched "Mega Plan", a new tariff structure offering large data quota that is available for a longer time frame.
Turkcell’sIts users pay monthly for yearly quota; consume as per their own usage habits, enjoying an experience without of the feeling of being restricted in monthly time limitation for the data quota.
Turkcell's fixed offers are based on speed and quota. The tariffs are designed by taking different needs of differenteach customer segmentssegment into consideration. Turkcell’sTurkcell's own fiber infrastructure enables fiber offers with speeds of up to 1000 Mbps, which we usually offer as bundled with our TV product. In 2018, Turkcell also begun to offeroffers a tariff for a speed of 10,000 Mbps. Turkcell’s10 Gbps. Turkcell's ADSL service offers speeds up to 8 Mbps and also comewhich can be offered as bundled with fixed voice service. Since 2016, VDSL is offered to our customers using DSL products, with higher speeds of up to 100 Mbps. CableOur cable internet offers are at speeds up to 2435 Mbps. Our FWA product Superbox offers are at speeds up to 375 Mbps with a minimum speed of 10 Mbps.
Turkcell’s Turkcell's strategy is focused on providing high quality service and creating value with an innovative approach rather than competing on prices. Accordingly, Turkcell aims to offerprovide the best network quality to its customers,customer experience through enriched value propositions and also to beover a leader in digital services.well-invested infrastructure. Better user experience and differentiated offers provide Turkcell with the flexibility to price its tariffs based on cost and investments and to apply, to a certain degree, an inflationary pricing policy.
(i) Consumer Tariffs and Loyalty Programs
We mainly offer bundled packagestariffs including voice, data, SMS and various digital services. We focus on providing a leading mobile experience in Turkey, and in order to meet customer needs in different segments (such as youth) we offer a large portfolio of tariffs. Data quotas have become the key selling point in our tariffs which are enriched with our digital services.
We regularly selected cities, based on our market share, where we can deliver incremental growth, and deploy special tariff plans and campaigns to increase customer acquisition.
Our aim is to provide offers that are tailored to the individual needs of our customers, considering their location, tenure, data usage and risk score. As a result of such efforts, in 2019 we increased upsell (i.e., customers that have been upgraded to a higher paid tariff) and we observe the positive reflections on ARPU growth.score, thereby favoring customer retention.
We have various tariffs bundled with smart device campaigns offered jointly by our dealer channel. Such tariffs include voice minutes, SMS and data and digital services bundled with smart devices, and with these, we aim to facilitate a higher mobile broadband and digital services usage.
In fixed broadband products (fiber, DSL and Cable internet), we have various tariffs for different internet speeds and quota. We offer 1510 Mbps to 1000 Mbps internet speed for fiber internet, which we serve through our own infrastructure. In 2018, we have launched our fiber internet offer with 10 Gbps speeds, which is offered only by our Companyus in Turkey. Starting in 2018, ourOur fixed broadband tariffs are generally for a 12-month commitment (down from 24-months) while we continue to have customers onor 24-month commitments. Starting late 2018, in line with regulatory developments, we removed the fair usage quota from our fixed broadband tariffs, offering a constant speed experience to our customers. Furthermore, we have started tocommitment. We offer services to our customers also through the Vodafone and the Turksat infrastructure as part of our mutual infrastructure sharing agreements.
We also offer IPTV service, namely TV+, bundled only with our fiber internet service on our fiber infrastructure. Our fixed voice service is bundled with our fixed broadband service. Further, we also offer tablet, smartphone and desk phonenew technology device campaigns in which terminals are offered jointly by dealers, bundled with Turkcell Superonline fixed data products.
For customers without fiber connectivity,broadband internet packages. In 2020, we launched TV+ Ready, a new generation easy-to-install Android set-top box as a first for the Turkish market provided by a telecom operator. TV+ Ready includes the premium content offered by TV+. The device also enables users to access on the Google Play store through their TVs.
For households that are at locations without our fiber infrastructure, we offer wireless high-speed internet access service called Superbox. The required equipmentSuperbox, serving through our 4.5G network. Superbox device is included in the subscription plan and uses our 4.5G network.plan.
Turkcell intendsaims to provide advantageous price schemes to consumer and corporateits customers when abroad. With a customer-oriented focus, Turkcell offers alternatives to its subscribers with high- and low-roaming usage.alternative options depending on their roaming frequency. All Turkcell postpaid customers can enjoy “Roam"Roam Like Home”Home" offer, enabling them to use their domestic tariff at home while abroad by paying a certainan additional daily fee.
We have three applications called Platinum, GNC, and Turkcell Bizce (formerly SIM) which serve as platforms for our loyalty programs.
Platinum is an applicationTurkcell's premium customer program for both consumer and corporate subscribers withsubscribers. Customers who use Platinum and Platinum Black tariffs are eligible to use the privileges Turkcell Platinum tariff.offers through the application. Platinum tariffs start from a minimum 89 TL and include rich
richer package content and are for those customers with a certain minimum ARPU level. Further, thecontents. The Platinum app provides privilegesoffers one-on-one 24/7 customer service and gifts such as plane tickets, freethat suit the lifestyle of Platinum tariff customers. Tickets to popular shows, books, attractive co-branding offers,device and accessory gifts, airport transfers, car park services at severalnumerous shopping malls, local car wash services and more. Our digital services such as TV+ and lifeboxdiscounts at various restaurants are bundled with Platinum tariffs.amongst the gifts that are offered through this program.
GNC is an application for the youth segment for both Turkcell subscribersusers. GNC offers young people entertainment through its new entertainment platforms, and non-Turkcell users.provides advantageous offers and gifts. The GNC app gives free internet two timesannounces surprise data offers twice a week through gamification. The GNC app alsogamification scenarios such as "Crack the Egg" and provides co-branding offers, gift cards and numerous educationfree data with "Push & Catch". Users can play mini games and career opportunities via win freebies through tournaments. Users can compete on "Challenge TV", GNC's new content platform through challenge videos, and win various gifts according to views or likes.
Turkcell Academy. For a broader service for this segment, Turkcell WiFi hotspots provide high-speed internet in 61 university campuses. As part of this service, mobile connect technology provides all students, regardless of their respective operator, one GB of free internet on campus, while those who prefer Turkcell postpaid packages receive ten GB of free internet monthly. In 2019, Turkcell WiFi was used by more than 100 thousand users.
SIMBizce, the first digital platform in Turkey specific to women for both Turkcell subscribers and non-Turkcell users, has been rebranded as“Turkcell Bizce” in March 2020. This is the platform aimed at women platform that supports equal opportunity, personal development and economic engagement for women. The platform enables customers to sell their handcrafted products online through "Bizim Pazar", which also offers expert self-development videos. The usage of Turkcell Bizce is data free, enablingand the design of the application offers a betterseamless customer experience with new app design.experience.
In addition, we have been conducting a marketing campaign called “Shake"Shake & Win”Win", which can be deemed a loyalty program. The campaign is available through our online self-service channel called “Digital Operator” (application)Digital Operator app and extends various gifts including free one-month subscriptions to some of our digital services, free daily or weekly data quota. Also, we provide special gifts to our loyal customers who have beenTurkcellbeen Turkcell customers for over ten years and for Platinum customers.
Further, we continue the loyalty program launched in 2019 we launched a new loyalty program in the form of a marketing campaign via gamification called #youdoit. The campaign is availableruns through a channel on BiP and announces a new task on a digital service every week. Customers who accomplish their weekly tasks are entitled to weekly data packages. ThisIn 2020, the campaign has also contributed 4.9 million new users to our digital services to date,became a true engagement and will be used as a valuable loyaltygrowth platform for our digital services going forward.via its gamification model and further increased its value for the company through its sales driven weekly tasks.
We have also launched an Also, we continue our interactive campaign called “Surprise Point”"Surprise Point" where customers join through BiP app and visit certain locations to receive similar gifts as in the case of Shake & Win campaign. These campaigns have not only helped to increase data usage, but also enabled our subscribers to become familiar with our digital services. They have also contributed to customer retention by increasing their loyalty.
(ii) Corporate Tariffs and Loyalty Programs
We focus on meeting the specific needs of varying corporate customer segments with tailored offers coupled with the best network and service experience. We offer various bundle packages including voice minutes, data, SMS, company on-net and/or flat minutes and digital services. As we strive to become corporates’corporates' technology partner in their digital transformation journey, we also provide a wide range of integrated services and solutions for them through our subsidiary, Turkcell Digital Business Solutions.Services. These services include cloud services, security solutions, systems integration, consulting, innovation projects for the business fields of the future; such as data analytics, the Internet of Things, M2M Communication, Industry 4.0, and Artificial Intelligence.
One of our key focus is to provide our corporate customers with the best internet experience in both fixed and mobile connectivity. Through Turkcell Superonline’sSuperonline's independent fiber backbone as well as the DSL infrastructure of the incumbent fixed operator, we deliver fixed internet services.
We also aim to reduce the operating costs of our corporate customers by offering attractive co-branding offers for their main cost items. For example, theIn that regard, our Win at Work loyalty program helps companies meet their basic company needs such as courier services, car leasing and translation atwith special
discounted rates. Further, launched in 2019, our advantageous smartphone leasing plans for corporates aim at reducing their smart device procurement costs.
(iii) Wholesale Tariffs
In 2019, ensuring the necessary wholesale roaming cost basis has enabled us to support the new roaming consumer and corporate tariffs and propositions “Roam Like Home” was one of the main focuses of Wholesale Roaming Agreements.
Based on Turkcell’sTurkcell's roaming agreements, Turkcell hosts subscribers of foreign operators on its network. When a subscriber of a foreign operator makes a call using Turkcell’sTurkcell's network, that subscriber’ssubscriber's operator pays us our inter-operator tariff for the specific call type. inter-operatorInter-operator tariff is a wholesale tariff applied between mobile operators with roaming agreements. In 2020, ensuring the necessary wholesale roaming cost basis by re-negotiating the terms with the foreign operators in order to keep the negative impact of the pandemic at a minimum level has enabled us to support the continuation of our favorable tariffs. Our "Roam Like Home" offer was one of the main focuses of the renegotiations for our wholesale roaming agreements.
Interconnection rates in Turkey are based on the ICTA’sICTA's decision on the interconnection tariffs for Turkcell, Vodafone, TT Mobil, Turk Telekom and fixed telephony service operators.
With respect to data sales, Turkcell intends to provide competitive prices to promote Istanbul as a regional hub for peering and IP transit services and international capacities, as well as to support the domestic wholesale market through its robust network with feasible commercial conditions.
V. Churn
The mobile churn rate is the percentage of disconnected subscribers calculated by dividing the total number of subscriber disconnections during a period by the average number of subscribers for the same period. For these purposes, we define “average"average number of subscribers”subscribers" as the number of subscribers at the beginning of the period plus one half of the total number of gross subscribers acquired during the period. Churn refers to subscribers that are both voluntarily and involuntarily disconnected from our network. Under our disconnection process, postpaid subscribers who do not pay their bills are disconnected and included in churn upon the commencement of a legal process to disconnect them, which commences approximately 180 days from the due date of the unpaid bill. Pending disconnection, non-paying subscribers are suspended from service (but are still considered subscribers) and receive a suspension warning, which in some cases results in payment and reinstatement of service. Prepaid subscribers who do not provide the necessary payment for a period of 270 days are disconnected (this was changed in 2010 from 210 days).disconnected. Under our churn policy, prepaid subscribers are disconnected from the system if they do not top-up above TRY10 during a twelve-month period.
In the first quarter of 2017, our mobile churn policy was extended from the regulatory minimum in Turkey of 9 months to 12 months, except with regard to prepaid customers who last topped up before March of each year, which will be disconnected by year-end at the latest. Prior periods have not been restated to reflect the change in churn policy. The mobile churn rate for 2017 disclosed in this document have been positively impacted by this change, in part due to the fact that we have been successful in reactivating certain subscriptions during the additional three-month extension. We believe that following this revision, the seasonality effect in churn rate, which is caused by periodic subscriber acquisition, has been reduced to a great extent. In this regard, we have deactivated 580 thousand inactive prepaid customers in 2019-end.2019-end, and 666 thousand in 2020.
Additionally, the ICTA, through a board decision taken at the end of 2018, has imposed obligations on operators to record and to keep up-to-date identity information on their subscribers (both consumer and corporate segments and including the fixed segment), matching this information with the products/numbers that are being used. The decision also requires that operators complete missing information on existing subscribers and to terminate these subscriptions if the information is not provided within a given date. Likewise, foreigners are required to register their subscriptions with their “foreign"foreign identity number”number" if they are to use their subscription for more than 90 days, otherwise
their subscriptions are also terminated after another period of 90 days during which they can only receive calls. These new obligations have resulted in a one-time bulk deactivation of subscriptions, especially of the subscriptions foreigners, impacting our churn rates in the third quarter and particularly in fourth quarter of 2019. In the third and fourth quarter of 2019, a total of 1.9 million mobile subscriber lines were disconnected as a result of this regulatory change. New subscriptions are made if and only if the required identity information is given upfront. We will continue to monitor subscriptions accordingly and terminate if and when necessary (in cases of death, deportation, etc.).
In 2020, as required by a decision of the ICTA, the line of a deceased customer should either be transferred to a successor or another user or terminated. Such lines on which no action is taken are to be deactivated on the 120th day. This obligation have resulted in a one-time bulk deactivation of 214 thousand customers in the third and fourth quarters in total. Such deactivations are expected to continue in the upcoming quarters but the impact is be expected to significantly lower.
Starting in the third quarter of 2018, we changed the presentation of churn figures to demonstrate average monthly churn figures which we believe corresponds to market practice. In 2019,2020, the average monthly mobile churn rate increaseddecreased to 2.3% from 2.7% from 2.1% in 2018. Excluding the impact of the aforementioned regulatory change, this rate would be 2.3%.2019.
The churn rate for the fixed broadband products is calculated in the same way as the churn rate for the mobile products (except in fixed broadband, customers that change infrastructure from fiber to DSL/Cable or vice versa counted in churn rate). Fixed broadband subscribers’ connection speed is decreased to 128kbps in10-90 days according to the financial risk segment of the customers in case they do not pay their bills (changed in 2019 from 15-62 days). The legal process commences in 45-110 days from the due date of the unpaid bill (changed in 2019 from 104 days).
The average monthly fixed churn rate was increaseddecreased from 1.9% in 2020 from 2.1% in 2019 compared to 1.8% in 2018. This rate also includes the minor effect of ICTA’s new aforementioned regulatory decision.2019.
Starting in the third quarter of 2018, we changed the presentation of churn figures to demonstrate average monthly churn figures which we believe corresponds to market practice.
We have what we believe to be an adequate allowance for doubtful receivables in our Consolidated Financial Statements for non-payments and disconnections amounting to TRY 795.8787.2 million and TRY 938.5795.8 million as of December 31, 20192020 and 2018,2019, respectively.
VI. Seasonality
The Turkish mobile communications market is affected by seasonal peaks and troughs. Historically, the effects of seasonality on mobile communications usage has positively influenced our results in the second and third quarters of the fiscal year and negatively influenced our results in the first and fourth quarters of the fiscal year. These seasonality effects have been less significant as we typically launch market campaigns to address the change in demand levels. Local and religious holidays in Turkey generally affect our operational results positively through higher consumption. Yet, in 2020, the market was significantly lower compared to previous years as the pandemic had led to significant restrictions against mobility.
The Turkish fixed broadband market is also affected by seasonal peaks and troughs. Historically, the effects of seasonality on fixed broadband usage have negatively influenced our results in the third quarter of the fiscal year. This is mainly due to summer holidays when both usage and acquisition numbers decrease and churn increases due to residents moving. Yet, in 2020, fixed broadband demand increased as a result of the pandemic and subscriber acquisitions were high in every quarter. On the contrary, in the corporate segment, fixed broadband acquisitions were negatively affected by the lock-down measures.
VII. Mobile and Fixed Network
a.Coverage
Statements regarding our 2G coverage are based on the ICTA’s specifications as well as the TUIK’s announcements regarding the population, and statements regarding our 3G coverage are based on the ICTA’s 3G coverage calculation specifications issued on April 25, 2015. Statements regarding 4.5G coverage and performance are based on our own calculations, pending publication of ICTA specifications.
Our mobile communications network is designed to provide high-quality coverage to the majority of Turkey’sTurkey's population throughout the areas in which they live, work and travel. Coverage also includes a substantial part of the Mediterranean and Aegean coastline. We enhanced coverage in low-populated
areas (populations of less than 1,000 people) as well. In terms of 2G, we have significantly exceeded the minimum coverage requirements of our license.
We have also expanded our mobile communications network to add capacity to existing service areas and to offer service to new areas. In addition, in 2018, within the scope of the Ministry of Transport and Infrastructure’sInfrastructure's Rural Coverage Project as part of universal services which we started in August 2013, about one thousand 4.5G base stations covering 1,623 villages with populations of less than 500 were installed. As per the universal service obligation, the network infrastructure serving these areas has to be shared by all operators. People living in these villages are currently served by LTE services (in addition to 2G) in a similar service quality provided in the urban areas. The daily lives of the 250 thousand people in these villages have been improved thanks to enhanced mobile communication and high-speed mobile internet services. ULAK (local network vendor producing 4.5G base stations)’s's 4.5G radio equipment was used markedly, corresponding to about half of total deployments.
We commercially launched 3G simultaneously in 81 provinces and major cities in Turkey in July 2009. Benefiting from higher-quality communications provided by the widest spectrum in 3G, Turkcell will continue to offer seamless communications services to its customers with what we believe to be the most extensive coverage amongst its competitors.
In 2019,2020, we have continued to develop and improve the coverage and capacity of our network. In urban areas,order to adapt to the increasing number of customers working remotely in the context of the COVID-19 pandemic, we increased both coverage and capacity by placinginvesting in additional network infrastructure in commercial sites such as shopping malls, business complexes and entertainment centers.residential areas. We have been usingused 3G and 4.5G Small Cells (such as Femto, picofemto and micro) to enhance our network coverage and capacity where and when necessary. Additionally, 3G and 4.5G repeaters have been used to extend the network coverage without adding new sites.
Our fixed communications network is designed to provide high capacity and high-quality service to consumer and corporate customers. Moreover, we believe that it is well designed and implemented to provide capacity to our mobile network. Our fixed network has the capability to carry large volumes of data and internet traffic in-country, and is also connected to national and international telecom operators.
As of December 31, 20192020 our own fiber network reached 46,03550 thousand kilometers and connects all cities across Turkey. In 2123 cities we have fiber to the home (“FTTH”("FTTH") network and home pass, whereby the number of premises that are connected to our fiber network has reached nearly 3.63.8 million. Through partnership engagements, in 2019, we have become capable of delivering fiber and cable (hybrid-fiber coaxial) internet service to 6.77.0 million households in 2830 cities. We also provide enterprise Wi-Fi services.
In the fixed access network we have two main network structures called fiber to the building (“FTTB”("FTTB") and FTTH. In FTTB network, we are installing switches to access our subscribers. In FTTH networks, we are installing Gigabit Passive Optical Network (“GPON”("GPON") and 10-Gigabit-capable symmetric passive optical network (“XGS-PON”("XGS-PON") equipment which is the latest access network technology for residential and business subscribers. These network structures enable Turkcell to offer triple play services (Highhigh speed internet, TV, Voice over IP).IP. The fixed access network also provides bandwidth requirement for mobile sites with Metro Ethernetmetro ethernet services. In addition to our current network expansion, Turkcell has started using Turksat cable infrastructure to provide high speed internet service to new customers.
b. b.Quality of Service
The ICTA published a “Regulation"Regulation on Quality of Service in the Electronic Communications Sector”Sector" on September 12, 2010, effective as of December 31, 2011 (see “Item"Item 4.B. Business Overview—XII. Regulation of the Turkish Telecommunications Industry”Industry" for further details). The Turkcell network
is currently above the standards set by the ICTA statement. Typically, “Call Drop”"Call Drop" was one of the majorimportant Quality of Service figures that we focused on during 2019.on.
Dropped calls are calls that are terminated involuntarily and are measured by using the ratio of total dropped calls during all day. Using such industry standards for dropped calls, our dropped call rate for our 2G&3G network has further decreased below 0.29%0.312% in 2019.2020.
The rate of service quality is being enhanced continuously due to extensive network optimization and investments in our 2G, 3G and 3GVoLTE network to improve the quality and capacity of the network. According to the statistics gathered from vendors, Turkcell has one of the best 2G, 3G and 3GVoLTE dropped call rates compared to other networks around the world. As Turkcell has built one of the most robust LTE networks globally, in terms of VOLTE performance, Turkcell has already obtained a low drop rate in VOLTE, which is below 0.26%.
We have been offloading voice and data traffic by utilizing small cells in the network for an improved customer experience. Together with Turkcell Superonline, we have also implemented Wi-Fi offload integrated with the Turkcell 3G and 4.5G networks to further enhance the customer experience. Additionally, we are using a variety of solutions such as the Special Distributed Antenna Solutions (especially for major stadiums), indoor active systems that simplify deployment and streamline capacity/coverage expansions, and outdoor products to optimize the coverage and capacity of our Radio Access Network.
Turkcell received the first ISO 9001 certificate in 1999. Since then, independent firms have been auditing Turkcell’sTurkcell's management system annually and have been renewing the certificate every three years within the scope of International Mobile Communications Design, Installation, Operation, Sales and After Sales Services. The most recent certificate was received on December 3, 2019 based on ISO 9001:2015 Quality Management Standards. This certificate will be valid until December 3, 2022. In addition, Turkcell received the ISO/IEC 20000-1:2005 IT Service Management System Certificate in January 2011. As the first telecommunications company to receive the ISO 20000-1:2005 certificate in Turkey, Turkcell has promoted the adoption of an integrated process approach to effectively deliver managed services to meet business requirements. Turkcell and Superonline still maintain ISO 20000 certificates (ISO 20000-1:2011).
On the fixed network side, we monitor traffic utilization in our access network continuously to prevent any saturation and upgrade the capacity as soon as possible. Turkcell modifies and redesigns the network topology to meet the future requirements which allows us to improve our quality of service performance.
The optical transmission network relying on Dense Wavelength Division Multiplexing (“DWDM”("DWDM") systems with Automatically Switching Optical Network (“ASON”("ASON") and Optical Transport Network (“OTN”("OTN") using protection mechanisms benefits from alternative fiber routes wherever available. This increases the capabilities of re-routing in the event of service interruption. Thus, the delivered point to point services provides an availability experience up to 99.999%; a quality level defining the transmission network as an upper level “carrier-class”"carrier-class" network.
c. Network Evolution
(i) Radio Network
With the 172.4 MHz spectrum acquired in the 2015 auction, Turkcell spectrum holdings reached 234.4 MHz, corresponding to 43% of total spectrum assets available to mobile operators in Turkey. Leveraging the advantage of our large spectrum assets and significant network infrastructure investments, our 4.5G network capability evolved from peak speeds of 375 Mbps to 1.2 Gbps.1400 Mbps. Currently, Turkcell’sTurkcell's 4.5G network supports LTE Advanced Pro technology, providing high-end features like 4x4 MIMO, 256QAM, 3-4-5 Carrier Aggregation, Narrow Band IoT (NB-IoT), eMTC, and LAA. In the future, as technology and its ecosystem evolve to new heights, we expect to introduce new
capabilities to sustain our technology leadership, further enhance customer experience, and enable new services.
We upgraded our network in 32 provinces by modernizing our 2G and 3G network, attaining higher capacity, better customer experience and up to 35% energy efficiency. This modernization has also enabled us to utilize our spectrum assets more efficiently and helped speed up our spectrum refarming efforts in 900 MHz and 2100 MHz bands. By conducting modernization projects, we have achieved an energy efficiency improvement up to 35% on our 3G/2G networks. The modernization also enables us to use multiple technologies (LTE, UMTS and GSM) in a mixed mode configuration in the same hardware units located at the sites, providing smaller footprints and cost reduction as we repurpose existing spectrum for newer technologies.
Although the 900 MHz band is still primarily used for GSM900, we have been rolling out UMTS900 to provide a much stronger 3G coverage layer for voice calls redirected from the 4.5G network via a technique called CSCircuit Switched Fallback (CSFB) for deep indoor and improved rural coverage. This has been possible with certain previous projectsactivities such as Thin Layer Project for GSM 900, by which we have extracted enough spectral capacity to partially re-farm the 900 MHz band for UMTS. As the next step, we have started deploying second UMTS900 carrier, which leads to a more efficient utilization of 900 MHz bandspectrum and generate additional capacity. As we migrate 3G traffic to 900 MHz from 2100 MHz, we obtaingain a capacity boost in the 2100 MHz band, which allows us to repurpose it graduallyhas already been in part repurposed for LTE. In this regard, we have started deployingdeployed LTE in the 2100 MHz band, previously used by 3G only, for more efficient usage with LTE2100, enlargingto attain better spectrum efficiency, enlarge our 4.5G footprint in a cost-efficient manner, and improvingimprove end user experience.
In the IMT-Advanced (“4.5G”("4.5G") tender held on August 26, 2015, Turkcell acquired large amounts of FDDboth frequency division duplex ("FDD") spectrum: 2x10 MHz from the 800 MHz, an additional 2x1.4 MHz from the 900 MHz, 2x29.8 MHz from the 1800 MHz, additional 2x10 MHz from the 2100 MHz, and 2x25 MHz from the 2600 MHz frequency bands. And for TDDFor time division duplex ("TDD") frequencies, 1x10 MHz from the 2100 MHz and 1x10 MHz from the 2600 MHz bands were also acquired. All frequency bands are technology-neutral and can be used for any technology, providing efficiency and flexibility for spectrum usage in the network. We currently use the 900 MHz band for 2G and 3G, the 2100 MHz band for 3G and 4.5G, and the 800 MHz, 1800 MHz and 2600 MHz bands for 4.5G.
For voice services, Voice over LTE (VoLTE) has been supported from day one to provide voice services over our 4.5G network. We activated EVS (Enhanced Voice Services) on our VoLTE voice service to further enhance the voice quality and thus became amongone of the first mobile operators in the world supporting this high-end feature. The applicable regulations mandate that our 2G network remains active until April 2023; however most of our voice traffic is already carried by our 3G network, which has enabled us to gradually make our 2G network leaner without impacting service experience of our customers. As the VoLTE terminal support base grows, we expect voice services will continue to be migrated to the 4.5G network from legacy 3G/2G networks.
In order to provide a solution for VPN over wireless technologies like 4.5G, we have announced the Mobile VPN offer to our corporate customers. WithThrough this solution, corporates are able to connect to the internet cloud over a wireless interface using 4.5G technology, without sacrificing their service quality requirements. This is a fast and flexible solution for connections between their branch offices and headquarters.
Through our ongoing investment in 4.5G infrastructure, we became the first operator in Turkey to support NB-IoT, which is required for a new generation of innovative IoT applications on 4.5G networks. This technology is now available on request across our wholeentire 4.5G footprint and enables machines to communicate faster and more effectively. Furthermore, through our Cat-M (eMTC) network support which enables fleet management, asset tracking and smart metering, we are able to provide higher data transfer throughput and have greater mobility for M2M communications. With regard to international recognition, in 2018, we won two technology awards for our accomplishments in RAN technology, namely for our ‘Connected Parking’ project from IoT World Europe (Best End to End IoT Solution Award) and ‘Smart Irrigation’ project from Telecoms World Middle East (Innovation Award).
We provide a “Wireless"Wireless to the Home”Home" or FWA (FixedFixed Wireless Access)Access ("FWA") service called Superbox, which offers wireless high-speed internet access for customers without fiber connectivity. The required equipment is included in the subscription plan and uses 4.5G network as a backhaul to provide internet connectivity in customers’at our customers' premises. As part of 5G preparations, we have demonstrated 5G FWA capability in a millimeter wave band (28GHz), which was the first 5G live network test in Turkey. We continue testing 5G FWA capabilities in 3.5 GHz and mmWave bands which will enable us to upgrade our FWA service where needed once the new frequencies are awarded.
For real-life scenarios in which the terrestrial network may be down or unable to provide the required coverage, we have developed a technology called ‘Dronecell’'Dronecell' which provides 4.5G coveragemobile connectivity from airborne drones with the help of a micro base station installed on the drones. This solution can be useful when communications in the areas are affected by natural disasters, or when temporary coverage in some other areas is necessary.
Offering a unique experience to our customers with our strong 4.5G infrastructure, we continue our efforts to prepare our network for 5G. We have thoroughly tested the Massive MIMO technology (for both frequency division duplex (“FDD”)for FDD and time division duplex (“TDD”)),TDD, which can be deployed to meet capacity demands in dense areas. These collective activities help to maximize spectral efficiency, further enhancing network capacity and improving overall user experience. We believe that Turkcell has a significant competitive advantage with its Massive MIMO, in addition to having the widest spectrum in Turkey.
Furthermore, we have been closely cooperating with our network vendors for long term prospects through projects that enable Turkcell to deploy the latest technologies even before their availability on the market. This puts Turkcell at the forefront of the technology race and allows for the evaluating of the new technology benefits in the development phase, and then their timely deployment upon their commercial availability.
Turkcell continues to provide extensive support to projects involving domestic products, mainly for fulfilling obligations related to the usage of domestically produced network equipment as per the 4.5G license. We cooperate with domestic companies regarding base stations, antennas, transports and infrastructure solutions. For example, the ULAK Project initially started as an initiative of the Undersecretariat for Defense Industries (UDI), aimed at designing and developing national software and hardware components for an LTE-Advanced communication system and enhancing Turkey’sTurkey's self-sufficiency in this area. ULAK has become a network vendor, producing 4.5G base stations. The first deployments of ULAK base stations in the network were realized in a city in the north-eastern part of Turkey. Additionally, CTG (CommunicationsCommunications Technologies Group)Group aims to provide an end-to-end local and national 5G solution, which is funded by TUBITAK (The Scientific and Technological Research Council of Turkey). Turkcell is one of the major project partners of this group, and is responsible for generating use cases and requirements.
In the scope of 5G, technology as Turkcell we participate in the activities of international organizations such as 3GPP, ITU-T, NGMN, 5G IA (the private arm of 5G-PPP), ONF, TIP, and GSMA by joining in meetings, work groups, projects and programs tothat help us follow the latest developments and shape our future strategies accordingly. Instrategies. Within the context of this context,objective, Turkcell has started to lead NGMN’s “5Gbecame one of the leaders of NGMN's "5G Pre-Commercial Networks Trials”Trials" project, aimingwhich strives to test the earliest 5G equipment prototypes in the field. Moving beyond the state-of-the-art, in another project, the 5G-MOBIX consortium serves to develop 5G-enabled cooperative, connected and automated mobility for vehicles, where Turkcell is the leader of the Greece-Turkey corridor. For 5G-MOBIX, which happens to be the first 5G-PPP and also the Horizon2020 project of Turkcell, C-V2X use casesvehicular communications tailor-made to ameliorate impediments to an efficient crossing of the hard borders between Turkey and Greece.Greece are developed and tested using commercial-grade 5G technology. In its second 5G PPP project, which commenced in December 2020 together with our partners, Turkcell will explore the performance enhancements of the D-band (i.e., 130-174.8 GHz) which is expected to offer high-capacity wireless backhaul links. To extend its reach and knowledge base using a sustainable strategy, Turkcell has also signed agreements with vendors (Ericsson, Huawei, Samsung, ZTE, Aselsan) to collaborate in the research & development activities as well as realization of novel 5G use cases. In addition to technology organizations and vendors, Turkcell has been engaging with universities and research centers. Specifically, a MoUmemorandum of understanding (MoU) for 5G Research and Development has been signed with some major universities in Turkey within the scope of “The"The 5G Valley”Valley" initiative led by the ICTA.
With the leading global vendors including Ericsson, Huawei and Samsung, we have been demonstrating and trialing 5G since 2017. Within the scope of the first 5G use cases, we tested FWA and AR/VR to take additional steps into the 5G era. We continue our trial and demo projects with all possible vendors and reach out to new vertical sectors. The main objective of our 5G trials and demos is to be prepared for the 5G frequency auction and 5G network launch, by assessing all vendors to determine the best network products and solutions. We also aim to create 5G use cases, which will be ready at the outset, when 5G networks are commercially launched in Turkey.
Furthermore, we led the 5G network deployment at Istanbul Airport, which is an active sharing solution serving three mobile operators. The network is in the 3500 MHz band in which each operator is assigned a 100 MHz channel bandwidth. Although the frequency auction of this band has not yet been launched in Turkey, the ICTA has given a special permission to mobile operators to deploy 5G solutions on this band. The 5G network at the Istanbul Airport will be the first commercial 5G network utilizing new 5G frequencies in Turkey.
(ii) Transmission Network
Turkcell is the first operator in Turkey to start deploying All-IP NodeBs throughout its network. We currently have an All-IP mobile backhaul for BTSs, Node-Bs and eNodeBs that provides resiliency, ease of operation and operational expense advantages. In addition, we have also invested in topology redundancy projects due to our IP/MPLS backhaul for better service availability. Backhaul bandwidth capacities were increased for wide coverage of up to 450 MbpsMbps. 4.5G applications and the Microwave Radio Link network was modernized for Native Ethernet and Adaptive Modulation support to increase availability and reduce outages resulting from severe rain conditions. Usage of fiber connectivity is moving further from High-RAN aggregation points towards Low-RAN aggregation points. Furthermore, fiber to mobile site applications have been started for 4.5G readiness of sites with very high traffic. Due to higher bandwidth requirements of the 4.5G users, we have migrated from SDH based leased lines to DWDM, or dark fiber multi-Gigabit Ethernet links on the high traffic aggregation points.
We have also startedsuccessfully completed a renovation program in order to converge fixed and mobile backhaul transport networks scheduled to be completed in 2020. More than 25% of theAll fixed and mobile transport-IP network was converged with high scale and the leading-edge technology routers in order to be ready for the capacity demand of 5G applications.
(iii) Core Network
The whole Turkcell Core Networkcore network is currently composed of IP based layered structure Next Generation Network (NGN) nodes, supporting all mobile standards, including 2G/3G/4.5G. By using a Geographical Redundant Pool (GRP) structure, we get (i) full redundant MSC-Ss, (ii) redundant physical interfaces to MGWs, (iii) CAPEX efficiency, and (iv) improvements in radio network KPIs. By implementing IMS (IP Multimedia Subsystem) based VoLTE (Voice Over LTE) and SRVCC (VoLTE Voice Continuity to 2G/3G), all subscribers can use seamless HDVOICE technology.
We have deployed and continue to develop our all IP Mobile Broadband GPRS network to provide the high speed and reliability to meet the demand of our businesses and consumers. 2G/3G/4.5G data services are given from our converged core network, which is designed to support all mobile broadband.
(iv) Fixed Network
Our own fiber optic network provides up to 1000 Mbps high speed internet service in 2123 cities across Turkey. We are installing and investing in EDGE technology access equipment in our network. We believe that with this strategy Turkcell will be ready to offer future customer experiences. Since February 2018, we offer 10 Gbps high speed internet as an on-demand service.
In the context of the COVID-19 pandemic, we increased our in-home investments and provided the first Wi-Fi 6 supported Home-Gateways, which significantly increase in-home service experience. We also initiated virtualized access network projects and have been actively involved in Open Networking Foundation (ONF) projects which promotes experience sharing and early adoption of future technologies, and assisted in its early phase development.
We are providing end-to-end Wi-Fi services for our Enterpriseenterprise customers, which enables their guests to access WiFi. The Enterprise Wi-Fi service includes installation with authentication services, and further provides the necessary interface.
We also provide smart Wi-Fi services for Soho Customer,SOHO customer, which provides login and Wi-Fi connectivity to their customers. The service provides plug and play for easy installations.
We use Turksat cable network for Fixed Virtual Network Operator (FVNO) services, with the goal of reaching more homes with our services.
Furthermore, Turkcell has launched commercial 400 GpbsGbps per wavelength using single channels in its backbone. We are continuously investing in our backbone network in order to be prepared for bandwidth-intensive services with the latest technology. Fixed networks provide backhaul that not only connects the signal towers to the telecom network, but also allows for enough bandwidth to support operations in 4.5G. This is creating an environment in which optical cabling and fiber to Ethernet media converters are among the most important parts of a mobile network. As a result, fiber will remain an integral part of telecom networks.
(v) Services and Platforms
We have an intelligent network and other service platforms enabling our services and we also provide secure and controlled access to the network for the content and service providers to provide messaging and data services. This infrastructure is being improved to open up more capabilities on the network for the application and content providers. New infrastructure also contains a portal where subscribers buy services, receive promotions and enroll for campaigns easily.
d. d.Network Operations
We have primarily employed experienced internal personnel for network engineering and other design activities, while employing suppliers for our network infrastructure and as our partners in product/service development. Our suppliers install the base station cell site equipment and switches on a turn-key basis, while subcontractors employed by our suppliers perform the actual site preparation.
e.Network Maintenance
We have entered into several system service agreements. Under these agreements, our mobile and fixed communications network, including hardware repair and replacement, software and system support services, consultation services and emergency services are serviced by local providers. Our subcontractors perform corrective and preventative maintenance on our mobile and fixed communications network in the field, although providers repair all the network equipment. We have regional operation units with qualified Turkcell staff that operate and maintain our network in Turkey.
In addition, the Turkcell NetworkService Operation Center located in Istanbul monitors our entire network 24 hours a day, 365 days a year, and ensures that necessary maintenance is performed in response to any problem. Ankara BCM Organization was established in order to ensure the continuity of the event monitoring, operations and information activities of the services, as well as the recovery activities of BCM Critical services after any disaster that is likely to occur within the scope of a possible Istanbul earthquake scenario.
f.Site Leasing
If a new coverage area is identified, our technical staff determines the optimal base station location and the required coverage characteristics. The area is then surveyed to identify BTS sites. In urban areas, typical sites are building facades and rooftops. In rural areas, masts and towers are usually constructed. Our technical staff also identifies the best means of connecting the base station to the network. Once a preferred site is identified and the exact equipment configuration for that site is determined, we start the process of site leasing and obtaining necessary regulatory permits. Site leasing processes and construction of the masts or towers are performed by our wholly-owned subsidiary, Global Tower. We lease the land and provide site management services (yearly rental payments, contract renewals, rework permits) through Global Tower. If we decide to buy the land, another wholly-owned subsidiary, Turkcell Gayrimenkul Hizmetleri A.S. (“("Turkcell Gayrimenkul”Gayrimenkul"), handles the necessary procedures. We also manage all these processes for technical demands for Turkcell Superonline and Global Tower.
g.Business Continuity Management (“BCM”("BCM")
Turkcell Business Continuity Management identifies potential threats and their impact and provides a framework for building resilience with the ability to create an effective response that safeguards the interests of our key stakeholders, their reputation, brand and value-creating activities. We established the Business Continuity Management System (“BCMS”("BCMS") to implement, operate, monitor, review, maintain and improve the business continuity.
Turkcell BCMS is assisted by business continuity coordinators at technical and non-technical groups. Regular BCM training and awareness programs are carried out throughout the organization. The effectiveness of BCMS is monitored every year through internal/external audits, and integrated exercises, the results of which are reviewed in management review meetings. In 2019,2020, we exercised and tested our business continuity plans, communication and warning procedures to ensure that they are consistent with the business continuity objectives.
Turkcell’s Turkcell BCM focuses on the digitalization in the context of business plans, by providing business resilience, corporate memory, flexibility, integration and interactivity relation between business and technical services. Turkcell's BCM will be able to cover the majority of Turkcell’sTurkcell's operations through potential environmental events and natural disasters. Our purpose is to ensure the continuity of the voice call, messaging, data/internet and societal security services for Turkcell, availability of fixed voice call services, data/internet, hosting services, data centers and societal security services for Turkcell Superonline, provision of site acquisition and contract management services for infrastructure requirements of mobile operators, TV/Radio broadcasters and technical infrastructure suppliers and installation, testing, commissioning, operation and maintenance of tower, in building, roof top infrastructure/sites for Global Tower at acceptable predefined levels following disruptive incidents.
Business continuity plans are prepared by taking into consideration the customer’scustomer expectations, company policies and legal obligations. They are regularly exercised to guarantee the operation of time-sensitive business activities in case of business disruptions. We are continuously improving our business continuity capacity in accordance with the “ISO"ISO 22301 Societal Security, Business Continuity Management System”System" internationally while preserving our image as a reputable and solid integrated service provider.
Turkcell Service Continuity Management aims to ensure the continuity and recovery activities of the services provided to our customers, by providing the continuity of the service commitment levels, managing the risks that may affect our services, including disasters and emergencies, and supporting the Turkcell Business Continuity Management System. Turkcell has also developed a Crisis Management Plan, which is aimed at effectively managing a crisis, including fire, terrorism, operational interruption, cyber attack, food poisoning and epidemics. Turkcell's Crises Management Plan exercises, training and
awareness activities are carried out periodically with the participation of crisis management teams and related groups.
h.Enterprise Risk Management (“ERM”("ERM")
Turkcell’s Turkcell's Enterprise Risk Management team is responsible for coordinating the process of identifying, assessing and overseeing actions by management and the company’scompany's business units to manage the risks that may affect the business objectives of the company. ERM supplies an information platform to management regarding the risks that may impact the decision-making process. Turkcell ERM aims to develop an approach of integrating risk management with the core management processes as well as enterprise risk culture. While doing this, Turkcell uses an ERM framework which is compatible with the COSO ERM framework and the ISO 31000 Standard. Based on ERM procedures, risks are identified and evaluated in terms of impact and likelihood. Risk responses controls, issues and actions are developed and the entire process is monitored.
Turkcell’s Turkcell's ERM team is the owner of an enterprise risk database. A range of management tools are used for risk identification and evaluation such as workshops, brainstorming sessions, risk reporting from division directors and risk contacts, in-depth interviews with the management team and research reports while coordinating the process of identifying and assessing risks. The risk database, monitored by the ERM team and newNew risks and opportunities, updates on on-going risks, financial risks, cyber risks and risk and trend research from the around the world are reported to the Early Detection of Risk Committee bi-monthly.
In 2020, the COVID-19 pandemic was also considered as an important risk and was followed up by this committee. Developments in relation to the pandemic and its impacts on Turkcell's business units, related decisions and actions were regularly reported to the Board of Directors for both Turkcell and the Group companies.
VIII. Sales and Marketing
We design our sales and marketing strategy around subscriber needs and expectations. We try to ensure the loyalty of our subscribers by providing offers, campaigns and our advanced service delivery platforms.
a.Sales Channel
We support our sales effortsserve through one of the largest retail telecommunications distribution networks in Turkey, with more thanaround 1,300 branded (exclusive) stores, many withat prime locations, as well as more than 4,000and 4,408 semi-branded dealers (i.e. digital sales points) as of December 31, 2019.2020. Our two exclusive distributors provide our products and services as well as consumer technologiestechnology goods (such as handsets, tablets, notebooks, IoT devices, accessories, personal care products and accessories)small home appliances) and aftersales services forto this wide dealer network, of dealers, while eight exclusive Turkcell Distribution Centers (TDCs) focus solely on semi-branded dealers. Effective as of December 31, 2020, the definition of devices in our distributor contracts has been revised to cover only smartphones and tablets. With this revision, our obligation to procure other technology products only from these two distributors has ended. Starting from January 1, 2021, we have been running a process to select new distributors for the sale of all kinds of accessories, hardware, equipment, new generation technology products other than smartphones and tablets. We also have a door-to-door sales force and home technology management team, which realizes approximately 135 thousand connected home technology transactions per month.team. This provides us an important channel on which to distribute our integrated solutions directly into the homesto home of Turkish consumers. We also operate a dedicated corporate direct sales team of over 657830 personnel who can offer tailored solutions toin their respective segments.segment of expertise.
Our nationwide distribution channel is an important asset that helps us differentiate ourselves from our competitors and achieve our sales targets. Our strong and extensiveAs mentioned above, our distribution network consists of distributors, TDCs, Corporate Solution Centers, semi-branded dealers and Turkcell Branded Storesbranded stores (Turkcell Plus & Turkcell), as well as pointscorporate solution centers, and
Table of sale for scratch cards and prepaid airtime, includingContents
semi-branded dealers, digital channels ATMs and Points of Sale (POSs).ATMs. We selloffer postpaid and prepaid services,mobile subscription, fixed and mobile tariffs and solutions, Superbox Plug&Play modems and digital services to subscribersservice subscriptions through our distribution network. The total number of branded and semi-branded dealers, including corporate solution centers, totaledwas over 5,4505,700 sales points as of December 31, 2019.2020.
Digital transformation has continued at full speed in our Our retail channel. At the beginning of 2018, we completed thechannel went through a physical transformation of Turkcell stores and have been offering the latest technologies and digital services to customers since then. In addition, sophisticated store concepts reflecting customer trends were put into place at selected locations. As the most important step in digital transformation, strategic infrastructure investments were realized at the stores where physical transformationthat was completed. The first major change occurred in the supply chain model.
The Turkcell GO project digitizes the sales dialogue between our employees and our customers. The sales platform of Turkcell GO presents the smart phones, tariffs and digital services to the customer with a customer based visual design, easy and meaningful way. GO offers personalized tariff model to the customers and helps to deliver a higher customer experience. Meanwhile GO also provides the opportunity of instant training for employees.
Turkcell stores product portfolio has been enriched with new products such as Superbox, subscription to Digiturk and Paycell. In addition, more than 200 institutions’ bills have become payable at Turkcell stores.
In 2019, we continued basic retail employee certificate program with a 94% success rate, which corresponds to the rate of the certified employees in the total store sales force. In addition to the basic program, we had launched the “Advanced Retail Certificate Program” for experienced store employeescompleted in 2018. In 2019, our Advanced Retail Certificate Program has continued as a face-to-face training program in collaboration with Marmara University,the context of the COVID-19 pandemic, we have taken necessary precautions to ensure that the safety of visitors and is aimed at training our employees inat our stores. In that regard, we implemented the "contactless retail sales.experience" to minimize physical contact at our stores. Accordingly, customers are provided with the option to download campaign information as well as the label information of products to their smart devices.
Furthermore, we prepared a Finance Certificate Program in order to provide our store employees with finance expertise. A total of approximately 5,000 store employees successfully completed the training and qualified for the “Insurance Training Center” exams.
Our non-branded dealer network provides us with a high penetration of Turkcell products and services inacross Turkey. Adding one more TDC to our ecosystem, our 8 TDC’s are aimed at enhancing our distribution effectiveness in the non-branded channel and ensuring the timely and efficient distribution of Turkcell products and merchandising materials. They also facilitate the Turkcell brand and offer awareness in this competitive channel.
Alternative sales channels are re-designed under four main branches: Call center, online channel, which includes the company’s web site and the Digital Operator app, non-telco sales and the Turkcell Flagship Store.
We offer our customers fast and safe access to our products and services 24/7 via our call center, our web site (www.turkcell.com.tr) and the Digital Operator app. Our web site has been serving as a sales channel since 2012. Besides Turkcell’s digitalized products and services, we have offers under other categories, including smartphones, tablets, computers, mobile accessories and home technologies. Another channel is our non-telco channel (which consists of ATMs, Call Centers, internet branches of banks and chain stores) where we provide our customers with the opportunity to access Turkcell’s products easily and quickly. We also proactively reach our customers and satisfy their needs easily and safely when they need our products and services through our telesales channel. Further, we also serve through our flagship store in Istanbul.
Alternative sales channels are the main channel for digital services sales. In 2019, 1.8 million units of TV+, lifebox, fizy products have been sold over alternative sales channels using big data in conjunction with our analytical models and machine learning.
All dealers are compensated based on the number of new subscribers they sign up and the level of such subscribers’those subscribers' usage, in addition to other performance-based incentives.
We categorise our alternative sales channels under three main headings: our call centers, non-telco sales and the Turkcell flagship store.
We offer a fast and secure access to our products and service portfolio on 24/7 basis via our call center, our web site (www.turkcell.com.tr) and the Digital Operator app. We proactively reach our customers through our telesales team. Our non-telco channel consists of ATMs, call centers, internet branches of banks and chain stores. Further, we have one flagship store located in Istanbul.
Alternative sales channels have been the main channel for digital service sales. In 2020, 2.4 million TV +, lifebox, fizy subscriptions were sold over alternative sales channels using big data along with our analytical models and machine learning.
During 2019 and 2020, our digital sales channels went through an extensive transformation. Accordingly, UX and UI components as well as additional incentives based on their performance.
Our sales management team develops strong relationships with dealersthe entire shopping journey are improved and promotes brand loyalty among them through a variety of support and incentive programs. Training programs aimtailored to educate dealers’ personnel on the technical aspectsneeds of our productscustomers. We have re-designed our digital channels as two main platforms: Turkcell's official website and services, as well as sales techniques to increase sales and enhance customer relations.the Digital Operator app. Our specialized sales employees, who are obliged to obtain a certificate to be eligible to work at the stores, serve around 220 million visitors annually. The certification program for our employees is quite extensive and involves different stages. The program began in April 2016 andwebsite has been widened with the inclusion of online assessments. The program has been created withserving as a sales channel since 2012. Besides Turkcell's telecommunication service portfolio, our website includes offers under other categories, including smartphones, tablets, computers, mobile accessories and home technologies.
With a view to improving employee experienceleverage our capabilities in digital channels, in December 2020, we launched a technology and makingelectronics marketplace (an e-commerce platform) in Turkey, called Turkcell an attractive work place. The technological development projects, coupled with merchandising services,Pasaj. At Turkcell Pasaj, a wide range of electronic goods, from smart devices to new generation technologies, are offered from several leading suppliers besides Turkcell. Customers are offered different payment alternatives including mobile payment, Paycell digital displaymoney besides debit/credit card and channel specific campaigns, helpsalso financing through Financell. Turkcell Pasaj offers same-day delivery in some cities and courier guarantee in one business day. Customers will soon be able to supportalso pick up their delivery from any Turkcell store. Turkcell Pasaj platform is developed by Turkcell developers and we conduct necessary improvements in-house.
On the sales efforts across all of our sales channels.
Corporatecorporate front, corporate clients are managed inunder four different segments: Public Accounts, Strategic Accounts, Major Accounts, Smallpublic accounts, strategic accounts, major accounts, small and Medium Sized Businesses Accounts. Themedium sized business accounts. Turkcell's account managers are direct contacts for the first three segments’ customers are directly contacted by Turkcell’s Account Managers,segments, while our dealers and telesales teams manageare responsible for the Smallsmall and Medium Sized Businessmedium sized business segment.
Within Turkcell’sTurkcell's sales teams, along with Telecom Services, Mobile Productbesides the account managers, pre-sales teams, solution architects, business development and Solution Specialists, Fixed Product and Solution Specialists, Corporate Data Network, DC Cloud, Cyber Security Specialists and Managed Servicesproduct management teams specialized in IT solutions cater to thealso support corporate clients. VerticalFurthermore, vertical solution teams were formed to develop suchindustry specific solutions for eight sectorscertain industries including retail, manufacturing, energy, healthcare, education, finance, transportation and logistics.
These teams aim to create cross industry solutions to serve the digital transformation of Turkcell’sour corporate clients.
Turkcell also provides turnkey mobile and digital transformation and IT outsourcing projects for large corporations with the contribution of solution partners in Turkcell Satis.partners.
b.Advertising
Turkcell has positioned itself as a digital operator,an ecosystem brand, providing a portfolio of both telecom and digital services that add value to its customers’customers' lives. We base our communication efforts on threefour pillars that underline our digital operator strategy.strategy and key strengths. The first pillar comprises our four key assets that we believe ensure our position as the market leader:is our integrated mobile and fixed infrastructure which we believe to be superior; second is the social responsibility projectssuperior service quality that we undertake throughout the year,year; third is our brand perception;innovative approach in all fields of operation and the “firsts” we have marked in the Turkish market. The second pillar focuses on providingfourth and final is our offers, that areproducts or services tailored to the needs of our customers through analyzing their behavior with enhanced AI features. The third pillar includes our digital services that connect our customers with what the digital world has to offer.behavior-analysis.
c. c.Customer and Experience Management
The key part of our customer and experience management strategy is to provide basicour customers with effortless, personalized and premium services through several channels in a customer-focused manner.consistent experience across all channels. Our goal is to maintain a continuous relationship with our customers through fostering a high level of customer satisfaction.satisfaction and make our customers feel safe and valuable. We continuously ask our customers how satisfied they are with the service they receive and for any suggestions through near real-time mobile surveys. We aim to achieve operational excellence throughout all customer touch points across every customer segment by continuously improving and simplifying processes and services. Customer feedback is the major input for Turkcell’sTurkcell's continuous process and journey for improvement.
With respect to the provision of customer services, we mainly work with our subsidiary Global Bilgi Pazarlama Danismanlik ve Cagri Servisi Hizmetleri A.S. (“("Turkcell Global Bilgi”Bilgi"). Turkcell Global Bilgi offers 24/7 contact center services at several sites.25 locations in Turkey and Ukraine. Turkcell Global Bilgi provides customer-experience-focused solutions to create value in customer care, customer acquisition, service design, tele-sales, technical support, customer loyalty, customer data management and experience analytics. In 2019,2020, Turkcell Global Bilgi managed approximately 113115 million calls received through its interactive voice response system. Turkcell’sTurkcell's customer service strategies for contact centers are implemented by Turkcell Global Bilgi. We audit their operations along with monitoring whether customer services and customer satisfaction programs are executed in line with Turkcell’sTurkcell's customer strategies. Turkcell Global Bilgi also offers telesales and Information and Communication Technology (ICT) helpdesk services. Turkcell Global Bilgi’s success has been affirmed by a number of domestic and international awards in 2019.
We have prioritized the “digitalization” of our customers. Accordingly, we have invested in our online self-service channels and aim for the migration The "digitalization" of our customers on thosehas continued to be a priority in 2020. Our aim is to migrate our customers from conventional channels to digital channels and create effective and user-friendly online self-service channels.
Our As a result of our investments in the Digital Operator application, our primary online self-service channel, active users have exceeded 16 million by the Digital Operator append of 2020. Further, we continued to conduct numerous projects to improve customer experience over IVR, a digital platform connecting Turkcell to its customers. We refurbished and modernized this channel with artificial intelligence technologies, and created our own "Digital Assistant", which was a contributing factor to the considerable improvement of the performance of this channel. Our proactive scenarios on IVR have enabled us to reach out to more customers through this channel. Through the integration of all IVR packages with the CRM infrastructure and offering these via text-to-speech technology, we managed to reduce our costs and started to offer more personalized offers efficient solutions under “Digital Shop”, “Digital My Account” and “Digital Support” sections. Underto our customers.
At Turkcell Superonline, we started to offer our customers the Digital My Account section,option to solve modem internet connection problems over the IVR channel. In addition, our customers can complete Turkcell related transactionsreceive information such as paying billscommitment expiry dates and verifying their usage. Under “Digital Shop” section, the app offers Turkcell products according to customers’ usage habits as well as any device, accessory, application or package that is in our portfolio. Under “Digital Support”, we offer customer service solutions. The three-month active customers of the application reached 21.2 million.
Our customers can also manage their fixed internet subscriptions from the same Digital Operator application by switching between their accounts within the application. Nearly 300 thousand Turkcell Superonline customers make 2.7 million transactions monthly using the Digital Operator app.
For corporate customers, account managers are assigned for an exclusive service. An account manager serves as the single point of contact and provides solutions in response to customer needs. While we serve our corporate customers by categorizing them under four segments, we also support them through e-mails, calls and dedicated back offices under the umbrella of our contact center. We have corporate customer representatives to support direct requests from our public accounts, strategic and major enterprises, medium businesses and/or to support indirect requests receivedadditional fees through our account managers. In addition, for small businesses, we aim to meet faster and higher quality service standards by providing online solutions to support our sales teams with our “Field Support Desk”. Moreover, we have enriched our corporate application called “My Company” with the additionIVR proactive solutions.
Turkcell developed chat-based service channels, where customers can access us anytime and anywhere quickly and easily without connecting to the call center .center. Customers can also contact Turkcell via instant messaging to ask a question about their lines or our applications. In 2019,2020, there were around 1.6 million such chat sessions on average per month. With artificial intelligence based chatbot technology, Turkcell has increased the automation level of its instant chat-based services for its customers.
Turkcell connects with social media users 24/7 with a total of 5455 accounts on Facebook, Twitter, Instagram, YouTube and LinkedIn. We respondresponded to nearly 165211 thousand comments from 5063 thousand social media users per month.month, on average, in 2020.
We conducted numerous projects to improve customer experience over IVR, a digital channel connecting Turkcell to its customers. We enabled customers to check their credit limits via IVR and complete their transactions over the digital channel without connecting to the call center. Turkcell can proactively provide customers who contact the call center with complaints regarding calling and internet experience with real-time solutions and offer location reset services.
Turkcell has received ISO 10002 certification since 2011 and continuously renews its ISO 10002 certification annually within the scope of design, installation, operation, sales, and after-sales services of global mobile communications within Turkcell functions. The latest certification ISO 10002: 2004 Quality Management-Customer Satisfaction-Complaints Handling Certificate was received in 2019.
Turkcell encourages all employees to embrace an “I’m"I'm here for my customer”customer" approach and awareness. In this respect, Turkcellwe have initiated the “Customer"Customer Action Transformation Program”.Program" in 2019 which continued throughout 2020. As part of this program, all Turkcell employees are expectedencouraged to take decisions andbe involved in the process of idea-generating by taking a role in the design of products and services with the aim of making customers feel safe, valuable and happy. As partenhancing customer experience. In the context of this program, we analyzed300 employees participated in nearly 200 projects. One of the key metrics of this customer-focussed program is to increase our Net Promoter Score (NPS) over our competitors. NPS studies are conducted by FutureBright for Turkcell on a quarterly basis. In the fourth quarter of 2020, our NPS in mobile for consumer segment rose 22 from 19 in the previous year and interpreted a high level of customer feedback received throughthe gap with our call centers, social media channels as well as through chat and emails in 2019. Based on these analyses, we have determined areas of improvement and put an action plan in place.closest competitor has widened further by 5 points, reaching 15 points.
IX. International and Domestic Subsidiaries
A component of our strategy is to grow or improve our business in our home market and in the international markets where we are already present. Continued strong operations in the countries in which we are currently present is important for us. We believe these operations offer growth opportunities and we expect them to provide additional value to the Group in the future.
While continued improvement of our current operations is a key priority, we will seek and evaluate the opportunities of offering our portfolio of digital and financial services, both in Turkey and in international markets, and increasing their number of users.
Ukraine—lifecell
We acquired our interest in our subsidiary lifecell (formerly known as “LLC Astelit”"LLC Astelit" or “Astelit”"Astelit" operating under the “life:"life:)”" brand) on April 2, 2004, by purchasing the entire share capital of Astelit’sAstelit's parent, CJSC Digital Cellular Communications, from its shareholders.Communications.
On July 10, 2015, we completed the acquisition of SCM’sSCM's 44.96% stake in our Netherlands-based subsidiary Euroasia Telecommunications Holding B.V, which ownsowned 100% of LLC Astelit, and which merged with Lifecell Ventures in December 2016. The terms of the acquisition required a payment of $100 million as consideration for the acquisition, the payment of Astelit’sAstelit's debts obtained through and with the guarantee of SCM Group, the termination of all guarantee agreements to which SCM Group was party and the release of SCM Group in this regard. In accordance with IFRS 10 “Consolidated"Consolidated Financial Statements”Statements", the acquisition of the remaining 44.96% in Astelit for a total consideration of $100 million was considered an equity transaction and the deficit representing the difference between the non-controlling interests was derecognized, while the consideration paid for the acquisition of shares amounting to TRY 929 million was deducted from retained earnings in July 2015.
Following this
transaction, Astelit’sAstelit's borrowings obtained from and with the guarantee of SCM Group were repaid in July 2015. The Group converted a material portion of Astelit’sAstelit's borrowings to equity and restructured Astelit’sAstelit's remaining borrowings in order to mitigate the foreign exchange risks associated with borrowings denominated in foreign currency. Astelit’sAstelit's capital was increased by $686 million (equivalent to TRY 1,995 million as of December 31, 2015) and Astelit obtained $66 million (equivalent to TRY 192 million as of December 31, 2015) subordinated loan directly from the Company in the third quarter of 2015.
After ten years of successful history in the industry, on On January 15, 2016 Astelitthe company announced a new stage of its development, which started withmade a large-scale rebranding into “lifecell”"lifecell", and in connection therewith changed its legal name to “lifecell LLC”"lifecell LLC" on February 2, 2016.
In April 2016, lifecell sold 811 towers to a subsidiary of Turkcell in Ukraine, UkrTower LLC (“UkrTower”("UkrTower"), and signed a tower lease agreement which allows lifecell to leaseback these assets.
On July 7, 2017, Turkcell injected $74 million (equivalent to TRY 268 million) in the capital of lifecell. Funds were allocated for the repayment of the abovementioned subordinated loan. On July 10, 2017, lifecell repaid $72.8 million to the Company (equivalent to TRY 264 million): $66 million of principal and $6.8 million of interest.
On February 8, In 2018, the capital of lifecell was increased again by $65 million (equivalent to TRY 259 million) in preparationfour tranches for the 4G license tenderfee payment in Ukraine. The injection was executed in four tranches: $10 million on February 9, 2018, $30 million on February 14, 2018, $20 million on April 4, 2018 and $5 million on August 9, 2019.
On September 11, 2019, lifecell obtained a EUR 28 million (equivalent to TRY 175 million) subordinated loan directly from the Company.Turkcell. The proceeds were used for the reduction of the lifecell loan portfolio.
On February 21, 2020 and March 26, 2020, the capital of lifecell was increased again by EUR 12 million (equivalent to TRY 79 million) and by EUR 12 million (equivalent to TRY 85 million), respectively.
As of 31 December, 2019,2020, the company utilized loans fully denominated in local currency of UAH 4.23.9 billion (equivalent to TRY 1.0 billion as of December 31, 2019)2020) under the guarantee of Turkcell.
As of December 31, 2019,2020, lifecell had 8.99.3 million registered subscribers. The majority of those were prepaid subscribers. lifecell’smobile subscribers, mainly prepaid. lifecell's three-month active subscribers had reached 7.48.1 million as of December 31, 2019.2020.
The company is known in the market as dynamic and innovative as it was the first to introduce a number of new technologies and products in the Ukrainian mobile market. The company is highly motivated to sustaincontinue its innovation leadership in marketing and sales. There were 265353 exclusive lifecell shops in 130182 cities across Ukraine as of December 31, 2019. There are 33 “facelifted” and 232 shops2020. lifecell also introduced the first "digital kiosks" to the market in full lifecell branding as2019, set up in some major shopping malls in Kyiv that allowed customers to purchase SIM cards at any time of December 31, 2019.the day. In addition, lifecell products are available at 28,00026 thousand other sales points throughout Ukraine. lifecell also has an online sales channel, shop.lifecell.ua, which was launched in August 2020 as a renewed version.
As of December 31, 2019,2020, lifecell provided roaming services in 202212 countries via 590553 roaming partners and eight satellite operators.
The Ukrainian telecommunications market is regulated by the Cabinet of Ministers of Ukraine (main state policy), the newly formed Ministry of Digital Transformation, the State Service of Special Communication Administration (“SSSC”("SSSC") (technical policy aspects) and by the National Commission for the State Regulation of Communications and Informatization (“NCCIR”("NCCIR") controlled by the President of Ukraine and which carries out general telecommunication market regulation and inspection.
NCCIR held the 3G license tender on February 23, 2015. lifecell submitted a bid of UAH 3,355 million (equivalent to TRY 376 million as of March 19, 2015) and was awarded the first lot, which is the 1920-1935 / 2110-2125 MHz frequency band. Furthermore, lifecell paid a total of UAH 886 million for the conversion of spectrum from military use in three installments between 2015 to 2018. After winning the tender, lifecell launched 3G services on June 4, 2015, becoming the first operator to offer a 3G+3G network in Ukraine.
As of December 31, 2019,2020, lifecell provides 3G services in all cities ofmore than 7.8 thousand towns and settlements in Ukraine (excluding Crimea and Sevastopol city and uncontrolled territories of the Luhansk and Donetsk regions) with a population of over 2,000 inhabitants, and in total more than 1,858 settlements nationwide. This corresponds to a coverage of approximately 93.42% of the population of Ukraine or 95.54% geographical coverage with 7,087 base stations.. As of December 2019,2020, lifecell has the widest 3G geographical coverage over the country based on its own calculations by using operators’operators' relevant disclosures. lifecell ceased recording revenues from Crimea and SevastopilSevastopol city as of the end of September 2014 and impaired its assets in that region. Furthermore, in 2016 the operator hascompany also discontinued services in and lost its revenue stream from the uncontrolled territories of Luhansk region and since February 2017 lifecell has been unable to provide mobile services and ceased recording revenue in the disputed part of the Donetsk region. The company impaired its assets in the disputed part of the Donetsk and Luhansk region in the fourth quarter of 2017. Cumulative capital expenditure for the development of lifecell’slifecell's coverage amounted to $2.3$2.4 billion as of December 31, 2019.
NCCIR held the 4G license tenders for the 2600 MHz band on January 23, 2018 and for the 1800 MHz band on February 26, 2018. lifecell was awarded 4G licenses for 15 years at a cost of UAH 909 million (equivalent to TRY 173 million as of December 31, 2018), and UAH 795 million (equivalent to TRY 151 million as of December 31, 2018) for the 15 MHz in each frequency band, the latter of which was paid in April 2018. In February 2018 lifecell made payments of UAH 187 million (equivalent to TRY 36 million as of December 31, 2018) to PrJSC VF (Vodafone) Ukraine, and in May 2018, UAH 19 million (equivalent to TRY 4 million as of December 31, 2018) to JSC Kyivstar for the installment and conversion of spectrum from operators use.
After winning the tenders, lifecell launched 4G services in the 2600 MHz band on March 30, 2018 and in the 1800 MHz band on July 1, 2018, becoming the first operator to offer 4.5G services in Ukraine nationwide.
As of December 31, 2019,2020, 4.5G from lifecell is available in over 3,8573,546 towns and settlements in Ukraine (excluding Crimea and Sevastopol city and uncontrolled territories of the Luhansk and Donetsk regions), while in more than 643109 Ukrainian towns and settlements, lifecell is the only operator providing 4G network services. As of December 2019,2020, lifecell is a leadercontinues its leadership in terms of smartphone penetration with 80.1% of81.2% in the Ukrainian telecommunication market.
In line with Turkcell Group’s digital services strategy, in 2017, lifecell launched a number Lifecell provides 3G&4G coverage of unique digital services. lifecell was the first mobile operator to launch the cloud application lifebox, the Ukrainian radio application fizy, the Ukrainian online magazines application lifecell Magazines, the sports dedicated application LifeSport offering no data consuming packages for video, social networks and digital communication. All these digital services are also available to the users of other telecom operators. In response to the need75% of the Ukrainian market for cardless and cashless payment services, lifecell introduced its online money transfer tool available online. Aspopulation of August 2017, Paycell LLC has been incorporated as a subsidiary of lifecell in order to operate as a financial institution and perform loan granting, leasing, money transfer and e-money services. Licenses for leasing and loan granting has been obtained as of October 2017, and licenses for e-money and local currency transfers have been obtained in September and October 2018, respectively.Ukraine, or 44% geographical coverage, through 6,483 base stations.
lifecell is continuously focused on company security (tools, processes, people) and investment in security infrastructure. In January 2017, lifecell’s Corporate Security Department developed Emergency Notification System (“ENS”). ENS is a cloud-based solution serving as a tool for instant emergency alerts and mass notification of a certain target audience via voice messages, SMS and e-mail. The solution was applied by lifecell during the massive global cyber-attack of June 27, 2017. In September 2017, the company signed a Memorandum for cooperating with the Department of Cyber police of the National Police of Ukraine. lifecell provided the cyber-police with the license for ENS employment that helped the Ukrainian government to create an environment resistant to IT security attacks and coordinate the actions of people in case of emergency.
Mobile Number Portability (MNP) had been introduced to Ukrainian customers in May 2019, after almost 10 years of postponing. The company was also the first among all operators providing its subscribers with a free online registration procedure enabled via BankID.
Demonstrating the advantages of the LTE based solutions, lifecell deployed the first segment of NB-IoT networks in 2019, running successful pilot projects with public and private companies working in the energy sector. Together with its partner, lifecell also built LoRaWAN networks covering Kyiv, Lviv, Kharkiv, Odessa, Dniproas well as other settlement (in total more than 34), that had been successfully used as a platform to deliver smart solutions to some retailers, developers, energy and agriculture companies.
In May 2019, lifecell and Ericsson Ukraine deployed the first 5G network demo segment and presented its advanced capabilities at the Sweden-Ukraine Business Forum in Kyiv. The speed test was attended by state representatives, regulators and the media, and reached 25.6 Gbps download throughput using spectrum in the ultra-high frequency band of 28 GHz. In 2020, 5G technology was tested at the lifecell head quarter with the collabration of Ericsson.
lifecell also introduced the first “digital kiosks” to the market in 2019, set up in some major shopping malls in Kyiv, that allowed customers to purchase SIM cards at any time of the day.
On October 29, 2019, lifecell and threetwo other leading mobile operators signed a Memorandum of Understanding with the Ukrainian Government to reorganize radio-frequency resources to the 900 MHz band. It will ensure maximum coverage of the entire territory of Ukraine with 4G mobile communication, including rural areas and main roads. Accordingly, in March 2020, lifecell’slifecell's 900 MHz frequency band has beenwas increased from 3.8 MHz to 5.6 MHz. These frequencies, which are currently being used for 2G services, will also be utilized for 4G services. Ukraine’sUkraine's National Telecommunications Authority opted not to hold a tender process and the
license fee for lifecell was determined as UAH 121,176,000121 million (equivalent to US$ 4.6 million as of March 19, 2020, the payment date). The license fee has been fully paid. The respective license will bebecame effective as of July 1, 2020 for five years. As of
December 31, 2020, lifecell and two other leading mobile operators launched LTE900 across Ukraine. Operators also entered into infrastructure sharing agreements in settlements with populations of less than two thousand inhabitants.
Mobile Number Portability ("MNP") was introduced in Ukraine in May 2019. As of the end of 2020, lifecell was the leader in the MNP port-in subscriber market. lifecell was also the first among all operators providing its subscribers with a free online registration procedure enabled via BankID.
lifecell launched its first MVNO partnership in July 2016 with one of the largest national internet service provider (Volia-Cable) in order to provide converged telecommunications services for subscribers of the two companies. By the end of 2020, lifecell had six active MVNO partnerships.
Since 2017, the company continues its strategic focus on developing high-quality digital services. Accordingly, lifecell offers Turkcell's digital services including BiP, lifebox, TV+, and the magazines app in the Ukranian market. This year, lifecell launched a telemedicine application, Likar Online, enabling its users to get remote consultancy from doctors. lifecell has participated in efforts to combat the COVID-19 pandemic by donating 2 mechanical ventilators to the Ukraine COVID-19 control center, providing free of charge communication packages to over 13 thousand health sector workers in March and April and by sending over 8 million information messages to its subscribers on behalf of the Ministry of Health.
In response to the need in the Ukrainian market for cardless and cashless payment services, lifecell introduced its online money transfer tool. In August 2017, Paycell LLC was incorporated as a subsidiary of lifecell in order to operate as a financial institution and perform loan granting, leasing, money transfer and e-money services. Licenses for leasing and loan granting was obtained in October 2017, and licenses for e-money and local currency transfers were obtained in September and October 2018, respectively. Paycell LLC provides financial services for the transfer of funds in Ukraine.
In line with global tech trends, lifecell was the first operator among the «big three»"big three" in Ukraine to launch eSIM in November 2019. Earlier,It is sold online at shop.lifecell.ua, and since the beginning of 2020 eSIM physical starter packs were introduced at lifecell had strengthened its portfolioshops. In June 2020, a new online sale experience was launched with fully automated 24/7 sale and immediate delivery of digital services with MobileID that became available for Ukrainian business customers.
Elevating its customers’ digital experience, lifecell launched public transportation SMS-ticket in four large Ukrainian cities with planseSIMs to expand this service to other regions.
customer's email. In December 2019, lifecell became the sole operator to have launched 3G/4GSeptember 2020, as a first in the Dnipro Metro, in Ukraine’s fourth largest city, inUkrainian market, customers are provided with the test mode.option of choosing their phone number when buying eSIMs online. In November 2020, eSIM sales with choice of phone number was launched at EasyPay's 14 thousand self-care terminals across Ukraine.
Belarusian Telecom
On July 29, 2008, Beltel Telekomunikasyon Hizmetleri A.S. (“Beltel”("Beltel") signed a share purchase agreement to acquire an 80% stake in Belarusian Telecom, which provides services using GSM and UMTS technologies, for a consideration of $500 million. On August 26, 2008, control of Belarusian Telecom was acquired from Belarus’Belarus' State Committee on Property and $300 million of the total consideration was paid. An additional $100 million was paid in December 2009 and a further $100 million was paid in December 2010. An additional payment of $100 million will be made to the seller in instalments contingent of the financial performance of Belarusian Telecom. For more information, see Note 28 (Other non-current liabilities) to our Consolidated Financial Statements.
As at December 31, 2019,2020, Belarusian Telecom had 1.51.4 million registered mobile subscribers, the majority of which were prepaid, and its three-month active subscribers reached 1.1 million as of December 31, 2019.million. Belarusian Telecom is the leader of Mobile Number PortabilityMNP market in Belarus in terms of number of port-in subscribers’subscribers' count. Belarusian Telecom has 10 own stores, 140135 exclusive and more than 320299 non-exclusive sales points and the salespoints. Sales from its online storechannel continuously increases with the growingrising customer demand.
As at December 31, 2019,2020, Belarusian Telecom operated 2G and 3G services in all cities with a population of more than 10,000, and provided 2G services on all principal intercity highways and roads
of the Republic of Belarus, which corresponds to a coverage of approximately 99.9% of the entire population of Belarus, or 97.7% geographical coverage. Belarusian Telecom also offers 4G service in August 2016 on LTE infrastructure established by JLLC Belarusian Cloud Technologies (“beCloud”) and provides 4G services throughout the country in around 190 cities, towns or settlements as of December 31, 2019. In Belarus, the only LTE license is owned by beCloudJLLC Belarusian Cloud Technologies ("becloud") and beCloud is the only infrastructure provider for LTE services. Belarusian Telecom offers 4G service since August 2016 on becloud's LTE infrastructure, serving in all regions and major cities of Belarus with a 35% 4G territory coverage as of December 31, 2020. Availability of 4G services to our customers has improved the quality of data services and customer experience. As of December 31, 2019,2020, the share of 4G subscribers in the three-month active subscribers segment reached 54.6%, fostering mobile63%. Rising 4G penetration led to a growth in average monthly data consumption and digital services usage.per user to 13GB. 4G network served 73% of total data traffic in 2020.
Belarusian Telecom has a wide range of products in its portfolio, which consists of voice and data products, terminal offers and an enriched digital services portfolio. BiP, fizy, lifebox, Magazines, TV+ and Games Platform are the main services in the digital services portfolio. In January 2019, Belarusian Telecom launched a digital tariff plan “Play”"Play" which is a unique offer in the market, combining all digital services in a single package.
Belarusian Telecom is the first mobile operator to launch a digital SIM-card activation service in Belarus in 2020 via a mobile application by using face recognition technology based on a machine learning algorithm. The service was successfully implemented by Lifetech LLC, a 99.9% owned subsidiary of Belarusian Telecom.
In line with our strategic priority of improving our balance sheet structure, we restructured the debt of Belarusian Telecom in 2015. As part of the restructuring, Belarusian Telecom’sTelecom's total existing intra-group loans were converted into a subordinated loan, provided directly by Turkcell. Following the restructuring, Belarusian Telecom’sTelecom's debt was EUR 612 million subordinated loan. On April 1, 2019, this EUR nominated subordinated loan was converted to the local currency amounting to BYN 1.46 billion (equivalent to TRY 4.14.2 billion as of December 31, 2019) is owed to Turkcell2020) and remains outstanding as of December 31, 2019.2020.
In Belarus, the lack of pricing regulations in the wholesale and retail mobile markets to prevent dominant operators’operators' abusive pricing practices continued to have an adverse impact on our business. We continue to hold discussions with authorities forwith regard to the implementation of such regulations.
Lifetech LLC
Lifetech LLC (“Lifetech”("Lifetech"), which is a subsidiary of Turkcell Group, was established in 2012. It is 99.9% owned by Belarusian Telecom and has around 160 professionals located in Belarus. Lifetech provides a full cycle of software development services and develops custom and platform-based solutions to its clients locatedTurkcell Group and other customers and carries out software development projects both in Belarus Turkey, the Netherlands, the Russian Federation and the Turkish Republic of Northern Cyprus. In April 2019,other countries. Lifetech becameis a member of High-Technology Park of the Belarus.Belarus since 2019.
Kibris Telekom
Kibris Telekom, a 100% ownedwholly-owned subsidiary of Turkcell, was established in 1999 in the Turkish Republic of Northern Cyprus.
As of December 31, 2019,2020, Kibris Telekom had 0.5 million registered subscribers. In 2020, Kibris Telekom's financial and operational performance was negatively impacted by the pandemic as the country's economy relies heavily on higher education which is highly dominated by foreign students and on tourism.
On April 27, 2007, Kibris Telekom signed a license agreement for the installation and operation of a digital, cellular and mobile telecommunication system with the Ministry of Public Works and Transportation of the Turkish Republic of Northern Cyprus. The license agreement became effective on August 1, 2007 and replaced the previous GSM-Mobile Telephony System Agreement dated March 25,
1999, which was based on revenue-sharing terms. The new license agreement granted GSM 900, GSM 1800 licenses. The license agreement is valid for 18 years from the date of signing. The license fee was $30 million including VAT and financed by Kibris Telekom through internal and external funds.
On March 14, 2008, Kibris Telekom was awarded a 3G (IMT 2000/UMTS) infrastructure license at a cost of $10 million including VAT, which was paid at the end of March 2008.
In 2012, Kibris Telekom acquired Internet Service Provider and infrastructure establishment and operation licenses. Kibris Telekom applied for a right of way to major municipalities and the Ministry of Transportation in order to establish a national fiber optic infrastructure. On January 24, 2014, a protocol was signed between Kibris Telekom and the Ministry of Transportation for the right of way for highways. Total fiber optic infrastructure implementation iswas at 69 kilometers by the end of 2019.2020. In 2017, Lifecell Digital Ltd. ("Lifecell Digital") was incorporated in order to operate as an Internet Service Provider company and offer converged telecom services. Lifecell Digital also acquired an infrastructure license in December 2018.
The National Regulatory Authority started to decrease mobile termination rates gradually in July 2014 over a year; with around a 71% decline in total, from TRY 0.10 to TRY 0.03. The rates were then increased by 62% to TRY 0.05 in August 2019. MNP is in effect in the country since 2018.
According to the requirements of Electronic Communications Law, prepaid lines were registered in 2015. On May 7, 2019, an amendment was made to the Electronic Communications Law, making signed contracts obligatory for prepaid subscribers.
At the end of 2016, for the first time in the communication industry, Turkcell launched its digital brand Lifecell in the Turkish Republic of Northern Cyprus, offering services only through internet-based digital services. In the fourth quarter of 2017, Lifecell Digital Ltd. (“Lifecell Digital”) was incorporated in order to operate as an Internet Service Provider company and offer converged telecom services. Lifecell Digital also acquired an infrastructure license in December 2018.
As of January 22, 2018 mobile number portability had come into effect in the Turkish Republic of Northern Cyprus.
The interoperability of mobile phones across the island officially began on July 11, 2019. This was a very important confidence building measure and marked a historic moment for the island. Turkish Cypriots and Greek Cypriots, travelling to both sides of Cyprus, had been losing their connection prior to the implementation of this measure.
Turkcell Europe GmbH
Turkcell Europe GmbH (“Turkcell Europe”) was founded by Turkcell in 2010 as an MVNO providing service over the T-Mobile (Deutsche Telekom AG) network. Headquartered in Cologne, Germany, Turkcell Europe commenced activity in March 2011.
Until the end of 2014, Turkcell Europe continued its operation as an MVNO and offered Turkcell’s service quality across both Germany and Turkey. In order to increase the efficiency of our operations in Germany, we
made changes to the business model in 2014 from a “wholesale traffic purchase” agreement to a “marketing partnership”. The Marketing Partnership agreement between Turkcell Europe and Telekom Deutschland Multibrand GmbH, the subsidiary of Deutsche Telekom was signed on August 27, 2014, which involved the transfer of Turkcell Europe subscribers and operations to a Deutsche Telekom subsidiary as of January 15, 2015. Turkcell and Deutsche Telekom agreed to rebrand Turkcell Europe into the “lifecell” brand. This marketing partnership will end on April 30, 2020 pursuant to the respective agreement.
As of December 31, 2019, Turkcell Europe had 170 thousand registered subscribers. Turkcell Europe’s revenue contribution to the Turkcell Group amounted to TRY 2.2 million in 2019.
Turkcell Global Bilgi
On October 1, 1999, Turkcell Global Bilgi was established to provide telemarketing, telesales, and call center services, particularly for Turkcell Group. In 2005, Turkcell Global Bilgi completed its transition from call center to contact center as Turkcell Global Bilgi started to managemanages customer contacts at every channel. Since then, in addition to providing services to Turkcell, Turkcell Global Bilgi started offeringchannel and offers customer care services to more than 70 companies in banking, retail, e-commerce, insurance, energy, public sector and the airline industry. In 2016, Turkcell Global Bilgi announcedBy announcing its presence as a “CustomerCustomer Experience Center”. By completing its business model transition from customer care to customer experience,Center in 2016, Turkcell Global Bilgi started to analyze customer experiences deeper, gaining vast experience in the process. On August 4, 2017 Turkcell Global Bilgi obtained an R&D center certificate from the Ministry of Science, Technology and Industry. As of December 31, 2019,2020, with 19 locations across Turkey, Turkcell Global Bilgi had 13,840 employees, 57%16,322 employees. 61% of these employees serve Turkcell’sTurkcell's customers, and 36%33% serve the customers of other clients, whilethird parties, with the remainder worksremaining working as administrative personnel. Turkcell owns approximately 100% of Turkcell Global Bilgi.
Since 2008, Turkcell Global Bilgi owns a 100% stake in Global Bilgi LLC, which operates in Ukraine and provides telesales and call center services to lifecell and many other companies in the Ukrainian, Russian and English languages at six locations with 728848 employees.
Inteltek Internet Teknoloji Yatirim ve Danismanlik Ticaret A.S.
Inteltek Internet Teknoloji Yatirim ve Danismanlik Ticaret A.S. (“Inteltek”) offers information and entertainment services. Turkcell holds 55% of Inteltek through its wholly-owned subsidiary Turktell Bilisim Servisleri A.S. (“Turktell”), while Intralot S.A. Integrated Lottery System and Services, a Greek company, holds 20% and Intralot Iberia Holdings S.A., a Spanish company, holds 25%.
Inteltek entered into a contract on August 29, 2008 with Spor Toto Teskilat Baskanligi (“Spor Toto Directorate”) in order to operate a sports betting business for a ten-year period. In addition2020, we took measures relating to the foregoing, Inteltek signedCOVID-19 pandemic at a mobile betting dealer agreement with Spor Toto on January 12, 2010, which gives it the rightvery early stage and made a rapid company-wide transition to operate 1,000 mobile terminals. On August 29, 2018, Inteltek signed a new agreement with Spor Toto Directorate for up to one year, or until a new license is tendered.
On November 15, 2018, Inteltek agreed to sell its 51%-owned subsidiary Azerinteltek QSC (“Azerinteltek”) to Baltech Investment LLC (“Baltech”), a shareholder of Azerinteltek with a 24.5% shareholding. The transaction was completed on January 11, 2019 for a total consideration of EUR 19.5 million.
On November 27, 2018, Spor Toto Directorate held the Tender for Procurement of Fixed Odds and Pari-Mutuel Betting Based on Sports Competitions by Procurement of the Same By Legal Persons of Private Law (the “Spor Toto Tender”). However Inteltek was the sole bidder, and consequently the Spor Toto Tender was cancelled. On February 13, 2019, Spor Toto Directorate held the Super Toto Tender once again whereafter Inteltek was notified that the Spor Toto Tender had been awarded to the other bidder. Following a transition period of up to six months, Inteltek’s operations in sports betting ceased in August 2019.
The respective revenues comprised approximately 1% of our 2019 consolidated revenues.
Our Company’s subsidiaries Turktell, Turkcell Global Bilgi and Turkcell Satis signed a binding term sheet on January 14, 2020 to transfer their total shareholding of 55% in Inteltek, including all rights and liabilities, to the other shareholder of Inteltek, Intralot Iberia Holding SAU. The respective transaction is expected to be completed within the first half of 2020, once the final share sale and purchase agreement is signed and necessary legal approvals are obtained. The final value of the transaction will be determined based on the IFRS net book value of Inteltek and no material impact is expected on our financial statements.
Turkcell Superonline
Turkcell Superonline has a-fixed telephony services authorization, which allows the company to provide call origination and termination for consumers and corporations,remote-working as well as wholesale voice carrying services. It also has authorization to provide satellite communicationremote training, development and motivation practices. Following the implementation of this transition, our call center services infrastructure operating services, internet serviceshave continued uninterrupted and wired broadcasting services, and mobile virtual network operating services. Currently, the company carries the majoritywith no change in service quality.
Table of Turkcell’s traffic, previously carried by Turk Telekom (the incumbent operator).Contents
Turkcell Superonline
Turkcell Superonline was founded in 2009 through the merger of our subsidiary Tellcom with the Superonline business acquired from the Cukurova Group. We believe that Turkcell Superonline differentiates itself through its commitment to the quality of after-sale services. Turkcell Superonline supplies corporations with industry-leading service-level agreements utilizing its professional technical support personnel and highly qualified team of consultants.
Established Turkcell Superonline has a fixed telephony services authorization, which enables it to provide call origination and termination for consumers and corporations, as an innovative telecom service operator,well as wholesale voice carrying services. It is also authorized to provide satellite communication services, infrastructure operating services, internet services and with its extensive international connectivity,wired broadcasting services, as well as mobile virtual network operating services. The company carries the majority of Turkcell's traffic.
Turkcell Superonline offers its internationallocal and nationalforeign clients wholesale voice termination, international leased data lines, internet access, telehouse and infrastructure services. Furthermore, Turkcell Superonline is active in the retail fixed broadband market, bringing fiber optics to residences. Turkcell Superonline provides fast communication technology with its own fiber optic infrastructure in Turkey and provides telecommunication solutions to individuals and corporations in the areas of voice, data and TV.
Turkcell Superonline is a telecom operator providing fixed network communication solutions to telecom operators, corporations and households in the areas of data, voice and video. Bringing one of the world’s fastest internet services to Turkey through cooperation with major international operators, we continue to invest in order to transform the “Silk Road” into a “Fiber Road” by expanding our own infrastructure across Turkey with a fiber network stretching to every corner of the country. We believe that the group synergy arising from being a 100% subsidiary of Turkcell Group, along with our top quality services and our goals stated above sets Turkcell Superonline as a worthy candidate to become the most preferred service provider of choice.
We believe that Turkcell Superonline differentiates itself through its commitment to the quality of after-sale services. Turkcell Superonline supplies corporations with industry-leading service-level agreements utilizing its professional technical support personnel and highly qualified team of consultants.
Turkcell Superonline won the tenders of BOTAS, Turkey’sTurkey's state-owned pipeline company, and TEIAS, Turkey’sTurkey's state-owned electric power transmission company, for the indefeasible right to use the capacity of the fiber optic cables already installed by BOTAS for 15 years in 2009 and TEIAS for 15 years in 2017, including the right to install additional fiber optic cables and to use the capacity of these fiber optic cables during the same period. These transactions have beenare considered both as a finance leaseleases as the lease term is for the major part of the remaining useful life of the fiber optic cables already installed by BOTAS, and Turkcell Superonline made a significant investment during the initial period of the lease agreement which is an indicator that the transaction is a finance lease. The recognized cost of the indefeasible right of use as of December 31, 20192020 is TRY 118160 million.
Turkcell Superonline began to provide 1000 Mbps service to homes in May 2011 for the first time in Turkey in line with Turkcell Group’sGroup's strategy of providing state-of-the-art technology for its customers with top-quality service. Turkcell Superonline has rendered Turkey as one of the first five countries in the world where a 1000 Mbps connection is provided to homes thanks to this service option. As of Februaryhomes. Since 2018, Turkcell Superonline started to offeroffers 10 Gbps connections on a demand basis.
On January 31, 2014, Turkcell Superonline signed a share purchase agreement to acquire a 100% stake in Metronet Iletisim Teknoloji A.S. (“Metronet”). In April 2014, the control over Metronet was acquired from Es Mali Yatirim ve Danismanlik A.S. for a consideration of TRY 27 million. Turkcell Superonline and Metronet merged on July 4, 2014. With this acquisition, Turkcell Superonline’s fiber in-city coverage increased to 14 cities, up from 12 at the time.
Turkcell Superonline merged with Turkcell Interaktif Dijital Platform Icerik Hizmetleri A.S. on December 28, 2016 (“Turkcell Interaktif”). Following the merger, Turkcell Interaktif was deregistered from Istanbul Trade Registry.
As of December 31, 2019,2020, Turkcell Superonline has 46,03550 thousand km of fiber backbone covering 81 major cities in Turkey and has 811 border crossings. Turkcell Superonline hasThe company offers fiber in-city coverage in 2123 cities and increased its homepasses to around 3.63.8 million as of December 31, 20192020 from around 3.43.6 million a year ago.in the previous year. Including partnership engagements, we are capable of covering 6.77.0 million households in 2830 cities. We have five border crossings to Europe, offering various diversity options to important European cities through protected and completely diverse routes. With our stable fiber infrastructure and six border crossings to the East, we offer
capacity services through Middle-East,Middle East, CIS and Asia. Our next generation network designed over this strong infrastructure enables us to deliver high quality solutions to telecom operators, multinational and national private corporations and governmental institutions.
Turkcell Superonline is building and putting into motion itspursues a domestic wholesale business strategy as well providing wholesale products such as bit stream access via its FTTx fiber coverage, infrastructure services, backbone transmission, Ethernet, IP transit capacities, cyber security and VPN services to operators, service providers and datacenter companies in the Turkish domestic market.
Turkcell Superonline is leading the localization strategy for Turkey’sTurkey's data and internet traffic by developing partnerships with internet exchange platforms, Tier-1 operators, global/local content and
cloud service providers to enable direct access to all networks, and also commercializing internet traffic. Turkcell Superonline aims to continue to invest in and expand its own fiber optic network and further utilize the group synergy created with Turkcell.
On December 18, 2017,February 1, 2019, the Turkcell Board of Directors approved the issuance of management agreement baseda resolution to issue lease certificates (wakala sukuk) in accordance with capital markets legislation by Turkcell Superonline through an asset leasing company in the domestic market, for an amount of up to TRY 300500 million, up to 12-month tenor, on various dates and at various amounts without public offering, as private placement and/or to be sold to institutional investors. On January 19, 2018, applicationThe CMB approval was obtained on May 16, 2019 for the approval of the issue programme for lease certificates was made to the Capital Markets Board, with approval being obtained on March 1, 2018.programme. The first issue of TRY 12575 million with a 6-month116-day tenor and 23.7% interest rate was made in March 22, 2018 and matured on September 13, 2018.June 14, 2019. It was followed by the second issue of TRY 75150 million on December 13, 2018October 8, 2019 with 103-daya 119-day tenor and the14.0% interest rate. The third issue of TRY 100175 million was made on February 13, 20194, 2020 with 121-day140-day tenor which concluded the issue programme under CMB approval.and 9.6% interest rate. On February 1, 2019,March 24, 2020, the Turkcell Board of Directors approved a new resolution to allow Turkcell Superonline to issue lease certificates for an amount of up to TRY 500600 million under the same conditions above. Three issuancesconditions. The CMB approval was obtained on June 4, 2020. The first issue of TRY 400100 million in total wereunder this programme was made out from this resolution,on June 23, 2020 with 148-day tenor and 8.1% interest rate. It was followed by the outstanding (lease certificate) amount issecond issue of TRY 17550 million as aton November 18, 2020, with 125-day tenor and 14.95% interest rate, which will mature on March 20, 2020. On March 24,23, 2021.
In 2020, the Turkcell Board of Directors approved the issuance of lease certificates by Turkcell Superonline through an asset leasing company based in Turkey. The issuance in the amount of up to TRY 600 million must be made in Turkish Lira terms with maturities of up to 12 months, and be offered in the domestic market, in one or more tranches, through private placements and/or sales to institutional investors without a public offering.
JCR Eurasia Rating has evaluated Turkcell Superonline in an investment-level category on the national and international scales and assigned the ratings on the Long-Term National Scale as ‘AA'AA (Trk)’' and the Short-Term National Scale as ‘A-1+'A-1+ (Trk)’' with ‘Stable’ outlooks on May 17, 2019.'Stable' outlooks.
Global Tower
Global Tower was established in 2006 as a 100%wholly owned subsidiary of Turkcell and commenced its operations in 2007 to provide infrastructure management by leasing places on towers to private and public entities and institutions. It is the first and only tower company in Turkey and fifth largest tower company in Europe.Turkey. In addition to Turkey, it has operations in Ukraine, Belarus and the Turkish Republic of Northern Cyprus. Today, it serves not only mobile network operators but also broadcasting, ISPS,ISPs, energy, public institutions and other related industries. Its 100%-owned subsidiary in Ukraine, UkrTower, was founded in 2009 and its 100%-owned subsidiary in Belarus, Beltower LLC (“Beltower”("Beltower"), was founded in 2016. Beltower has a right of use agreement signed with Belarusian Telecom.
Global Tower operates a unique portfolio of 10,72610,913 towers, 8,6368,789 of which are located in Turkey. Global Tower owns 1,1411,175 towers in Ukraine and operates 834 towers in Belarus, as well as 115 towers in the Turkish Republic of Northern Cyprus with right of use, through agreements with the tower owners to sublease them to third parties thoughthrough revenue share agreements. Global Tower also provides service over 150155 mobile towers. Global Tower provides fast and high-quality service to its customers in collaboration with its business partners.
In Turkey, Global Tower manages the processes of renting, maintaining and installing towers in 15 structured regions with its 4 solution partnerships and 3 installation subcontractors. With this structure, the distance between any two service points in Turkey is less than 90 km.
Global Tower helps customers expand their network, enables peer-to-peer telecommunications and provides broadcasting field infrastructure solutions, turnkey setup services and professional operation-maintenance services. With its project management, field rental, construction works, telecommunications equipment setup and ready-for use field delivery solutions, it helps private and public institutions reach more customers.
Global Tower’sTower's wide service range consists of:
Sharedof shared infrastructure services in tower/rooftop/in house fields,
TV-Radio TV-radio infrastructure solutions,
E2E and wind power infrastructure solutions,
M2M / Scada / Telemetry Infrastructure Solutions
GSM-R Solutions
Mini Data Centre Infrastructure Solutions
Mobile Tower Solutions
Acclimatized System Room Solutions
Energy M2M/scada/telemetry infrastructure solutions,
GSM-R solutions, mini data centre infrastructure solutions,
Hybrid Systems Solutions (Solar / Wind)Table of Contents
Infrastructure Maintenancemobile tower solutions, acclimatized system room solutions, energy infrastructure solutions, hybrid systems solutions (solar/wind), infrastructure maintenance and Operation Services
Field Acquisitionoperation services, field acquisition and Contract Management Services
Satellitecontract management services and satellite telecommunication solutions & services.
Global Tower has obtained a satellite service license from the ICTA and initiated its satellite services
The Turkcell Board of Directors decided where point-to-point or point to initiate an initial public offering (“IPO”) of Global Tower’s shares in June 2016. However, due to adverse macroeconomic conditions in the markets, the IPO has been postponed.multipoint seamless and telco-grade data communication is needed. We are evaluating the IPO optionalready operating 2+2 HUB location services to provide closed satellite network solutions to our mobile network infrastructure and serving several corporate customers and public institutions data communication via our VSAT and SCPC satellite products. Our experienced satellite operations center and field operations & maintenance teams provide 24/7 services for the coming periods if and when financial market conditions become favorable.more than two thousand VSAT terminals.
On March 24, 2020, the Turkcell Board of Directors approved the issuance of lease certificates by Global Tower through an asset leasing company based in Turkey. The issuance of up to TRY 300 million must be made in Turkish Lira terms, with maturities up to 12 months, and be offered in the domestic market in one or more tranches as private placement and/or sold to institutional investors with no public offering. No transaction was done in 2020.
Under the capital reduction resolution taken by the Board of Directors in September 21, 2020 and with its general assembly decision, Global Tower's capital was reduced by TRY 100.0 million to TRY 245.3 million.
Global Tower is among the businesses within Turkcell Group that we may consider a strategic action for further value creation.
Turkcell Teknoloji Arastirma ve Gelistirme A.S.
Turkcell Teknoloji Arastirma ve Gelistirme A.S (“("Turkcell Teknoloji”Teknoloji"), a wholly-owned subsidiary of Turkcell, commenced operations in 2007 in the TUBITAK Marmara Research Center Technological Free Zone in Kocaeli, Turkey. In 2015, Turkcell Teknoloji consolidated its operations at Kucukyali Technology Plaza Maltepe, Istanbul, Turkey.in Istanbul.
Turkcell Teknoloji’sTeknoloji's R&D center employs over 900a thousand researchers accredited by the Ministry of Science, TechnologyIndustry and Industry.Technology. Turkcell Teknoloji’sTeknoloji's established team of experts develops a wide range of convenient and reliable solutions with innovative roadmaps. Through integrated intelligence and high-performance core capabilities, (Data Analytics(data analytics and Artificial Intelligence,artificial intelligence, Blockchain, Network Technologies, IoT, VR/AR), Turkcell Teknoloji’sTeknoloji's comprehensive portfolio addresses the following domains: mobile communication solutions, smart cloud platform and platform developed solutions, location based services and platforms, roaming solutions, geographic information systems, network management solutions, 5G infrastructure projects, customer relationship management and solutions, next generation value added services, music and entertainment services, IPTV services, mobile marketing solutions, mobile financial systems, campaign management systems, IoT, AR / VR, big data processing, business intelligence applications, smart SIM card solutions, digital identity technologies, image video processing, text analysis, , suggestion engines, voice analytics, robot assistants, robotics process automation, mobile analytical platform, artificial intelligence in health, learning and education applications solutions, E-Maile-mail and search engine solutions, digital broadcasting solutions, CDN (Content Delivery Network) Solutions, Over-the-Top (OTT)OTT and block chain solutions.
In line with Turkcell’sTurkcell's strategy of expanding digital services and solutions and ICT services in Turkey and in international markets, Turkcell Technology aims to develop new digital and ICT services worldwide according to the latest technology and market requirements,requirements.
Turkcell Teknoloji closely monitors advancements in technology and produces artificial intelligence solutions developed in-house. These solutions can be gathered under the headings of image processing, sound analytics, natural language processing, and suggestion engines. Authentication, fake identification,
facial recognition, emotion recognition from facial expressions, speech to expandtext (and vice-versa), recommendation engines, chatbot, sentiment analysis, summary extraction/topic determination from text, auto-correct services for text are some of the regionsservices built by Turkcell through artificial intelligence techniques. These services are integrated with Turkcell products. We have the ability to target our customers with the best offer at the right time from the right channel via AI driven real time-marketing automation solutions. By doing so, we are able to structure real-time & personalized offers with the contribution of customer behavior tracking.
Turkcell Teknoloji has completed two major projects based on Blockchain Technology and is exploring new usecases with a dedicated team to adapt this technology transformation for Turkcell. Blockchain based credit score sharing platform has been a joint effort with the other mobile telecom operators in which Turkcell Group provides services.
With the goal of becoming Turkey’sTurkey's leading R&D and innovation base, Turkcell Teknoloji demonstrates the value it attaches to innovation with its increasing number of patents each year. In 2019,2020, the Turkcell Teknoloji R&D Center submitted over 511557 new national and 2024 international patent applications. As of December 31, 2019,2020, Turkcell Teknoloji has 2,1172,674 national and 148167 international patent applications and 521over 700 granted patents.
Turkcell Teknoloji cooperates with a wide network of national and international R&D companies, universities and research centers and plays an active role in international R&D programs. Hence, Turkcell Teknoloji is an active participantaims to enlarge entrepreneurial ecosystem and technoparks vision and, in European collaborative research programs.addition to this, engages in collaborations with universities from all over Turkey and supports academic studies focussed on artificial intelligence, 5G, blockchain and AR/VR.
Turkcell Teknoloji is an ICT company that sits onat the boardsboard of the Information Technology for European Advancement (“ITEA”) and CELTICtwo different clusters of the Eureka program, a leadingone of the pre-eminent programs across Europe providing an open network platform for international cooperation in innovation involving overmore than 40 countries. ITEAcountries, as a decision and strategy player shaping the future of technologic and innovative projects in ICT and telecoms domains. The two leading clusters of the Eureka program are ITEA3 and Celtic Next. ITEA3 is a transnational and industry-driven Research, Development and Innovation programmeprogram in software innovation in the ICT, domain. On the other hand, the CELTIC programme whichwhile Celtic Next is the ICT Clustercluster focusing on Next Generation Telecommunications for the Digital Society, strengthensstrengthening the competitiveness of the European industry by fostering European R&D cooperation in telecommunications and the well-being of society by stimulating innovative information and telecommunication services. Besides supporting the establishmentEstablishment and progress of the European research vision and agenda is supported by Turkcell Teknoloji alsoby having core activities in these arenas. In addition to these strategic activities, Turkcell Teknoloji has a long history of developing research projects associated withwithin these programmes,clusters, participating to the projects as an international consortia coordinator, national consortium leader or as a project leader, national leader or project partner.partner according to the strategic decisions within the company. Turkcell Teknoloji works closely with its national and global partners to initiate new projects in the Eureka clusters and Horizon 2020 calls.calls with the mission of reaching technologic and innovative results that have commercial value and with a view to feeding the ecosystem and strengthening the partnership network. Horizon 2020 is a publicly funded by the European Commission program which is the biggest EU Research and Innovation programinitiative to promote discoveries and world firsts by taking greatworld's primary project ideas from lab to market.be transformed into real implementations that have influence and a positive impact in society, business and the economy. As of 2020, Turkcell Teknoloji has completed 15 Horizon project applications and has six ongoing projects. We seek to continue to increase the Horizon project applications and funded projects in the coming years.
Turkcell FinansmanTeknoloji's R&D and innovation strategies are human oriented. Supporting the academic development of researchers is also a part of this strategy. In this context, PhD and Master programs,
Turkcell Finansman (“Financell”), a wholly-owned subsidiarydesigned to improve the technical infrastructure of Turkcell, was establishedour researchers in October 2015line with the approval of the Banking Regulation and Supervision Agency (“BRSA”, the financial institutions regulator in Turkey) and launched nationwide in March 2016. It is the first consumer finance company in the Turkish telecommunications sectortechnical fields required by our industry, have been continuing since 2014. Additionally, Turkcell Teknoloji has carried out important efforts to be focused primarilyspread technology by publishing on meeting the financial needs of individuals and corporate customers, and provides financing solutions to existing or new Turkcell customers for their handset, tablet or accessory purchases. In September 2017, Financell established a branch in the Turkish Republic of Northern Cyprus and started handset financing operations. Due to growing cost and risks, the branch was closed in June 2019.
As of January 2020, smartphones and tablets with a retail price at or above TRY 3,500 can be offered with a maximum three-month installment plan, and those with a retail price of up to TRY 3,500 with a maximum 12-months installment plan.
With a prudent risk management approach, Financell mainly supports the smartphone sales of Turkcell and thus cooperates with a wide network of Turkcell points-of-sale across Turkey. Since 2017 Financell also offers insurance and bundled insurance products with consumer loans through a revenue sharing agreement with BNP Paribas Cardiff. This insurance product insured customers against unexpected circumstances that may occur, such as unemployment, death, disease, accidents and hospital stays.
Financell is funded by equity and borrowings from different sources. Even though the major funding source is bilateral loans from domesticnational and international lenders, Financell may also tap into the local debt capital markets for bond issues. In order to diversify its borrowing base, Financell also resorts to other funding alternatives such as asset-backed securities (“ABS”). From April 2017 to December 31, 2019, Financell executed six ABS issuances via Aktif Yatirim Bankasi A.S. (a domestic investment bank) at an amount totaling TRY 485 million. The first four ABS issuances and first two tranches of the fifth issuance and the first tranche of the sixth issuance totaling TRY 421 million have fully matured as at March 20, 2020. In addition, non-performing consumer loans amounting to TRY 184 million were sold to various asset management companies based in Turkey in 2019.platforms.
Financell had TRY 2.52 billion loans outstanding and TRY 3.0 billion of consumer loans had been granted as of year-end 2019. Cost of risk has increased to 3.20% in December 2019 from 1.97% in December 2018. The coverage ratio as of December 2019 was 72.4%. In 2019, Fitch Ratings assigned Financell ‘B+’ Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) and ‘AA-(tur)’ National Long-Term Rating.
In 2019, Financell added corporate entities to its existing individual customer portfolio. “Digital Transformation Finance” (DTF) which includes special-priced technological products, credit limits and interest
rates, is offered to SMEs and commercial enterprises, facilitating their ability to get the latest technology. DTF enables them to spread their payments over a time thanks to installment facilities and to benefit from flexible payment plans. Financell aims to support corporates with financial and insurance services throughout their digital transformation journey.
Turkcell Sigorta
In June 2018, the insurance agency Turkcell Sigorta was incorporated as a subsidiary of Financell in order to offer various insurance products. Turkcell Sigorta operates in the field of tech insurance and aims to use Turkcell’s know-how in digital technologies and introduce innovations that are necessarily conducive to the advent of new economic paradigms, new processes and new products. Turkcell Sigorta launched its first insurance product in December 2018.
Turkcell Sigorta provides a wide variety of insurance products, including health and life, non-life (property insurance, electronic devices, errors and omissions, EAR (Erection All Risks), CAR (Construction All Risks), cash in transit, cash in safe, machinery breakdown, employers’ liability, political violence, third person liability, fidelity, professional liability, directors and officers liability) compulsory earthquake policy, marine cargo, motor third party liability and auto insurance to Turkcell and its subsidiaries’ employees. In addition, Turkcell Sigorta provides insurance advisory and claim advisory services to Turkcell Group. Turkcell Sigorta also provides other insurance products with leading insurance companies like Zurich and BNP Paribas Cardiff, such as device protection, travel insurance, personal accident insurance and critical illness insurance for women. Turkcell Sigorta aims to expand its product portfolio to small & medium business segments as well as a retail client base by offering simplex products and ease-of-purchase.
Turkcell Ozel Finansman A.S.
Turkcell Ozel Finansman A.S. (“TOFAS”), a wholly-owned subsidiary of Turkcell, was incorporated on February 16, 2018 with the approval of the BRSA in order to provide financing solutions in accordance with Islamic financing principles for purchases of goods and services. The company is currently awaiting the completion of BRSA processes.
Turkcell Odeme
Turkcell Odeme became operational as of March 2015 to create a convenient payment solution for users and to offer them a streamlined shopping experience under the “Paycell” brand. Paycell is a payment services platform providing digital payments and core financial solutions.
In August 2016 Turkcell Odeme acquired a Payment Service Provider License from the BRSA to become the first mobile network operator subsidiary holding this license in Turkey. With its brand “Paycell”, Turkcell has expanded its merchant network and reached over 7,000 points of sale by implementing easy and secure payment methods to new areas such as mobile app stores, restaurant chains, parking lots, transportation services, physical goods and airport fast track services. Paycell makes life easier for customers by offering direct carrier billing, money transfer, payment services and wallet, plus cash top-up for the Turkcell prepaid line and the public transportation card IstanbulKart as well as Paycell card. Paycell also provide merchants a QR based payment alternative and mobile POS solutions.
After it was granted an electronic money payment license in July 2017, Paycell launched digital money, prepaid card and utility bill payments though Paycell application and various Turkcell shops as well as non-Turkcell affiliated shops. In December 2017 Paycell entered into a 5-year contract with Visa to issue prepaid cards. Throughout 2018, the business grew at an accelerating rate and added on the features of peer to peer money transfer, expanded merchant integrations and increasing penetration of Paycell prepaid cards. 2019 was a year of expansion for Paycell with regards to larger scale merchants with high number of physical stores; such as Sok Markets and Burger King restaurant chain in Turkey. In addition to increasing its offline presence, Paycell has also expanded its online presence with integrations such as n11.com, Turkey’s second largest online marketplace and Kamil Koc, Turkey’s largest scale coach travel firm.
Paycell took its first step toward globalization in October 2017 by launching direct carrier billing services in Turkish Republic of Northern Cyprus. In 2018, Paycell launched e-money and local currency transfer services in Ukraine, allowing Ukrainian customers to make digital payments.
As of December 31, 2019, Paycell had 4.5 million three-month active users (including direct billing service users) and the Paycell app was downloaded 5.0 million times. Paycell prepaid card reached 2.4 million and spending via Paycell prepaid cards in 2019 amounted to TRY 166.6 million. Paycell mobile payments active users reached 1.6 million. As of December 31, 2019, 4.4 million credit cards are registered at Paycell.
Paycell delivered TRY 252.2 million revenue in 2019 with 35% year on year growth, while its EBITDA reached TRY 160.4 million with a 63.6% margin.
Lifecell Ventures
Lifecell Ventures is a 100% subsidiary of Turkcell incorporated in the Netherlands.
In line with Turkcell Group’s strategic priority of monetizing its digital services, Lifecell Ventures is responsible for delivering our OTT services to the global markets and expanding Turkcell Group’s footprint by launching new offerings, accelerating the company’s owned OTT activities, growing current services and making strategic alliances with other operators. Lifecell Ventures uses technology to provide a digital experience to consumers worldwide and enable telecom operators to compete effectively by offering digital communications, entertainment, music, TV, transactional and e-commerce applications as well as cloud solutions on either a license or a white-label basis. Lifecell Ventures’ business model is based on charging implementancy, support, brand and license fees in return for provision of digital service technology and know-how to other operators. Lifecell Ventures has the ambition of contributing to taking telecoms to the “next level”, which is a more digital service focus, rather than being an infrastructure company.
Lifecell Ventures launched the first overseas digital solution partnership with BiP and lifebox services at Moldcell, the Eastern European operator with a revenue sharing model. The company expanded digital solution partnerships in 2019 with the launch of BiP and lifebox with the Albanian operator ALBtelecom, which operates in Albania with a population of three million. In February 2019, Lifecell Ventures signed a cooperation agreement with Digicel Group of the Caribbean. In January 2020, Digicel has launched lifebox, which is rebranded as Billo. In 2020, we aim to launch our digital services in 32 countries through alliances with other operators.
Turkcell Satis
Turkcell Satis (formerly known as Turkcell Satis ve Dagitim Hizmetleri A.S.) sells telecommunication and IT products through our flagship store and provides a wide variety of products via our websitewww.turkcell.com.tr. In 2016, Turkcell Satis started to sell equipment to other entities as corporate sales. In addition, since Turkcell Satis is experienced in the sector, it also acts as an intermediary between producer and distributors to support the determination of products, pricing, amount to be sold, sales support components and management of their inventory.
In January 2019, the company’scompany's legal name was changed to Turkcell Satis ve Dijital Is Servisleri A.S., (often referred to as Turkcell Digital Business Solutions)Services) and its area of operations have been expanded to cover end to end IT and technology related solutions and services for enterprises, including data center, cloud, security, digital transformation, system integration and IT managed services. In March 2021, Turkcell Dijital Is Servisleri A.S. established as a wholly owned subsidiary of Turkcell Superonline to ultimately carve out this enterprise business from Turkcell Satis in order to monitor this business' performance more coherently.
Turkcell Finansman
Turkcell Finansman ("Financell"), a wholly-owned subsidiary of Turkcell, was established in October 2015 with the approval of the Banking Regulation and Supervision Agency ("BRSA", the financial institutions regulator in Turkey) and launched nationwide in March 2016. It is the first finance company in the Turkish telecommunications sector to be focused primarily on meeting the financial needs of individuals and corporate customers, and provides financing solutions to existing or new Turkcell customers for their handset, tablet or accessory purchases. As at the end of 2020, Financell is the leading company in terms of number of customers among all customer finance companies.
In September 2017, Financell established a branch in the Turkish Republic of Northern Cyprus and started handset financing operations. Due to growing cost and risks, the branch was closed in June 2019 however collections from this operation still continue.
Since 2017, Financell also offers insurance and bundled insurance products with consumer loans through Turkcell Sigorta, through a revenue sharing agreement with BNP Paribas Cardiff. This insurance product insured customers against unexpected circumstances that may occur, such as unemployment, death, disease, accidents and hospital stay.
Since January 2020, smartphones and tablets with a retail price at or above TRY 3,500 can be offered with a maximum three-month installment plan, and those with a retail price of up to TRY 3,500 with a maximum 12-months installment plan. Such limitation has negatively impacted the number of contracts sold by Financell. In 2019, Financell included corporate entities to its existing individual customer portfolio which also aims to support Turkcell's corporate business. In 2020, Financell started providing financing solutions also to Turkcell Superonline customers.
Application and sales channels are extensive for individual customers to reach Financell loans. With a prudent risk management approach, Financell serves over Turkcell's approximately 3,400 stores (1,300 Turkcell's own store and approximately 2,100 digital sales points), Turkcell website, Turkcell Digital Operator application and the call centers of Turkcell and Financell.
During the COVID-19 pandemic, Financell has supported its customers by postponing loan installments due dates upon request.
Financell is funded by equity and borrowings from different sources. Even though the major funding source is bilateral loans from domestic and international lenders, Financell also tapped into the local debt capital markets for bond issues. In March 2021, Turkcell Finansman issued commercial paper with a nominal value of TRY 100 million. Additionally, in order to diversify its borrowing base, Financell also resorts to other funding alternatives such as asset-backed securities ("ABS"). From April 2017 to December 31, 2019, Financell executed six ABS issuances via Aktif Yatirim Bankasi A.S. (a domestic investment bank) at an amount totaling TRY 485 million. ABS issuances were fully matured on 23 September 2020. In addition, non-performing consumer loans amounting to TRY 71.8 million were sold to various asset management companies based in Turkey in 2020.
Financell had TRY 2.1 billion loans outstanding and TRY 3.5 billion of consumer loans had been granted as at the end of 2020 from TRY 2.5 billion loans outstanding and TRY 3.0 billion of consumer loans as at the end of 2019. Cost of risk has decreased to 2.4% in December 2020 from 3.2% in December 2019. The insurance coverage ratio as of December 2020 was 87.4%.
In April 2020, Fitch Ratings affirmed Financell's Foreign and Local Currency Long-Term Issuer Default Ratings (IDRs) at B+ and National Long-Term Rating as 'AA–(tur)' with a stable outlook and have subsequently withdrawn all the ratings for commercial purposes.
Turkcell Sigorta
In June 2018, the insurance agency Turkcell Sigorta was incorporated as a subsidiary of Financell in order to offer various insurance products. Turkcell Sigorta operates in the field of tech insurance and aims to use Turkcell's know-how in digital technologies and introduce innovations that are necessarily conducive to the advent of new economic paradigms, new processes and new products. Turkcell Sigorta launched its first insurance product in December 2018.
Turkcell Sigorta provides a wide variety of insurance products, including health and life, non-life (property insurance, electronic devices, errors and omissions, EAR (Erection All Risks), CAR (Construction All Risks), cash in transit, cash in safe, machinery breakdown, employers' liability, political violence, third person liability, fidelity, professional liability, directors and officers liability) compulsory earthquake policy, marine cargo, motor third party liability and auto insurance to Turkcell and its subsidiaries' employees. In addition, Turkcell Sigorta provides insurance advisory and claim advisory services to Turkcell Group. Turkcell Sigorta also provides other insurance products with leading insurance companies like Zurich and BNP Paribas Cardiff, such as device protection, travel insurance, personal accident insurance and critical illness insurance for women. Starting from early 2020, Turkcell Sigorta focused on establishing end-to-end digital insurance sales processes and a data-driven digital sales infrastructure. These efforts have resulted in enhanced call center outbound facilities, more efficient data analytics & usage as well as QR-based direct digital sales processes for various insurance products. These actions facilitated the creation of necessary digital channels to be utilised for expanding its retail product portfolio.
Turkcell Odeme
Turkcell Odeme became operational as of March 2015 presenting users with a convenient mobile payment solution and offering a streamlined experience under the "Paycell" brand. Paycell is a payment services platform providing digital payments and core financial solutions.
In August 2016 Turkcell Odeme acquired a Payment Service Provider License from the BRSA to become the first mobile network operator subsidiary in Turkey holding this license. With its brand "Paycell", Turkcell Odeme has expanded its merchant network by implementing easy and secure payment methods in new areas such as mobile app stores, restaurant chains, parking lots, transportation services, physical goods and airport fast track services. Paycell makes life easier for customers by offering direct carrier billing, money transfer, payment services and wallet, plus cash top-up for the
Turkcell Enerjiprepaid line and the public transportation card IstanbulKart as well as the Paycell debit card. Paycell also provides merchants a QR based payment alternative and mobile POS solutions.
Having received an electronic money payment license in July 2017, Paycell launched digital money, prepaid card and utility bill payments through the Paycell application and selected Turkcell stores as well as non-Turkcell affiliated stores. In December 2017 Paycell entered into a 5-year contract with Visa to issue debit cards. The business has continued its growth through the addition of new features including peer to peer money transfer, expanded merchant integrations and the rising penetration of Paycell prepaid cards.
Paycell continued its physical and online expansion in 2020 with the addition of new merchants to its merchant network and by adding new products to its existing partnerships such as with n11.com, one of Turkey's largest online marketplaces. In the context of the COVID-19 pandemic, Paycell has managed to boost end user adoption through its key offline partnerships such as Sok Market (a supermarket chain) and Burger King. Furthermore, Paycell has struck a partnership with Kahve Dunyasi (second largest coffee chain in Turkey) for QR payments, while also onboarding Turkcell's own store network to its QR payments system. In the meantime, Paycell has also capitalized on the growing e-commerce market. A partnership with Getir (Turkey's largest online grocery delivery company by scale) earned Paycell a fintech social responsibility award for enabling the elderly population (who were under strict government lockdown during pandemic) to order and pay via their mobile phones, thereby leveraging Paycell's direct-to-carrier billing service. As at 31 December 2020, Paycell was active at more than 12 thousand merchants mainly via its QR Payments.
2020 has reached a vital milestone on Paycell's expansion trajectory: Paycell became the first fintech to get approval from the governing body (in accordance with Turkish Tax Law 507) for its Android POS product, which in itself has significant potential to disrupt the conventional POS system by leveraging Android technology. This product provides merchants with greater functionality and customization capabilities, enabling SMEs and key merchants to use one single device for many business applications in addition to receiving fast and secure payments.
2020 was also a successful year in terms of consumer product and services launch. Paycell launched its 'Ready-to-use Limit' feature in July for those who are also Turkcell postpaid subscribers. Thanks to this feature added to the Paycell mobile app, users can utilize their monthly mobile payment limits, calculated to uniquely reflect theuser's credit worthiness, to top up their prepaid Paycell Card. They can also use their limits for online shopping, or else purchase physical goods via the Paycell QR merchant network. The amount spent is reflected on the user's Turkcell mobile phone bill on a monthly basis.
Throughout the year, Paycell realized over 180 campaign offerings. With intense marketing communications and social media reach in addition to the tailwind of the pandemic environment, active Paycell card usage and Paycell application download numbers ramped up in 2020.
Paycell took its first step toward globalization in October 2017 by launching direct carrier billing services in the Turkish Republic of Northern Cyprus. In 2018, Paycell launched e-money and local currency transfer services in Ukraine, allowing Ukrainian customers to make digital payments.
As of December 31, 2020, Paycell had 4.7 million three-month active users. The Paycell app had been downloaded 9.2 million times to date. The Paycell prepaid card reached 3.4 million users and spending via Paycell prepaid cards in 2020 amounted to TRY 335 million. Paycell mobile payments active users reached 2.2 million and with 7.9 million credit cards being registered at Paycell. The total transaction volume through Paycell reached TRY 9 billion.
Paycell generated TRY 285 million in revenue in 2020 marking 13% year on year growth, while its EBITDA reached TRY 147 million with a 52% margin.
Turkcell Enerji
Turkcell Enerji, a 100%-owned subsidiary of Turkcell, was established on February 20, 2017 with the vision of being a leader in the transformation of energy markets in Turkey through digitalized, decentralized and decarbonized solutions. Turkcell Enerji owns an electricity supply license, issued by the Energy Market Regulatory Board (EMRA), on May 11, 2017, for a period of 20 years. This enables the company to trade electricity and/or electrical capacity. Turkcell Enerji supplies electricity to eligible residential, commercial and industrial customers in Turkey. In 2019,2020, Turkcell Enerji has completed solar rooftop projects for renewable power generation at selected Turkcell Group buildings and data centers. The focus on renewable energy will continue with large-scale projects and investments.
Lifecell Ventures
Lifecell Ventures is a 100% subsidiary of Turkcell incorporated in the Netherlands.
In line with Turkcell Group's strategic priority of monetizing its digital services, Lifecell Ventures is responsible for delivering our digital services and solutions to the global markets and expanding Turkcell Group's footprint by launching new offerings, accelerating the company's owned OTT activities, growing current services and making strategic alliances with other operators. Lifecell Ventures uses technology to provide a digital experience to consumers worldwide and enable telecom operators to compete effectively by offering digital communications, entertainment, music, TV, transactional and e-commerce applications as well as real time action-based marketing solution. Lifecell Ventures' business model is based on charging for implementation, support, maintenance, revenue sharing and license fees for the provision of digital service technology and know-how to other operators with re-branding option. Lifecell Ventures has the ambition of contributing to taking telecoms to the "next level", which is a more digital service focus, rather than being an infrastructure company.
Lifecell Ventures launched the first international digital solution partnership with BiP and lifebox services at Moldcell, the Eastern European operator under a revenue sharing model. The company expanded digital solution partnerships in 2019 with the launch of BiP and lifebox with the Albanian operator ALBtelecom, which operates in Albania with a population of three million. In February 2019, Lifecell Ventures signed a cooperation agreement with Digicel Group of the Caribbean. In October 2020, Digicel Group launched the communication platform BiP, TV platform PlayGO (TV+), the personal cloud storage platform Billo (lifebox) and Fast Login in 32 countries, in partnership with Lifecell Ventures. Digicel is managing its own consumers' data while offering its subscribers market-leading action in real time through LCV's Real Time Action Marketing and Real Time Trend Monitoring tools.
Yaani Digital B.V.
Yaani Digital B.V. (formerly named NTENT Netherlands B.V., “Yaani Digital”) is a wholly-owned subsidiary of Lifecell Ventures and is incorporated in the Netherlands. It was acquired by Lifecell Ventures from NTENT, Inc, an American company, on May 14, 2019. The perpetual license and usage rights associated with the source codes of the Yaani search engine rest with Yaani Digital.
BiP Digital Communication Technologies B.V.
BiP Digital Communication Technologies B.V. ("BiP Digital")—whose commercial title was Lifecell Digital Communication Technologies B.V. prior to December 4, 2020—has been incorporated in Amsterdam, the Netherlands on September 7, 2020. BiP Digital is wholly owned by Turkcell's subsidiary Lifecell Ventures. Under its status as a financial holding, the main purpose of the company is to incorporate, in any manner to participate in, to manage and to supervise businesses and companies and
to give advice and to provide services to businesses and companies with which the company is affiliated in a group and to third parties.
Bip Iletisim Teknolojileri ve Dijital Servisler A.S.
Bip Iletisim Teknolojileri ve Dijial Servisler A.S. ("Bip Iletisim") is a wholly owned subsidiary of BiP Digital. The company has been originally incorporated on February 16, 2018 under the previous title as Turkcell Ozel Finansman A.S. and on July 24, 2020 amendments to articles of association and its commercial title have been registered under trade registry. The current title of Bip Iletisim has been registered on December 14, 2020. The main purpose of the company is providing communication solutions for users in terms of instant messaging, voice & video calling and also video conferencing via the applications on their internet-connected devices or web.
Lifecell Dijital Servisler ve Cozumler A.S.
Lifecell Dijital Servisler ve Cozumler A.S. ("Lifecell Dijital"), 100% directly owned by Turkcell's subsidiary Turktell Bilisim A.S., was incorporated on March 4, 2020. The main purpose of the company is computer programming activities by coding system, database, network software and coding of customer specific software.
Lifecell Bulut Cozumleri A.S.
Lifecell Bulut Cozumleri A.S. ("Lifecell Bulut"), wholly owned by Lifecell Dijital, was incorporated on April 22, 2020. Main purpose of the company is to be engaged in cloud technologies, data processing, hosting and related activities.
Lifecell Muzik Yayin ve Iletim A.S.
Lifecell Muzik Yayin ve Iletim A.S. ("Lifecell Muzik"), wholly owned by Lifecell Dijital, was incorporated on April 22, 2020. Main purpose of the company is to provide on-demand broadcasting music and video services/contents within the framework of the provisions of the Law No. 6112 on Radio and Television Establishment and Broadcasting Services.
Lifecell TV Yayin ve Icerik Hizmetleri A.S.
Lifecell TV Yayin ve Icerik Hizmetleri A.S. ("Lifecell TV"), wholly owned by Lifecell Dijital, was incorporated on April 22, 2020. Main purpose of the company is television programming, video on demand content and broadcasting activities.
Equity Accounted Investments
Turkiye’ninTurkiye'nin Otomobili Girisim Grubu Sanayi ve Ticaret A.S. ("TOGG")
On November 2, 2017, Turkcell signed the Joint Initiative Group Cooperation protocol and on May 31, 2018 a Shareholders Agreement was signed by Turkcell with the intention of participating as a potential contributor in “Turkey’s"Turkey's Automobile Project”Project". Under this protocol, the signing parties agreed to determine the framework of the activities to meet the requirements of the project for designing, developing and manufacturing ana range of electric carand connected cars and establishing a sales and distribution networkmobility ecosystem as well as establishing a local company to own the intellectual and industrial property rights of this car.rights. Accordingly, on June 25, 2018, Turkiye’nin OtomobiliTOGG was incorporated, in which Turkcell has participated as a founding partner with a 19% stake. AG Anadolu Grubu Holding A.S., BMC Otomotiv Sanayi ve Ticaret A.S., Kok Ulasim Tasimacilik A.S., Vestel Elektronik Sanayi ve Ticaret A.S. and Turkcell (through its wholly owned subsidiary Turkcell Gayrimenkul) have equal partnerships in TOGG each with a 19% shareholding; whereas Turkiye Odalar ve Borsalar Birligi holds 5%. The CEO of TOGG
was appointed on September 1, 2018. On December 27, 2019, TOGG introducedshowcased its C-SUV model and sedan electrical vehicle prototypes,an example of its C-Sedan model, which are currently being developed and scheduled for productionthe first models in 2022. The paid-in capitalthe product portfolio. On July 2020, construction of the company stands at TRY 150 million asproduction facility was initiated in Gemlik, Bursa. Mass production ramp-up is expected to start by the end of December 31, 2019.2022. In October, TOGG signed a letter of intent with Farasis Energy (Ganzhou) Ltd. to develop energy storage solutions for Turkey and surrounding countries. Turkcell ishas committed to participating to fulfilla 19% of the total committed capital participation of €500 million over the following years.
Sofra
Sofra, in which Turkcell indirectly holds a 33.3% stake, was incorporated on July 24, 2018. Belbim Elektronik Para ve Odeme Hizmetleri A.S., a subsidiary of the Municipality of Istanbul, and Posta ve Telgraf Teskilati A.S., the Turkish postal services company, act as shareholders together with our subsidiary Turkcell Odeme. Sofra offers meal cards issued under the "PAYE Card" brand, enables personnel of customers to conveniently purchase food at member merchantsmerchants. PAYE Card is also accepted at public transportation payment in Istanbul. In 2020, PAYE Card has over 80 thousand cardholders with meal cards issued under the “PAYE Card” brand.around 17 thousand merchants. PAYE Card also offers transportation payment services provided by the Municipality of Istanbul. In 2019, Turkcell Group employees startedlaunched virtual card which enables consumers to use the PAYE Card. Sofra aims to enhance its customer and merchant network.pay with QR at stores.
Non-Consolidated Group Companies
Turkcell Foundation
Turkcell Foundation (“("Turkcell Vakfi”Vakfi", “Foundation”"Foundation") was founded by our Company on October 11, 2018.2018 in Turkey. The Foundation is a not-for-profit organization aimingthat intends to developreduce mainly the public burden of the state by contributing to projects and implement charitycharities that will meet the social, educational, health, technological, environment, cultural, and donation programs with respectmoral current and future needs of the Turkish society. The board of directors of the Foundation consists of five members, all of which have been appointed among the high-level executives of Turkcell.
Entities & Businesses Related to Previous Operations
Inteltek Internet Teknoloji Yatirim ve Danismanlik Ticaret A.S.
Inteltek Internet Teknoloji Yatirim ve Danismanlik Ticaret A.S. ("Inteltek") offers information and including, butentertainment services. On September 30, 2020, we completed the sale of our total 55% shareholding in Inteltek to Intralot Iberia Holding SAU, the other shareholder of Inteltek. The final value of the transaction was approximately TRY 6.1 million. We generated approximately TRY 1.6 million in profit from this transaction, which has been reflected in our 2020 third quarter financial statements. As at December 31, 2020, Inteltek is not limiteda subsidiary of Turkcell.
Turkcell Europe GmbH
Turkcell Europe GmbH ("Turkcell Europe") was founded by Turkcell in 2010 as an MVNO providing service over the T-Mobile (Deutsche Telekom AG) network. Headquartered in Cologne, Germany, Turkcell Europe commenced activity in March 2011.
Until the end of 2014, Turkcell Europe continued its operation as an MVNO and offered Turkcell's service quality across both Germany and Turkey. In order to technologyincrease the efficiency of our operations in Germany, we made changes to the business model in 2014 from a "wholesale traffic purchase" agreement to a "marketing partnership". The Marketing Partnership agreement between Turkcell Europe and education.Telekom Deutschland Multibrand GmbH, the subsidiary of Deutsche Telekom was signed on August 27, 2014, which involved the transfer of Turkcell Europe subscribers and operations to a Deutsche Telekom subsidiary as of January 15, 2015. The marketing partnership ended on April 30, 2020 pursuant to a termination protocol executed between the parties.
Turkcell Europe's revenue contribution to the Turkcell Group amounted to EUR 100 thousand in 2020 where, post-termination, the revenue generation ended.
X. Potential Investments
Our efforts to selectively seek and evaluate new investment opportunities continue. Our strategy for growth involves selectively seeking and evaluating new investment opportunities and participating in those meeting our criteria. We may pursue inorganic growth opportunities both in Turkey and in countries where we are already present with a controlling stake in order to leverage our experience and technological base. We may also pursue opportunities which include alliances, such as MVNOs, management service agreements and marketing partnerships, and that may be in the area of mobile or fixed telecommunications and services.
We may also evaluate network sharing opportunities and participate in joint infrastructure companies within Turkey.
We will evaluate the opportunities of marketing the portfolio of our digital services in international markets to increase the users and our revenues from these services.
XI. Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”("ITRA")
Based on our information and the information provided to us by our affiliates, as of the date of this annual report, we believe that certain of our business activities in 20192020 and in 2020,2021, and the business activities of certain of our affiliates, are subject to disclosure pursuant to Section 219 of ITRA.
During the year ended December 31, 2019,2020, Turkcell had international roaming relationships with the following companies in Iran and Syria: TCI Mobile Company of Iran, MTN Irancell, Taliya Iran,
Telecommunication Kish Co., Rightel, Syriatel and MTN Syria. Turkcell had gross revenues of approximately EUR 0.8TRY 1.5 million and net profits of approximately EUR 0.5TRY 0.3 million attributable to these agreements during the year ended December 31, 2019.2020.
During the year ended December 31, 2019,2020, lifecell had international roaming relationships with the following companies in Iran and Syria: MTN Irancell, Rightel, Syriatel and MTN Syria. lifecell had gross revenues of approximately EUR 0.9309.2 thousand and no net profits attributable to these agreements during the year ended December 31, 2019.2020.
Turkcell has developed several digital services likesuch as BiP, Dergilik, fizy, lifebox, TV+ etc. which are available for download online free of charge and have been downloaded from within Iran. The Company believes that these downloads from within Iran have generated no revenue or profits. For details regarding the risks we face with regard to our business in Iran, please refer to “Item"Item 3.D—Risk Factors—Any instability in the political environment and/or downturn in the economy, as well as volatile international markets , in particular as a result of the ongoing COVID-19 global outbreak, in Turkey and/or internationally may have an adverse effect on our business and financial condition.”"
Turkcell has voice interconnection agreements with Tadbir Ertebatat-E-Sigma (Sigma llc) of Iran. During the year ended December 31, 2019, gross revenues attributable to these agreements were approximately EUR 5.8 million, and net losses were approximately EUR 0.9 million.
Turkcell Superonline provided transit IP and leased line services through network interface agreements with Telecom Infrastructure Company of Iran (“TIC”("TIC"). During the year ended December 31, 2019,2020, gross revenues attributable to these agreements were approximately EUR 4.7TRY 26.0 million, and net profits were approximately EUR 1.4TRY 8.0 million. Furthermore, Turkcell Superonline has a business relationship with Teleka Maedeh Co. (Telecom Idea) based in Iran, which acts as its solution partner and agent. No revenue or net profits areDuring the year ended December 31, 2020, gross revenues attributable to this business relationship for the year 2019.these agreements were approximately TRY 0.9 million, and net losses were approximately TRY 1.2 million. Costs attributable to the services provided by Teleka Maedeh Co. were approximately EUR 70.0254.0 thousand for the year 2019,2020, and all payments were made to QBIC ELECTRONICS TRADING LLC (a company based in the United Arab Emirates), an authorized intermediary. Turkcell
Superonline also has data interconnection business in Syria through a consortium with Syria Telecom for which revenue and net profit or losses are currently not known to the Company.
We have made enquiries of our major shareholders regarding activities in Iran and Syria. Telia Carrier, ABone of Swedenour major shareholders until October 2020 (see item 7. Major Shareholders and Related Party Transactions for further details) has indicated that it is no longer direct interconnected with the Telecommunications Infrastructure Company of Iran via an interconnection point outside of Iran. During the year ended December 31, 2019, gross revenues and net profits attributable to this business relationship were EUR 31.0 thousand and EUR 25.0 thousand, respectively. Telia Carrier AB of Sweden also receives international telephony traffic from theany Iranian or Syrian Telecommunications Establishment via an interconnection point outside of Syria. During the year ended December 31, 2019, gross revenues and net profits attributable to this business relationship were EUR 98.0 thousand and EUR 13.0 thousand, respectively.company. Furthermore, we have been informed that Telia Sweden, Telia Norway, Telia Latvia, Telia Lithuania, Telia Finland, Telia Estonia and Telia Denmark had bilateral roaming relationships with MTN Syria and with MCI Iran for(only voice and SMS (noroaming, no data) roaming services.during 2020. For the year ended December 31, 2019,2020, we have been informed that total inbound costs werecost was EUR 3.71.7 thousand and total outbound costscost were EUR 107.1 thousand, although the corresponding41.1 thousand. No payments or receivables have not been made by Telia Carrier for the accumulated traffic related to Iran.
Furthermore, one of our major shareholders TWF has indicated that, although they do not have a business relationship or received.investments in Iran or Syria, and as publicly reported, as per the terms of the natural gas sale and purchase agreement from 1996 between the Republic of Turkey and Iran, Boru Hatlari ile Petrol Tasima AS, a wholly-owned entity of TWF, has been importing natural gas from Iran to the Republic of Turkey since December 10, 2001 following the completion of the pipeline connection between the two countries. TWF has also indicated that T.C. Ziraat Bankasi AS ("Ziraat Bankasi"), a wholly-owned entity of TWF, has a representation office in Tehran, Iran, which does not have any commercial or banking activity and Ziraat Bankasi does not have any intention to change or extend current activities carried out by this office. TWF has also indicated that this is publicly disclosed information.
Although it is difficult to do with a reasonable degree of certainty, we have concluded that our Iranian business partners described in this section may be owned or controlled indirectly by the Government of Iran. However, to our knowledge, none of the services provided by Turkcell and our affiliates in Iran described in this section have been used by the Government of Iran to commit serious human rights abuses against the people of Iran. Furthermore, we understand that the U.S. Department of the Treasury’sTreasury's Office of Foreign Assets Control has issued a general license authorizing U.S. persons to engage in certain of the activities described in this section. We and our affiliates intend to continue the activities described in this section in 2020.2021.
XII. Regulation of the Turkish Telecommunications Industry
a.Overview
All telecommunications activity in Turkey is regulated by the ICTA. The Electronic Communications Law No. 5809 (the “Electronic"Electronic Communications Law”Law"), which came into force on November 10, 2008, is the principal law governing telecommunications activity in Turkey. The Electronic Communications Law was published to correspondrespond to the rapidly-evolving Turkish telecommunications industry, and all secondary regulations have been updated to be in accordance with this law. The duties of the ICTA, which may be exercised in a manner that is adverse to our operations and our financial results, include those described below.
b.ICTA
The ICTA has the authority to grant licenses and set fees in the electronic telecommunications industry.
According to Article 8 of the Electronic Communications Law, electronic communications services are rendered and/or established (as in the case of an electronic communications network or infrastructure) and operated following ICTA authorization. Authorization is granted either through notification made in accordance with the principles and procedures determined by the ICTA, in cases
where scarce resource allocation is not necessary, or by the granting of usage rights, in cases where scarce resource allocation is necessary (allocation of frequency, satellite position, etc.). Under the Electronic Communications Law, usage rights may be granted for up to 25 years; however, there is no clause relating to the term of notification. According to the Electronic Communications Law, the principles and procedures relating to the notification and granting of usage rights is determined by the ICTA through secondary regulations.
According to the Electronic Communications Law, usage rights can only be restricted where the resources are required to be operated by a limited number of operators and for the purpose of ensuring the effective and efficient use of the scarce resources. In cases where the quantity of rights of use is limited, Article 9-6(a) of the Electronic Communications Law allows the Ministry of Transport and Infrastructure to determine the criteria, such as (i) the authorization policy regarding electronic communications services which cover the assignment of satellite position and frequency band on a national scale and which need to be operated by a limited number of operators, (ii) the starting date of the service, (iii) the duration of the authorization and the number of operators to serve. While the criteria are determined by the Ministry of Transport and Infrastructure, the authorization is still granted by the ICTA.
The Electronic Communications Law establishes legal principles and broad policy lines that the ICTA must follow, some of which are stated below:
The Electronic Communications Law also specifies general rules and principles relating to interconnection between operators. Agreements for interconnection are publicly available, but precautions are taken by the ICTA to protect the commercial secrets of the parties.
The Universal Service Laws, Law No. 5369, determines the procedures and principles governing the provision and execution of universal service and the procedures and the rules relating to the fulfillment of universal services in the electronic communications sector. In accordance with Law No. 5369, the scope of universal services is determined and periodically reviewed, with the review period not exceeding every three years, and can be re-determined by the President of Republic of Turkey.
The legislation designates the following as universal services: fixed-line telephony services, public pay telephones, telephone directory services to be provided in printed or electronic environments, emergency call services, internet services, passenger services to residential areas where access is solely provided by sea and sea communication and sailing safety communication services.
This law mandates that designated operators must provide universal services, and the General Directorate of Communication can demand that operators provide universal services on a national and/
or geographical basis. Turk Telekom and the GSM operators are currently designated as universal services providers.
The Council of Ministers Decision No. 2011/1880, which was published in the Official Gazette numbered 27984 and dated July 4, 2011 allowed the use of the universal service fund to extend the mobile GSM network
coverage listed in the annex of the decision to uncovered areas with a population of 500 or below. On February 13, 2013, we were appointed as universal service provider after a tender process and the related contract was signed on February 20, 2013. Under the aforementioned contract, Turkcell duly carried out its undertakings for installing sufficient infrastructure to cover 1,799 rural locations and the investment and operating expenses are compensated by the universal service fund of the Ministry of Transport and Infrastructure. This contract was renewed until December 31, 2019,2020, and the extension contained new requirements to provide mobile broadband services and to operate the new and existing networks together. Recently, theThe Ministry of Transport and Infrastructure has approved the extension of the contract under the same conditions through June 30, 2020.2021. The Ministry of Transport and Infrastructure is also preparing a new auctiontender for the operation of the Universal Service beyond June 30, 2020.in 2021.
The Electronic Communications Law also specifies general rules and principles relating to tariffs. Pursuant to the Electronic Communications Law, operators may freely determine the tariffs they apply in compliance with the relevant legislation and the ICTA arrangements. In the event of determination of the significant market power of the operator, the ICTA may determine the method of the approval, tracking and auditing of the tariffs. It may also determine the lower and upper limit of the tariffs and principles and procedures of the application of the same.
The Electronic Communications Law provides basic guidelines for the tariffs and pricing and thus leaves the detailed rules and enforcement to the ICTA. According to the law:
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According to this regulation, the ICTA may intervene in the structure of our tariffs or may impose certain criteria relating to the revision of our tariffs. In the Mobile Call Termination Market, all three operators are designated as having “Significant"Significant Market Power” (“SMP”Power" ("SMP"). Accordingly, the mobile termination rates of all operators are being regulated by the ICTA.
In the Mobile Access and Call Origination Market only Turkcell was designated as having SMP. As of January 1, 2020, the Mobile Access and Call Origination Market has been deregulated and Turkcell’sTurkcell's SMP designation was removed. For additional details and further steps regarding Turkcell's SMP designation, see "Risk Factors" section.
In addition to the duties and authorities stated above, the Law Regarding the Establishment of ICTA No. 2813 has been amended and the ICTA has been given the authority to apply a conciliation procedure for the receivables including administrative sanctions (except for the receivables that are intermediated for collection and the penalty requirement for the treasury share) and the debts of the ICTA. According to this provision, it is possible to settle on a part of the disputed amount and to waive the primary or secondary claims and the settled matters cannot be made the subject of a lawsuit or a complaint.
Telegraph and Telephone Law numbered 406 has also been amended such that in the event that the treasury share is not paid in full in the given period, the ICTA has the right tomay impose a penalty in the amount of one full amount of the incomplete or unpaid treasury share.
In 2019, the ICTA finalized "The Wholesale Central and Local Market Analysis". By its Board decision dated December 31, 2019, the ICTA decided to designate solely Turk Telekom as an SMP for both markets. Access to fiber products, VULA (Virtual Unbundling of Local Access) access, margin squeeze obligations are also imposed on Turk Telekom in addition to its current obligations.
In 2020, as per the amendments to Article 49 and 50 of the Electronic Communication Law, subscription agreements are allowed to be concluded either in writing or electronically through methods determined by the ICTA which enable the identity verification process of subscribers. Within this scope, on December 8, 2020, the ICTA published the Draft Regulation on the Identity Verification Process of the Applicant in the Electronic Communication Sector for public opinion. The aim of the Draft Regulation is to regulate the procedures and principles regarding to verify the identity of the applicants' transactions that will be processed electronically. Such regulation is expected to be published in the official gazette in 2021.
c.Regulation on Quality of Service in the Electronic Communications Sector
The Regulation on Quality of Service in the Electronic Communications Sector, effective since December 31, 2011 is applicable to all operators that provide service to end users and sets out the procedures and principles to control the conformity of the services of operators. Mobile telephone operators are required to meet new service quality requirements and submit a report based on these requirements every three months to the ICTA. Additional requirements for service quality must be fulfilled. If the operators fail to reach these requirements more than once, this may result in the imposition of penalties. The results of quality measurements can also be made publicly available on the website of the ICTA for a period of one month, stating that the operator has failed to comply with the service quality requirements.
d.Regulation on Administrative Fines, Sanctions and Precautions in the Electronic Communications Sector
According to the Regulation on Administrative Fines, Sanctions and Precautions to be imposed on operators, effective as of February 15, 2014, the ICTA retains the right to impose fines in the event an operator submits incorrect or misleading documents or fails to submit documents as requested by the ICTA; does not submit such documents in a timely manner; does not permit inspection or audits to be made by the ICTA; uses unpermitted equipment or equipment not complying with standards or alters technical features of equipment; or does not pay fees arising from its use of licenses and frequencies; does not meet the regulations regarding numbering, number portability, calling line identification, access and interconnection, end-user tariffs, consumer rights, value added services, data protection, national security and public order, service quality and such or does not comply with the provisions of license agreements, telecommunications licenses and general authorizations or the legislation. The ICTA is authorized to impose sanctions and precautions as well as administrative fines.
In 2018, there has been anotheran amendment to the aforementioned regulation which introduces a new provision addressing “natural persons”"natural persons" and “private"private legal entities which are not operators”operators" under the
Electronic Communications Law. According to the new provision, entities (including “natural persons”"natural persons" and “private"private legal entities which are not operators”operators") who fail to comply with the obligations determined by ICTA regarding national cyber-security activities and protective measures against cyber-attacks, or fail to implement the measures taken by ICTA, will be subject to administrative fines.
e.Regulation on Authorization regarding the Electronic Communications Sector
In 2009, the ICTA published the “Regulation"Regulation on Authorization regarding the Electronic Communications Sector” (“Sector" ("Authorization Regulation”Regulation"), which determines the principles and procedures for the authorization of the companies that seek to provide electronic communication services and/or to install or operate electronic communications networks or infrastructure. In 2016, there had been major amendments to the aforementioned Regulation. According to the amendments:
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In addition to the amendments of the abovementioned Regulation, the ICTA decision on Procedures and Principles Regarding the Usage of Caller Line Identification was published;published increasing the liabilities of the operators are increased.operators.
f.Regulation on Mobile Number Portability (“MNP”("MNP")
Pursuant to Article 32 of the Electronic Communications Law, operators are required to supply operator number portability.
MNP allows subscribers to keep their existing telephone number when changing their telephone operator, their physical location or current service plan. These regulations have been operational in the fourth quarter of 2008. Since we believe the MNP regulations conflict with our rights under our license
agreement, without due compensation, we filed a lawsuit in 2007 for the cancellation of the MNP regulation. While we do not object to the substance of mobile number portability, we do, however, believe that our rights under our license agreement should remain protected or, where they are violated, that we should be justly compensated. The Court rejected the case in June 2009 and we appealed the decision. The Plenary Session of the Chambers for Administrative Cases approved the court decision. We applied for the correction of the decision. The Court rejected the Company’sTurkcell's request of the correction of the decision. Turkcell made an individual application before the Constitutional Court, against the respective decision. The Constitutional Court process is pending. In 2009, the ICTA issued a new Regulation on MNP, abolishing the 2007 regulation and amended certain Articles of this Regulation in November 2015. Mobile subscribers are eligible to make a porting request only after 90 days of the date of activation of their first mobile connection.
g.Regulation on Security of Network and Information in Electronic Communications Sector
In 2008, the ICTA published the “Regulation"Regulation on Security of Electronic Communication”Communication", which determines the principles and procedures for precautions to be taken by the operators for eliminating or derogating the risks caused by threadsthreats or weaknesses of (i) the physical area of the operators, data, hardware/software security and reliability, and (ii) sustaining the reliability of human resources. In accordance with the regulation, our Company is required to comply with TS ISO/IEC 27001 or ISO/IEC 27001 standards. Turkcell was the first mobile operator in Turkey to receive the ISO/IEC 27001:2005 certification for its Network Operations function in 2008 covering all operations throughout Turkey. In 2011, Turkcell’sTurkcell's IT function was also certified for ISO/IEC 27001:2005 and Turkcell’sTurkcell's ISO/IEC 27001:2005 scope became one of the largest among telecommunication operators in Europe. In 2015, the Information and Communications Technology and Network departments successfully passed ISO 27001:2013 audits and were deemed to be in compliance with the ISO 27001:2013 version. By having an ISO/IEC 27001:2013 certificate covering telecom infrastructure operations, Turkcell fulfills its regulatory obligations and offers its customers the benefits of an internationally-recognized secure management of operations and services. In July 2014, the ICTA repealed the above regulation and published the “Regulation"Regulation on Security of Network and Information in Electronic Communications Sector”Sector" which requires the Company to set up and maintain a specialized team to detect, prevent and report all cyber events and work in coordination with the National Computer Emergency Response Center, in addition to the abovementioned obligations.
h.Presidency Circular on Information and Communication Security Measures
The Presidency Circular on Information and Communication Security Measures published in the Official Gazette numbered 30823 and dated July 6, 2019, aims to ensure the security of critical data, which may threaten national security or lead to the deterioration of the public order when the data privacy, integrity and accessibility is impaired. Pursuant to the Circular, the Presidential Office for Digital Transformation published an “Information"Information and Communication Security Guide” is expected to be published by the Presidential Digital Transformation Office that will setGuide", on July 27, 2020, which sets out the information and communication security measures to be takenfollowed by the obligated organizations including public institutions as well as the enterprises providing critical infrastructure services.services which includes telecommunication operators. The guide covers measures and related activities to be carried out by public institutions and concerned enterprises to ensure the security of their asset groups, applications and technology in accordance with degree of criticality, i.e. basic, medium and advanced. Accordingly, telecommunication companies shall determine the degree of criticality of their assets and draw a roadmap to implement effectively the concerned measures, for asset groups with advanced criticality level in two years. The guide is expected be updated periodically, and to be published on the website of the Presidential Office for Digital Transformation.
i. i.Turkish Competition Law and the Competition Authority
In 1997, the Competition Law (No. 4054) established a Competition Board. The Competition Board consists of seven members who are appointed for a term of four years. It is an autonomous authority with administrative and financial independence established to ensure effective competition in markets for goods and services.
The Competition Board can carry out investigations, evaluate requests for exemptions, monitor the market, assess mergers and acquisitions, submit views to the Ministry of Trade and perform other tasks stipulated by the Competition Law. The ICTA can apply to the Competition Board if it determines that agreements regarding access, network interconnection and roaming violate the Competition Law.
Any person or legal entity may file a complaint with the Competition Board. The Competition Board can take necessary measures to prevent violations and may impose fines on those who are liable for such prohibited practices. The Competition Board may impose fines of up to 10% of the annual gross income of the operators, which is constituted by the end of the previous financial year and determined by the Competition Board. The ICTA and the Competition Board entered into a Protocol on Cooperation in 2002, followed by follow-up Protocols in 2011 and 2015. The original Protocol established a framework whereby the ICTA and the Competition Board can cooperate on legal actions and policies regarding measures, regulations and inspections that affect competition conditions and competition in the telecommunications sector. The follow-up Protocols regulate the mechanisms to improve cooperation between the ICTA and the Competition Board.
j.The Principles on Applications Regarding Anticompetitive Acts in Electronic Communications Sector
One of the principles that the ICTA must follow is the creation and protection of a free and efficient competitive environment. The Electronic Communications Law specifies that the ICTA is authorized to set rules (that do not contradict the Turkish Competition Law) to prevent anticompetitive acts, to investigate the operators as officio or upon a claim, and to take necessary measures against anticompetitive actions. Considering that applications regarding anticompetitive acts are made by different methods and based upon a variety of documents, the ICTA published the “Principles"Principles on Applications Regarding Anticompetitive Acts in Electronic Communications Sector”Sector" on December 20, 2017 in order to clarify these points.
k.Regulation on the Establishment of Metropolitan Municipalities in Fourteen Provinces and of Twenty-Seven Districts and Amending Certain Laws and Decree Laws
The Law No. 6360 on the “Establishment"Establishment of Metropolitan Municipalities in Fourteen Provinces and of Twenty-Seven Districts and Amending Certain Laws and Decree Laws”Laws" was published in the Official Gazette on December 6, 2012 and enacted on March 30, 2014 through municipal elections. The Law, increasing the number of metropolitan cities from 16 to 30, dissolves the legal entity of villages and special provincial administrations in cities where there are metropolitan municipalities. By the amendment of the Law for Metropolitan Municipalities, the number of metropolitan municipalities increased and the borders of certain metropolitan municipalities were extended. Following this amendment, the ICTA increased our coverage obligations, defined in our concession agreement, with its decision, based on this law amendment which requires us to make material capital expenditures. We filed a lawsuit for a stay of execution and cancellation of the ICTA’sICTA's aforementioned decision. The Council of State granted a motion for the stay of execution of ICTA’sICTA's aforementioned decision. The ICTA objected to this decision. The objection was also rejected in favor of Turkcell. The hearing was held on November 27, 2018. The Court annulled the decision of the ICTA. The ICTA appealed the decision. Turkcell replied to the appeal request in due time. TheCouncil of State rejected the ICTA's appeal request in favor of the Company and approved the first instance court decision with its definitive
judgment. Thus, the judicial process is pending.has been finalized in favor of the Company. Since then the ICTA has been working on a new regulation aligned with the Law No. 6360.
l.Regulation on Base Station Implementation in Electronic Communication Sector
In 2012, according to Law No. 6360 and Municipality Law No. 5393, the Metropolitan Municipalities were authorized to give site selection certification to the BTS considering the requirements of city and building aesthetics and electronic communication services. The Site Selection Certificate Regulation was published in the Official Gazette dated January 27, 2018, and entered into force on the date of its publication. According to this regulation, a fee (TRY 3,6403,972 plus VAT per station for the year 2020)2021) will apply only to the BTSs established after December 6, 2012.
m.Zoning Law and Construction Certificate Requirement of Base Stations
The Supreme Court of Appeals rescinded the regulation regarding the base stations exemption from obtaining construction permits on October 1, 2009. The existing zoning law in Turkey requires mobile operators to obtain construction certificates for all existing and new base stations, resulting in the shutdown of certain stations for which certification cannot be obtained. In Turkey, nearly half of the premises were built illegally without any permission. As a result, a number of municipalities started taking legal action such as affixing seals to suspend construction, or demolition orders against base stations, negatively affecting our coverage, quality of service and customer experience. We have also taken legal action requesting nullity of those acts. In addition, studies for altering zoning laws regarding procedures for building certifications are being prioritized.
Legislative work has been done to fill the legal gap caused by the annulment decision of the Supreme Court. The Planned Areas Zoning Regulation was publishedamendments adopted in the Official Gazette dated July 3, 2017 and became effectiveZoning Law have entered into force as of October 1, 2017.November 17, 2020. With these amendments, three segments have been designated according to the characteristics of electronic and communication systems. (i) The necessity ofmasts and towers that are above 15 meters have become subject to a license, (ii) the masts and towers that are less than 15 meters and (iii) the masts and towers that are below 10 meters on the rooftops are now subject to obtaining a building permission certificate and a construction permit, which is not possible in practice, was thereby abolished. This regulation authorized the establishment of a BTS without a construction license process, provided that necessary precautions are taken and ICTA approval received, and provided a special BTS installation procedure is followed. The following requirements must be met for a BTS to be established on private land and in buildings:
Thepermission. A Site Selection Certificate should be received prior to the establishment of the BTS.
Operators must undertake the technical responsibility of the installation.
The consent of apartment owners shouldstill be obtained prior to the establishment of a BTS.
A static reportlicense/permit applications. It shall be necessary for the BTS installation shouldmasts and towers over 15 meters that have been established and/or to be obtained by operators.
The appearance ofestablished on the BTS should not negatively affectparcels and land, to be specified in the aesthetics, appearance and silhouette of the buildings.
The size of the antenna should not exceed 1.55 meters on roof-top sites.
However, in accordance with the decision to suspend the execution of the procedures of license, the amendments made in The Planned Areas Zoning Regulation came into force on July 25, 2019. With the related amendments, rooftop cellular systems and tower installations were separated. Towers and reinforced concrete station installations are excluded from the scope of the license exemption. On the contrary, building licenses will1/1000-scale implementary zoning plan; however, it shall not be required for rooftop BTSs, although there are certain height limitations applicablethe other types of BTS's. There shall be no license and permission requirement for the stations established between July 2, 2004 and October 1, 2009. It shall be mandatory for stations established before July 2, 2004 and between October 1, 2009 and November 17, 2020 to rooftop installations of BTSs.apply within a year and carry out the necessary documents within three years. The fines imposed on electronic communication stations established before November 17, 2020 shall be voided, and demolition decisions shall not be applied.
n.Regulation on Waste Electrical and Electronic Equipment
In May 2012, the Regulation related to Waste Electrical and Electronic Equipment was published in the Official Gazette and became effective.
o.Regulation on the Internet
Law No. 5651 foron the Regulation of Web ContentBroadcasts via the Internet and the Prevention of Crimes Committed Through such Broadcasts has been revised by Law No. 6518, which became effective on February 19, 2014. The new law required that all internet access providers, which include all mobile and fixed network operators as well as all internet service providers, form a Union of Internet Access Providers (“UAP”("UAP") within three months, which was duly established. After the establishment of the UAP, if any internet service provider or any operator giving internet services fails to become a member of the UAP, it shall also be fined in an amount equal to one percent of the previous year’syear's revenues.
In addition, the new law raises the existing fines for not removing content as requested by the court. The law also introduces URL-based blocking of websites which requires new capital as well as operating expenditures for all internet access providers.
Law No. 7253, published on July 31, 2020, has made amendments to Law No.5651, according to which social network providers located abroad which receive more than one million connections daily from Turkey shall appoint at least one representative in Turkey until October 1, 2020. If they fail to do so, those social networks are to face fines, while further failure is to result in the banning of advertisements to the networks. If non-compliance continues, traffic bandwidth to relevant social networks are to be narrowed by 90% by the members of the UAP.
o. GSM Licensing in Turkey
The terms of license agreements are governed by the Authorization Regulation, and it provides that the ICTA approve the transfer of licenses to third parties, ensure continuation of services in the event of cancellation of a license and approve the investment plans submitted by licensees.
A GSM license is subject to the ICTA’sICTA's right to suspend or terminate operations under the license on the grounds of security, public benefit, and national defense, or to comply with the law. However, suspension or takeover of facilities under these circumstances is subject to the payment of compensation to the operator. The ICTA can also inspect such licensee and nullify its license if the licensee has materially failed to comply with the terms of its license. The ICTA may also terminate licenses in cases of gross negligence or non-payment of the authorization fee.
The licensee is responsible for installing telecommunications equipment in conformance with international signalization systems and abiding by the numbering plans. Furthermore, the licensee is obligated to make the necessary investments to offer the licensed service, including the design of the service, the making of financial investments and the installation and operation of the facility required for the service. Licensees are allowed to determine the prices for services, subject to the regulations of the ICTA. Upon the expiry of a license, including termination, the facilities and immovables of the licensee, in operating condition, will be transferred by the licensee in accordance with the license agreement.
p. q.Our GSM License Agreement
General
Since April 1998, we have operated under a 25-year GSM license for which we paid an upfront license fee of $500 million. In 2002, we signed a renewed license agreement for our GSM license which provides that a monthly payment of 15% over our gross revenue paid to the Turkish Treasury shall be subject to the legal interest rate. If such payments are not duly paid twice in any given year, a penalty in an amount equal to triple the last monthly payment shall be payable to the Turkish Treasury. However, as a result of the aforementioned amendments made to the Telegraph and Telephone Law, it has been provided that in the event that the treasury share is not paid in full in the given period, the ICTA has the right to impose a penalty in the amount of one full amount of the incomplete or unpaid treasury share. In addition, we must pay annual contributions in an amount equal to 0.35% of our gross revenue to the ICTA’sICTA's expenses. After the tender relating to the allocation of additional GSM 900 frequency bands, made by the ICTA in June 2008, the license agreement was amended to include the additional frequency band, and was signed in February 2009 by Turkcell and the ICTA, which made small additional changes in the articles of the license agreement entitled performance bond and allocated frequency bands, and was signed again in February 2016 with small amendments. The license agreements of Turkcell were last amended in 2019.
Terms and Conditions
Under the license agreement, we hold a licensed concession to provide telecommunications services in accordance with GSM-PAN European Mobile Telephone System standards in the 900 MHz frequency band. Our license covers 55 channels and allocates telephone numbers between the 530 and
539 area codes in the national numbering plan. Our license also permits us to establish customer service centers, sign contracts with subscribers and market our services to subscribers. Our license was issued with an effective date of April 27, 1998, for an initial term of 25 years. At the end of the initial term, we can renew our license, subject to the approval of the ICTA, provided that we apply between 24 months and 6 months before the end of our license. Our license is not exclusive and is not transferable without the approval of the ICTA.
We paid a license fee of $500 million to the Turkish Treasury upon the effectiveness of our license. On an ongoing basis, we must pay 15% of our gross revenue, defined as of March 2006 to exclude interest charges for late collections from subscribers and indirect taxes such as 18% VAT, as well as other expenses and the accrued amounts that are recorded for reporting purposes to the Turkish Treasury. We are required to pay 10% of our existing monthly treasury share to the Ministry of Transport and Infrastructure as a universal service fund contribution. Since 2005, we are required to pay 90% of the treasury share to the Turkish Treasury and 10% to the Ministry of Transport and Infrastructure as a universal service fund contribution. As ofSince January 1, 2018, all of our treasury share is paid to the ICTA, which then transfers it to the Turkish Treasury and the Ministry of Transport and Infrastructure as detailed above. The calculation method for the treasury share was later revised and consequently, the following are not be considered in calculation of the treasury share: overdue interests which are accrued to the subscribers for any unpaid balance, accrual amounts for the purpose of reporting, reflecting the installation and maintenance costs of the mobile radio stations to other mobile operators and finally, amounts for the purpose of correction accounting records which occur in the same year due to errors (such as customer information, type of business, amount and price).
Furthermore, under the Authorization Regulation, all kinds of share transfers, acquisitions and actions of the operators which are authorized by a Concession Agreement must be communicated to the ICTA, and such share transfers, acquisitions and actions shall be made with the written approval of the ICTA if they result in a change of control component of such operators. The “control component”"control component" is defined as “the"the rights that allow for applying a decisive effect on an enterprise, either separately or jointly, de facto or legally”legally".
Our license subjects us to a number of conditions. It may be revoked in the event that we fail to meet any of these conditions.
Coverage
Our license requires that we meet coverage and technical criteria. We must attain geographical coverage of 50% of the population of Turkey (living in cities or towns of 10,000 or more inhabitants) within three years of our license’slicense's effective date and at least 90% of the population of Turkey (living in cities or towns of 10,000 or more inhabitants) within five years of the effective date of our license. This coverage requirement excludes coverage met through national roaming and installation sharing arrangements with other GSM systems and operators. Upon the request of the ICTA, we may also be required, throughout the term of our license, to cover at most two additional areas each year. Except in the event of force majeure, we must pay a late performance penalty of 0.2% of the investment in the related coverage area per day for any delay of more than six months in fulfilling a coverage area obligation. As at the end of 2018, we haveWe met and surpassed all coverage obligations.obligations before their due dates.
Service Offerings
Our license requires that we provide services that, in addition to general GSM phone services, include free emergency calls and technical assistance for customers, free call forwarding to police and other public emergency services, receiver-optional short messages, video text access, fax capability, calling and connected number identification and restrictions, call forwarding, call waiting, call hold, multi-party and three-party conference calls, billing information, and the barring of a range of outgoing and incoming calls.
Service Quality
Generally, we must meet all the technical standards of the GSM Association as determined and updated by the European Telecommunications Standards Institute and Secretariat of the GSM Association. Moreover, we must meet the standards that the ICTA imposes under “Regulation"Regulation on Quality of Service in the Electronic Communications Sector”Sector".
Tariffs
The license agreement regulates our ability to determine our tariff for GSM services. The license agreement provides that, after consultation with us and consideration of tariffs applied abroad for similar services, the ICTA sets the initial maximum tariffs (price caps) in Turkish Lira and U.S. Dollars. Thereafter, our license provides that the maximum tariffs shall be adjusted at least every six months. The license agreement provides a formula for adjusting the existing maximum tariffs. For the adjustment of the maximum tariffs established in Turkish Lira, the formula is: the Turkish Consumer Price Index announced by the Ministry of Commerce minus 3% of the Turkish Consumer Price Index announced by the Ministry of Commerce. For the maximum tariffs established in U.S. Dollars, the same method is applied to the USA Consumer Price All Item Index Numbers.
Although we believe the tariff structure in our license will, in most instances, permit adjustments designed to offset devaluations of the Turkish Lira against the U.S. Dollar, any such devaluation that we are unable to offset will require us to use a larger portion of our revenue to service our non-Turkish Lira foreign currency obligations. Additionally, in the event that the ICTA were to establish maximum tariffs at levels below those that would enable us to adjust our rates to offset devaluations, this could have a material adverse effect on our business, consolidated financial condition, results of operations and/or liquidity. The maximum tariffs set by the ICTA may constitute the highest rates we may charge for the services included in these customized service packages. Generally, the maximum tariffs set by the ICTA for particular services are set higher than the standard tariffs determined by the ICTA for those services. Such caps were in force at the beginning of 2016, until a decision rendered in March 10, 2016 by the ICTA annulled the maximum tariffs set by the ICTA in 2015. On September 20, 2018, the ICTA set the maximum tariffs at 0.5670 TRY/min for voice and TRY 0.4075 for SMS with regard to Turkcell and Vodafone on the basis of the obligations in their licence agreements. Since TT Mobil does not have such an obligation in its licence, a policy decision washad been taken by the Ministry of Transportation and InfrastuctureInfrastructure for TT Mobil to comply with maximum tariffs. However, with a Board Decision dated November 17, 2020, ICTA announced that Turk Telekom is exempted from the maximum tariff regulation in accordance with a recent stay of execution decision of the Court. The latest ICTA Board Decision dated September 23, 2019March 31, 2021 sets the rates at TRY 0.6494 TRY/min0.806 per minute for national voice and TRY 0.46680.58 for national SMS for Turkcell and Vodafone as of OctoberApril 1, 2019.2021.
With respect to our retail tariffs, following a board resolution dated March 25, 2009, the ICTA set a lower limit solely with regard to Turkcell’s on-net retail tariffs. Pursuant to a decision rendered on August 16, 2016, the ICTA removed the aforementioned on-net retail price regulation.
The ICTA has in the past intervened and may again intervene with the charging period, impacting the prices we charge for our tariffs.
Relationship with the ICTA
The license agreement creates a mechanism for an ongoing relationship between us and the ICTA. The ICTA and Turkcell coordinate their activities through a License Coordination Committee (“("the Committee”Committee"), which is responsible for ensuring the proper and coordinated operation of the GSM network, assisting in the resolution of disputes under the license agreement and facilitating the exchange of information between the parties.
License Suspension and Termination
The ICTA may suspend our operations for a limited or an unlimited period if necessary for the purpose of public security or national defense, including war and general mobilization. During suspension, the ICTA may operate our business, but we are entitled to any revenues collected during such suspension, and our license term will be extended by the period of any suspension.
Our license may be terminated under our license agreement upon a bankruptcy ruling that is not reversed or dismissed within 90 days, upon our failure to perform our obligations under the license agreement if such failure is not remedied within 90 days, if we operate outside the allocated frequency ranges and fail to terminate such operations within 90 days or if we fail to pay our treasury fee.
In the event of termination, we must deliver the entire GSM system to the ICTA.
If our license is terminated for our failure to perform our obligations under our license, the performance guarantee given by us in an amount equal to 1% of the license fee may be called. The license agreement makes no provision for the payment of consideration to us for delivery of the system on such termination.
In the event of a termination of our license, our right to use allocated frequencies and to operate the GSM system ceases. Upon the expiration of the license agreement, initially scheduled to occur in 2023, without renewal, we must transfer to the ICTA, or an institution designated by the ICTA, without consideration, the network management center, the gateway exchanges, and the central subscription system, which are the central management units of the GSM network. We may apply to the ICTA between 24 and six months before the end of the 25-year license term for the renewal of the license. The ICTA may renew the license, taking into account the legislation then currently in effect.
Under our license agreement, any dispute arising from scope, implementation and termination of the agreement shall be brought before the Committee. If the dispute is not settled within 30 days before the Committee, it shall be referred to the parties. If the dispute is not resolved by the parties within 15 days, then it shall be settled by an arbitral tribunal in accordance with ICC Rules. The governing law of any arbitration is Turkish law and any such arbitration shall be conducted in English. Disputes relating to national security or public policy shall not be subject to arbitration proceedings.
Additionally, the Law No. 7061 dated November 28, 2017 has introduced the settlement mechanism set forth in a provision of the Tax Procedural Law No. 213 for the disputes in relation to the payment of the treasury share.
r.q. Authorization of 3G License
In 2008, the ICTA conducted a tender process to grant four separate licenses to provide IMT 2000/UMTS services and infrastructure. We were granted the A-type license, which provides the widest frequency band, at a consideration of EUR 358 million (excluding VAT). We signed the license agreement relating to 3G authorization on April 30, 2009 and then the agreement was renewed and resigned in February 2016 with small amendments which do not change the core of the service. The license agreement has a term of 20 years.
The 3G License Agreement has provisions that are generally similar to those contained in our license agreement relating to 2G. However, with respect to dispute resolution, while our 2G license provides for arbitration for the settlement of disputes, under the 3G License Agreement, disputes arising between the parties shall ultimately be settled by the Council of State of the Republic of Turkey.
With the 3G License Agreement, we are obliged to meet certain coverage obligations. We are required to cover the population within the borders of all metropolitan municipalities within three years and all cities and municipalities within six years. We are also obliged to cover every region with a population over 5,000 within eight years and population larger than 1,000 within 10 years. Following the amendment of the Law for Metropolitan Municipalities, the number of metropolitan municipalities increased and the borders of some metropolitan municipalities were extended. After this amendment, the ICTA increased our coverage obligations, defined in our concession agreement, by its decision, based on this law amendment. We filed a lawsuit for the stay of execution and the cancellation of this decision. The Council of State accepted our stay of execution request. The ICTA objected to this decision. The objection was also rejected in favor of Turkcell. The hearing was held on November 27, 2018. The Court annulled the decision of the ICTA. The ICTA appealed the decision. Turkcell replied to the appeal request in due time. TheCouncil of State rejected the ICTA's appeal request in favor of the Company and approved the first instance court decision with its definitive judgment. Thus, the judicial process is pending.has been finalized in favor of the Company.
With the 3G License Agreement, as opposed to the 2G License Agreement, the Company assumed an obligation related to its electronic communications network investments, such as the obligation to obtain at least 40% of its electronic communications investments from suppliers that have a Research and Development Center in Turkey and the obligation to obtain at least 10% of its electronic communications investments from suppliers that are small and medium sized enterprises established in Turkey.
According to the Authorization Regulation, breaches by operators resulting in the termination of the GSM concession agreement for any reason shall also result in the termination of the operator’soperator's concession agreement signed for IMT-2000/UMTS service. Also, if the GSM concession agreement is not renewed at the end of its natural expiration, the ICTA may continue to allow the utilization of the needed infrastructure by IMT-2000/UMTS services on terms and conditions to be set by the ICTA itself.
The statutes, rules and regulations applicable to our activities and our 2G and 3G licenses are generally new, subject to change, in some cases, incomplete, and have been subject to limited governmental interpretation. Precedents for and experience with business and telecommunications regulations in Turkey are generally limited. In addition, there have been several changes to the relevant legal regime in recent years. There can be no assurance that the law or legal system will not change further, or be interpreted in a manner that could materially and adversely affect our operations.
s.r. Authorization of 4.5G License
In the IMT- Advanced (“4.5G”("4.5G") tender held on August 26, 2015 to grant spectrum usage for 800 MHz, 900 MHz, 1800 MHz, 2100 MHz (FDD,TDD) and 2600 MHz (FDD, TDD), the Company purchased a total of 172.4 MHz, the broadest 4.5G spectrum allocation of any operator in Turkey (including widest frequency bands on 1800 MHz, 2100 MHz and 2600 MHz) for EUR 1,623.5 million (excluding VAT and interest payable on the installments).
The tender gave equal opportunity to the operators in the low frequency bands utilized for coverage while enabling competition in higher frequency bands mainly used for capacity. The Company has reached a total frequency bandwidth of 234.4 MHz and our ownership in total bandwidth in the market increased to 43% (234.4 MHz / 549.2 MHz) with the new frequencies acquired. The operators will be able tocan utilize the new spectrum in a technology-neutral way.
The ICTA granted Turkcell’sTurkcell's 4.5G License on October 27, 2015. The 4.5G License is effective for 13 years until April 30, 2029. According to the License,license, Turkcell started to provide 4.5G services from April 1, 2016.
The 4.5G License Agreement has provisions that are generally similar to those contained in our license agreement relating to 2G and 3G. According to the IMT License Commitments Document,Accordingly, the Company;
While building its infrastructure for 4.5G networks, Turkcell, as well as its competitors, is required to purchase up to 45% of its network related hardware (i.e. base stations, switches, routers and as
such) and software from local suppliers, and purchase 10% of the network equipment and software from local SMEs engaged in production in Turkey. The local network related hardware purchase requirement is defined in three periods: 30% for first year, 40% for second year and 45% for the third and subsequent years. Reporting on these requirements should be made to the ICTA on a yearly basis. In case of a projection of a failure to meet the requirement for locally produced hardware and software due to the lack of sufficient local supply and other relevant conditions, the Company shall file an application to the ICTA 6 months before the due date, and request an easing or removal of the obligation.requirement. Based on the law, weoperators have appliedrequested to remove this requirement for five annual reporting periods, between 2015-2020. However, operators' requests to waive this requirement for the removal ofreporting periods between 2015-2019 have been rejected by the obligation for the first four periods,ICTA; which are 2015-2016, 2016-2017, 2017-2018 and 2018-2019.may result in administrative fines with material adverse effect on our financial results.
In addition to the above-mentioned obligations, in the context of the 4.5G license, the Company assumed the obligation to obtain at least 40% of its electronic communications investments from suppliers with a Research and Development Center in Turkey, as well as the obligation to obtain at least 10% of its electronic communications investments from small and medium sized enterprises suppliers that are established in Turkey and manufacture local products.
Breaches regarding the abovementioned obligations and breaches resulting in the termination of the GSM and IMT-2000/UMTS concession agreements for any reason shall also result in the termination of the Operator’sOperator's 4.5G authorization. The Company may apply to the ICTA between 18 and 12 months before the natural end of authorization (April 30, 2029) for renewal. The ICTA may renew the authorization, taking into account the current legislation.
s. t.Licenses and Authorizations of our Subsidiaries
In addition to the foregoing, our majority owned subsidiary, Belarusian Telecom, and wholly-owned subsidiaries lifecell and Kibris Telekom hold GSM licenses in Belarus, Ukraine and the Turkish Republic of Northern Cyprus, respectively, and all of them have obtained 3G licenses. lifecell also holds 4G licence. If lifecell, Belarusian Telecom and Kibris Telekom fail to comply with the terms and conditions of their license agreements, they may incur significant penalties, which could have a material adverse effect on our strategy for international expansion and our business and results of operations. In addition, our subsidiaries Global Tower, Turkcell Superonline, Turkcell Enerji, Paycell, Financell, Lifecell Muzik and FinancellLifecell TV have licenses to perform their business. Failure to comply with the terms of such licenses may lead to significant penalties and adversely affect their, as well as our, results of operations.
Ukraine License Agreement
As of December 31, 20192020 lifecell owns 119 activity licenses, for GSM 900,licenses: a technology neutral license, issued for 3G, one license for international and long-distance calls and eightseven PSTN licenses for eightseven regions in Ukraine. Starting from December 25, 2019, the Telecommunications Law was changed and the licensing obligation relating to telecommunications activity was removed. Consequently, as of December 31, 2019, lifecell performs its activities without a license. As of 31 December 31, 2019,2020, lifecell owned 27owns twenty frequency use licenses for IMT (LTE-2600, LTE-1800)LTE-1800, LTE-900), IMT-2000 (UMTS), GSM-900, GSM-1800, CDMA-800 and microwave Radiorelay and Broadband Radio Access, which are regional and national. Additionally, lifecell holds a specific number range—three NDC codes for mobile networks, twenty twonetwork, twenty-eight permissions on a number resource for short numbers, eleventen permissions on a number resource for SS-7 codes (7(six regional and 4four international), one permission on a number resource for Mobile Network Code, nineeight permissions on a number resource for local ranges for PSTN licenses, two permissions on service codes for alternative routing selection for international and long-distance fixed telephony, and one permission on a code for global telecommunication service “800”"800".
According to the licenses, lifecell must adhere to state sanitary regulations to ensure that the equipment used does not injure the population by means of harmful electromagnetic emissions.
Licenses require lifecell to inform authorities of the start/end of operations within four months and changes in the incorporation address within 30 days. Also, lifecell must present all the required documents for inspection by the NCCIR by their request. The NCCIR may suspend the operations of lifecell for a limited or an unlimited period if necessary due to the expiration of the licenses, upon mutual consent, or in the case of a violation of the terms regarding the use of radio frequencies. If such a violation is determined, the Ukrainian Telecommunications Authority will notify lifecell of the violations and will set a deadline for recovery. If the deadline is not met, the licenses may be terminated.
In 2020, the Ministry of Health of Ukraine significantly eased the limitations applicable to electromagnetic field exposure (EMF) levels emanating from base stations. The maximum EMF level is now set at 100 mW/cm2 or 19,42 V/m, compared to 10mW/cm2 or 1,94 V/m. This increase in maximum EMF levels will allow lifecell to increase the power output of transceivers on base stations where required. We believe that a higher power output of some transceivers will allow an improvement in quality of connection and coverage in certain areas, mainly in highly populated areas of cities where several base stations from different operators are located at close distance from one another and work in different bands. Further, this change will enable us to install sites in new zones.
Belarus License Agreement
Belarusian Telecom owns a license for mobile services without technological limitations (technology neutral), issued on August 28, 2008, for a period of 10 years, which was valid till August 28, 2018.years. However, in accordance with the Edict of the President of the Republic of Belarus dated November 26, 2015, numbered 475, the license is issued without limitation of the period of validity. Starting from March 1, 2016 the license is valid from the date of the licensing authority’sauthority's decision on its issue and for an unlimited period. Under the terms of its license, Belarusian Telecom has coverage requirements for 2G and 3G networks. Belarusian Telecom had been provided with additional time by the license authority to fulfill all 2G signal coverage requirements regarding the settlements. Management of the company is in close communication with the regulatory body regarding 2G license requirements and have applied for certain license requirement adjustments. We expect that another period extension will be provided imminently to Belarusian Telecom.have some regulatory changes in 2G network licence and those changes may eliminate coverage requirements in the upcoming years. 3G related license requirements have been fulfilled. There is no any coverage requirement for 4G services in the license.
Based on local legislation, 4G infrastructure can be built by JLLC Belarusian Cloud Technologies (“beCloud”("beCloud") only. Belarusian Telecom uses beCloud’sbeCloud's infrastructure to deliver LTE services for its customers.
Turkcell Superonline Authorizations
Turkcell Superonline was authorized as a Fixed Telephony Service Provider as of November 19, 2004 (for 15 years), Infrastructure Provider as of March 6, 2006 (for 25 years), Internet Service Provider as of February 15, 2005 (no duration specified), Satellite Communication Service Provider as of March 24, 2009 (no duration specified), Cable Broadcast Service Provider as of November 23, 2009 (no duration specified) and Mobile Virtual Network Operator as of July 14, 2015 (for 15 years). Upon the expiry of the term of Turkcell Superonline’sSuperonline's Fixed Telephony Service Provider authorization on November 19, 2019, and subsequently on November 19, 2020, the ICTA has extended the authorization period by one year.
The Authorization By-Law for Telecommunication Services and Infrastructure published in the Official Gazette on August 26, 2004 was abrogated with the By-Law on Authorization for Electronic Communications Sector dated May 28, 2009. According to this abrogation, Turkcell Superonline’s “Authorization”Superonline's "Authorization" on Infrastructure Operating Service, Internet Service Provision and Satellite Communication Service have been changed to “Authority”"Authority" on Infrastructure Operating Service, Internet
Service Provision, Satellite Communication Service and Cable Broadcast Service. Turkcell Superonline’s “License”Superonline's "License" on Long Distance Telephony Services License has been changed to “Authorizations”"Authorizations" relevant to the Fixed Telephony Services. Aforementioned Public Access Mobile Radio Service Provider Authorization of Turkcell Superonline was annulled as of December 31, 2015.
In accordance with the legislation issued by the ICTA in 2011, the term of the infrastructure operator authorization of Turkcell Superonline has become indefinite.
Turkcell Superonline was authorized as a Platform Operator and Infrastructure Operator, according to the Radio and Television Supreme Council’sCouncil's decision numbered 24, dated March 26, 2014. Such authorizations have been provided by the Radio and Television Supreme Council, according to the rules of the Media Law and also the Radio and Television Supreme Council By-Law on Broadcasting via Cable Networks. In accordance with the Media Law and its regulations, the Platform Operator Authorization and Infrastructure Operator Authorization are provided annually. Within the scope of the Platform Operator Authorization and Infrastructure Operator Authorization, Turkcell Superonline has the right to operate the platform and infrastructure of TV services.
In 2019, the ICTA finalized “The Wholesale Central and Local Market Analysis”. By its Board decision dated December 31, 2019, the ICTA decided to designate Turk Telekom alone as the SMP for both markets. Access to fiber products, VULA (Virtual Unbundling of Local Access) access, margin squeeze obligations are also imposed on Turk Telekom in addition to its current obligations.
u.t. Access and Interconnection Regulation
The Access and Interconnection Regulation became effective upon issue by the ICTA on September 8, 2009, and abolished the Access and Interconnection Regulation which was published on May 23, 2003. The Regulation sets forth the rights and obligations of the operators relating to access and interconnection, and establishes rules and procedures pertaining to their performance of such obligations. The Regulation primarily sets forth applicable principles, details of access and interconnection obligations, financial provisions, and policies and procedures regarding negotiations and contracts for access and interconnection.
The Regulation is driven largely by the goal of improving the competitive environment and ensuring that users benefit from electronic communications services and infrastructure at a reasonable cost. Under the Electronic Communications Law, the ICTA may compel a telecommunications operator to accept another operator’soperator's request for access to and use of its network. All telecommunications operators in Turkey may be required to provide access to other operators. The operators who are compelled to provide access to other operators may be obliged to provide service and information on the same terms and qualifications provided to their shareholders, subsidiaries, and affiliates by the ICTA.
In accordance with Article 7 of the aforementioned Electronic Communications Law, the ICTA may determine those operators that have significant market power in the relevant market as a result of market analysis. After determination of the operators of SMP, the ICTA may impose additional liabilities for such operators in order to protect the competitive environment. On December 15, 2005, the ICTA designated Turkcell, Vodafone, and TT Mobil as “operators"operators holding significant market power”power" in the “GSM"GSM Mobile Call Termination Services Market”Market" and designated Turkcell individually as an “operator"operator holding significant market power”power" in the “Access"Access to GSM Mobile Networks and Call Originating Markets”Markets". According to the new Regulation published in
the Official Gazette dated September 1, 2009, unless otherwise agreed, any decisions taken by the ICTA in the years 2005 and 2006 relating to market analysis were valid and effective until the end of calendar year 2009. Pursuant to its decision dated December 8, 2009, the ICTA designated Turkcell individually as an operator holding significant market power in the “Access"Access to Mobile Networks and Call Originating Markets”Markets" and designated Turkcell, Vodafone and TT Mobil as operators holding significant market power in the “Mobile"Mobile Call Termination Market”Market". Based on the market analysis of the ICTA for the 2012-2015 term, all three operators were declared as operators holding significant market power in the “Mobile"Mobile Call Termination Market”Market" and Turkcell is once again recognized as the only operator holding significant power in “Access"Access to GSM Mobile Networks and Call Originating Markets”Markets". The Mobile Access and Call Origination Market has been deregulated and Turkcell’sTurkcell's SMP designation was removed as of January 1, 2020.
As a result of the significant market power designation in the “GSM"GSM Mobile Call Termination Services Market”Market", our Company, as well as TT Mobil and Vodafone, is required to provide interconnection services on a cost basis. Consequently, according to the Electronic Telecommunications Law, the ICTA may oblige such operators to provide access and to submit their reference offers for access and interconnection to the ICTA for review, and may require amendments to the offers. Operators are obliged to make the amendments requested by the ICTA in a prescribed manner and within a prescribed period. In addition, the operators are obliged to publish their reference offers for access and interconnection, which have been approved by the ICTA, and to provide access under the conditions specified in their reference offers and interconnection, which have been approved by the ICTA. Please refer to the Interconnection table under the caption “(ii)"(ii) Interconnection Rates—Turkcell, Vodafone, TT Mobil and Turk Telekom”Telekom" for the approved interconnection rates as at March 20, 2020.
ICTA Board Decision regarding Mobile Call Termination Market Analysis, dated September 23, 2020, conditionally removes cost-based pricing obligation for SMS/MMS services by October 1, 2021. In addition, 'interconnection obligation' is expanded to include providing IP interconnection.
u. v.Regulation on Co-Location and Facility Sharing
The ICTA has required operators to share certain facilities with other operators under certain conditions specified in the Electronic Communications Law and to provide co-location on their premises for the equipment of other operators at a reasonable price.
Under the Regulation, operators holding significant market power are required to provide access and services to all operators on equal terms. Operators with significant market power are also required to perform unbundling of their services, which means that they have to provide separate service of, and access to, transmission, switching, and operation interfaces. Furthermore, the ICTA may establish rules applicable to the division of the costs of facilities among parties.
The ICTA published a Communique concerning “Co-Location"Co-Location and Facility Sharing”Sharing" on December 2, 2010 (which abolished the Regulation published on December 31, 2003). According to the Communique, the ICTA should determine operators to be co-location incumbent if operators do not enable co-location, or where is a dispute against competition, or end-users. Similarly, the ICTA could set tariffs if the tariffs for co-layout are not determined on a cost basis.
The Communique defines the criteria for operators who are incumbents for facility sharing, and also states the items which must be considered for determining the Facility Sharing prices.
Subsequently, the provisions that regulate the ICTA approval of the examination fee determined by the Co-Location and Facility Sharing incumbent have been removed, opening up the Co-Location and Facility Sharing process to negotiation. In addition, the Facility Sharing incumbent’sincumbent's right to allocate a facility for its own network and investment plans has been reduced to 25% of the facility.
The ICTA published a regulation concerning “Cellular"Cellular System Antenna Facility Design, Set Up and Sharing”Sharing" on March 18, 2011 (which abolished the Regulation published on April 16, 2008). The regulation frames antenna facilities design, set up and sharing to enable base station facility usage by multiple operators. The emission points will not be determined by operators, therefore operators will have to work cellular planning together. Operators must share every base station facility regardless of tower or building-top distinction. Antenna facilities must be set up in certain capacity that at least one more operator can benefit. Some incentives, such as exemptions on certain certification fees, will be given if sharing occurs on existing or new sites. Finally, when antenna facility set up and sharing requests are evaluated, if the owner of the facility refuses the request, the requesting operator will be informed of the reason for the refusal. This way, negotiation between parties is supported and ICTA involvement is kept at a minimum level. On December 6, 2016, the ICTA repealed the above
regulation and replaced it with “The"The Regulation on the Procedures and Principles of Sharing of Cellular System Antenna Installations and Radio Access Networks”Networks". According to this Regulation:
maximum extent possible.
In the 4.5G Authorization Document, in provinces with a population of less than ten thousand and at sites to cover highways, dual carriageways and railroads, any new 3G or 4.5G site to be built must be shared actively by all operators within this region. In the 4.5G Authorization Document, usage of locally-produced equipment in network was obliged, with rates up to 45%. Yet if the lack of such equipment or absence in the demand for the production of such equipment is proved by mobile operators, and appealed before the end of reporting period, the ICTA may ease the conditions of the obligation or completely remove the obligation specifically for the related period. We informed the ICTA that we support any local R&D and P&D, as long as it complies with international technical and financial standards and can be sustainable. However, the 4.5G Authorization Document does not provide details on compliance with international standards. The ICTA may oblige operators to buy and use locally produced products, independent of quality standards, if a local vendor produces sufficient equipment to support the mobile operators’operators' demands. This may cause technical problems in our network. Should such technical problems occur, it could negatively affect our quality of service, leading to increased costs for the 4.5G infrastructure roll-out and could negatively affect our customer experience.
w.v. Regulation on Consumer Rights in the Electronic Communications Sector
The ICTA published a “Regulation"Regulation on Consumer Rights in the Electronic Communications Sector”Sector" on July 28, 2010 (which abolished the Regulation published on December 22, 2004) and made some changes to such regulation on June 20, 2013. This regulation introduced some radical changes to the electronic communications sector. With this regulation, the ICTA determined new procedures/changes regarding: the process and timing of churn steps, the obligation of operators to keep subscribers informed of services, including, but not limited to, informing customers about amendments of the campaigns and tariffs, the consumer complaints solution mechanism, billing processes and safe internet. The Regulation on Consumer Rights in the Electronic Communications Sector, which came into force in April 2018, repealed and replaced the previous regulation. Although the new version mainly preserves the provisions of the former regulation, one of the main differences is that the first service on/off operation in a calendar year may no longer be charged in case the services were suspended/disconnected due to non-payment within due date. Moreover, the Regulation on Consumer Rights in the Electronic Communications Sector has been amended to allow subscription contracts to be made electronically as of October 28, 2017. Procedures and principles regarding the use of digital signatures are to be determined separately by the ICTA.
In addition, the ICTA may restrict the conditions under which certain mobile internet and services are provided by third parties. Moreover, the ICTA published a board decision regarding Safe Internet on August 22, 2011, and the service is now offered to subscribers free of charge. Operators must provide Safe Internet Service to subscribers, who request this service, as two separate profiles, the child profile and the family profile, each of which can restrict subscribers from accessing certain internet addresses and content. Subscribers can easily change their profiles or opt-out from the Safe Internet Service.
The ICTA set forth the reimbursement process arising from its decisions by publishing the procedures and principles to be applied to the reimbursement of subscribers which came into force in 2018. In addition, “the"the Procedures and Principles Regarding the Services with Limited Amount of Use and the Applications of Upper Limits of Receipts”Receipts" published on August 19, 2016 has been in force since December 1, 2017. Notifications regarding those services with limited amount of use and the applications of upper limits of receipts used to be regulated by separate documents. But with the aforementioned Procedures and Principals, the means, timing and content of the notifications regarding the services with limited amount of use and the upper limits of receipts has been consolidated under a regulation. The ICTA’sICTA's regulation of these activities could have an adverse effect on our mobile telecommunications business and we may be fined if we do not comply. Furthermore, our compliance with the ICTA’sICTA's regulations may increase the costs of doing business and could negatively impact our financial results.
An ICTA decision dated June 21, 2018 favoring subscribers with special needs, veterans, and widows/ widowers and orphans of martyrs was published and came to effect on January 1, 2019. The decision requires operators that have more than 200 thousand subscribers to offer their services to these groups that are “in"in need of social support”support" at a 25% discount. The discount is to be offered upon proof of identity and the subscriber’ssubscriber's special need.
x. Following the decision of the ICTA dated March 31, 2020, until the measures introduced by the Presidential Circulars regarding the COVID-19 pandemic are lifted, operators are permitted to carry out call center services remotely, to send invoices electronically and to transmit the documents of the subscriber by mail in the context of subscription transactions. Furthermore, the ICTA has postponed for a period of up to three months the submission of information and documents prepared within the scope of the regular reports that are to be submitted to it.
The ICTA decision on Procedures and Principles for the Termination of Subscription Agreements via e-Government Gateway has been published on May 12, 2020. The decision allows subscribers, who use mobile and fixed individual lines, to cancel their subscriptions through the e-government portal as of September 15, 2020.
An amendment to Law No 5809 made by Law No 7247 on June 26, 2020 has made it possible for subscription agreements to be made in an electronic medium and that the identity verification process shall be regulated by the ICTA with secondary legislation. The ICTA has not yet published the secondary legislation.
w. Regulation on Data Privacy in the Electronic Communications Sector
Under Article 51 of the Electronic Communications Law, the ICTA is authorized to determine the principles and procedures related to the processing of personal data and protection of privacy. In this manner,Accordingly, the ICTA had published “Regulation"Regulation Concerning the Processing of Personal Data and the Protection of Privacy in the Electronic Communications Sector”. With its decision rendered on April 9, 2014 and published in the Official Gazette on July 26, 2014, the Turkish Constitutional Court decided that Article 51Sector", of the Electronic Communications Law waswhich a violation of Article 20(3) of the Constitution, which stipulates data protection as a constitutional measure and that the measures should be regulated by laws, and therefore annulled the aforementioned provision (Article 51). Article 51 of the Electronic Communications Law, which was repealed by the Turkish Constitutional Court, was amended and camerevised version will enter into force on April 15, 2015. InJune 4, 2021. The Company filed a lawsuit for the amended Article 51,stay of the main principlesexecution and cancellation of recording and sharing subscribers’ personal data are defined in general regarding the electronic communications sector. In addition to that,related provisions of the ICTA is also authorized againaforementioned regulation.
This regulation aims to determine the procedures and principles related to the processing of personal data processing and the protection of privacy. A public consultation regarding the draft regulation has been held by the ICTA, although the new regulation has yet to be adopted.
Compliance with this regulation involves operational expenses and may require further due diligence to process personal data and provide segmented offers to our customers. Furthermore, non-compliance with this Regulation may resultprivacy in the impositionelectronic communications sector. The regulation sets out the sector-
specific rules such as security measures, notification of data breach and reputation.data breach risks, obtaining explicit consent, data transfers, traffic and location data, caller ID blocking.
x. y.Law on the Protection of Personal Data
Turkey, as a part of its legislative reforms to align with the EU legislations, has adopted an extensive data protection regime. The Law on the Protection of Personal Data (the “Law”"Law"), which came into force on April 7, 2016, regulates the processing and transfers of personal data of realnatural persons and its protection processing and transfers.of privacy.
The Law introduced several obligations for processing and transferring the personal data including but not limited to fair and lawful processing, protection of personal data, consent requirement, providing notice of processing, registration with the Registry of Data Controllers and notification to the Data Protection Authority (“DPA”("DPA") in case of a data breach. According to the Law, the DPA is authorized to impose sanctions and precautions as well as administrative fines which are determined in the Law.
The Law also determines the rights of the person whose data is processed,subjects, such as the right to apply to the data controller to learn whether the personal data has been processed, to learn if it is being used properly according to the purpose of the processing, to know the third parties to whichwhom the personal data is transferred in Turkey or abroad, to request the personal data to be rectified, erased or destroyed and the receiving third parties to be notified of that rectification, erasure or destruction.
As per Article 16 of the Law, the RegulationBy-Law on the Registry of Data Controllers Registry specifying procedures and principles regarding the Registryregistration of Data Controllers was published on December 30, 2017 and came into force on January 1, 2018. Pursuant to this regulation, data controllers are obliged to register with the registry prior to
processing personal data and the exemptions from the registration requirement is to be determined by the Data Protection Board. TheAccordingly, the Company is subject toregistered with the obligation of registration until June 30, 2020,registry within the initial date was September 30, 2019 but due to public request, it was postponed twicegiven deadline by the DPA.Data Protection Board. The data controllers that are not established in Turkey also have the responsibility to register with the Registry via their representative that they will assign and data controllers are obliged to prepare a personal data processing inventory that includes the purposes for processing of personal data, data categories, data subjects, the maximum retention period of the data and technical and organizational measures taken regarding data security.
In addition to the aforementioned regulation, on October 28, 2017 the Regulation Regarding the Deletion, Destruction and the Anonymization of Personal Data was published and came into force on January 1, 2018. The objective of the Regulation is to set forth procedures and principles regarding the deletion, destruction or anonymization of personal data processed wholly or partly by automaticautomated means and otherwiseother than by automaticautomated means which form part of a data recordingfiling system. Furthermore, the Communique on Principles and Procedures to be Followed in Fulfillment of the Obligation to Provide InformationInform and the Communique on Principles and Procedures for Applicationthe Request to Data Controller was published and came into force on March 10, 2018 regulating principles and procedures in relation to the obligation to inform data subjects and rules and processes for data subjects to exercise their rights regarding personal data. With respect to international data transfers, the DPA has not yet published the list of countries, which have an adequate level of protection as of the date hereof.
Failure to comply with the Law on the Protection of Personal Data may result in the imposition of certain civil, criminal and administrative sanctions. Assanctions including fines up to TRY 2.0 million by DPA as of the date of this annual report, theJanuary 2021. The Company is carrying out a compliance program with regard to compliance matters arising from the Law on the Protection of Personal Data and its secondary legislation, as well as the General Data Protection Regulation which applies to several products and services of our Company provided to data subjects who are in the European Union.
UnderTable of Contents
Additionally, under the General Data Protection Regulation (GDPR), Data Protection Officer (DPO) needs to be determined to represent obligated data controllers. In November 2019, Turkcell appointed its DPO based on her expert knowledge of data protection lawlaws and practices.practices globally. By appointing the DPO, Turkcell aims to implement effective and focused management in the field of data protection. In an effort to establish a sustainable and digitized personal data management process, all processing activities have been reviewed and necessary technology investments were made in 2020. Such steps showsshow the commitment of Turkcell to adopt extensive compliance practices and best practices around the world.
z.y. Regulation on Electronic Commerce
Law No. 6563 on the Regulation of Electronic Commerce published in the Official Gazette on November 5, 2014, amended Article 50 of the Electronic Communications Law, providing that without the prior consent of the subscribers, unsolicited electronic communications for the purposes of direct marketing or messages with adult content is prohibited. An “opt-in”"opt-in" mechanism has been adopted for electronic messages; however, this provision does not apply retroactively to the databases which were established by obtaining the data subjects’subjects' consent before the Law No. 6563 on Regulation of Electronic Commerce entered into force on May 1, 2015.
The Electronic Commerce Law and “Commercial"Commercial Communications and Commercial Electronic Messages Regulation”Regulation" published in accordance with this law excludes messages that are sent to the subscribers and users of the operators about their own products and services, and these messages are regulated in “The"The Principles and The Procedures Regarding Thethe Communication With Thewith the Purposes Ofof Advertising And Marketing”and Marketing" published by the ICTA on July 9, 2015. According to electronic commerce legislation, sending commercial electronic messages is also subject to the prior consent of recipients. Violation of this legislation may result in an administrative fine.
aa. As per the amendments to the "Commercial Communications and Commercial Electronic Messages Regulation" dated January 4, 2020 a centralized commercial electronic communication management system ("CCECMS") for obtaining, exercising, and tracking opt-in/opt-out requests and complaints from recipients of electronic commercial communications was established under the supervision of the Ministry of Trade. Pursuant to the amendments, service providers are required to be registered with CCECMS and transfer every consent obtained under the Commercial Communications and Commercial Electronic Messages Regulation to CCECMS before the deadlines regulated by the Ministry of Trade. The consents that are not uploaded to CCECMS before the relevant deadlines will be considered invalid. In case service providers fail to comply with the Electronic Commerce Law and Commercial Communications and Commercial Electronic Messages Regulation, administrative fines may be imposed by the Ministry of Trade.
The deadline for registration and transfer of the consents was June 1, 2020. However, the Ministry of Trade postponed the deadline to upload consents to CCECMS for service providers with more than 150,000 commercial electronic message consents to December 31, 2020 and the deadline for recipients to review their consent declarations on CCECMS to February 5, 2021. The Ministry of Trade also postponed the deadline to transfer recipient consents to CCECMS for service providers with 150,000 or less commercial electronic message consents to May 31, 2021 and the deadline for recipients to review their consent declarations on CCECMS to July 15, 2021.
z. Registered Email Service Regulation
Registered Electronic Mail Service was started in July 2012. Mobile operators cannot provide registered electronic mail service; however, the service may create a new mobile business area with new bundled mobile products, which are able to service our subscribers.
aa. Broadcast License and Broadcast Transmission Authorization for Broadcasting and Transmission of Radio, Television or On-demand Broadcast ServicesRegulation on the InternetRefurbished Products
The Regulation on the Presentationrefurbishment of Radio, Televisionused mobile phones and On-demand Broadcasting Services ontablets, warranty conditions of refurbished devices, authorization of refurbishment centers, and regulation of the Internet has cameobligations of market actors entered into force on September 1, 2019. As per this regulation, media service providersAugust 22, 2020. When the standards for refurbishment centers are determined by the Turkish Standardization Institute, consumers will have access to second-hand mobile phones with a higher reliability, and platform operators broadcasting services onso, more second-hand devices are expected to be included in the internet must obtain a broadcasting license and broadcasting transmission authorization respectively from the Radio and Television Supreme Council (“RTUK”). In this respect, a broadcast license for fizy and a broadcasting transmission authorization for the OTT operations of TV+ must be
obtained from RTUK, if no further amendments are enacted. According to the RTUK notification, dated December 26, 2019, the relevant applications (broadcast license for fizy and broadcasting transmission authorization for the OTT operations of TV+) should be made prior to June 19, 2020. We have requested an extension until December 31, 2020.
cc.bb. Turk Telekom, Vodafone and TT Mobil Interconnection Agreements
(i) General
We have interconnection agreements with Turk Telekom, Vodafone, TT Mobil and Fixed Telephony Service Operators whereby they allow us to connect our networks with theirs to enable the transmission of calls to and from our mobile communications system.
The interconnection agreements establish understandings between the parties relating to various key operational areas, including call traffic management, and the agreements entail that we and the other parties will agree on the contents of various manuals setting forth additional specifications concerning matters that are not specifically covered in the interconnection agreement, such as quality and performance standards and other technical, operational and procedural aspects of interconnection.
The interconnection agreements specify that the parties shall comply with relevant international standards, including standards adopted by the GSM Memorandum of Understanding, the Telecommunications Standards Bureau of the International Telecommunications Union, and the European Telecommunications Standards Institute. In the absence of applicable international standards, the interconnection agreements provide that the parties will establish written standards to govern their relationship.
The interconnection agreements outline the applicable interconnection principles and provide the technical basis and rationale for technical specifications and manuals to be agreed to by the parties.
In addition, the parties agree to provide the other party with information that is necessary to enable the performance of their interconnection obligations, the provision of services, or the utilization of equipment and/or buildings as contemplated in the interconnection agreement.
(ii) Interconnection Rates—Turkcell, Vodafone, TT Mobil and Turk Telekom
In accordance with the relevant articles of the Electronic Communications Law and subsequent Access and Interconnection Ordinance, the ICTA regulates both fixed and mobile interconnection rates. In previous years, the interconnection rates have substantially decreased with the interventions of the ICTA.
Mobile Current mobile interconnection rates are set asymmetrically, based on the ICTA’sICTA's decision on the Interconnection Tariffs issued in June 2013. The latest decision concerning interconnection rates was published in October 2014 and remains in force with no change in the existing rates. The MMS interconnection rates were also introduced in 2014. The evolution of interconnection rates for voice
calls between Turkcell, Vodafone, TT Mobil, Turk Telekom and Alternative Fixed Line Operators is summarized in the table below.
| VOICE (TRY Kurus) | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | TURK TELEKOM | | |||||||||||||||||
| | | TT MOBIL | Alternative Fixed Line Operators | ||||||||||||||||||
| TURKCELL | VODAFONE | Local | Single | Double | |||||||||||||||||
01/10/2004 | 15.60 | 15.60 | 15.60 | 4.10 | 5.90 | |||||||||||||||||
01/01/2005 | 14.80 | 14.80 | 14.80 | 3.40 | 5.10 | |||||||||||||||||
01/10/2005 | 14.00 | 14.00 | 14.00 | 2.00 | 3.70 | |||||||||||||||||
01/01/2007 | 14.00 | 15.20 | 17.50 | 2.00 | 3.70 | |||||||||||||||||
01/03/2007 | 13.60 | 14.50 | 16.70 | 1.89 | 3.00 | |||||||||||||||||
01/04/2008 | 9.10 | 9.50 | 11.20 | 1.71 | 2.70 | |||||||||||||||||
01/05/2009 | 6.55 | 6.75 | 7.75 | 1.39 | 1.71 | 2.70 | ||||||||||||||||
01/04/2010 | 3.13 | 3.23 | 3.70 | 1.39 | 1.71 | 2.24 | 3.2 | |||||||||||||||
01/07/2013 | 2.50 | 2.58 | 2.96 | 1.39 | 1.71 | 2.24 | 3.2 | |||||||||||||||
31/10/2014 | 2.50 | 2.58 | 2.96 | 1.39 | 1.71 | 2.24 | 3.2 |
VOICE (TRY Kurus) | ||||||||||||||||||||||||||||
TURK TELEKOM | Alternative Fixed Line Operators | |||||||||||||||||||||||||||
TURKCELL | VODAFONE | TT Mobil | Local | Single | Double | |||||||||||||||||||||||
01/10/2004 | 15.60 | 15.60 | 15.60 | 4.10 | 5.90 | |||||||||||||||||||||||
01/01/2005 | 14.80 | 14.80 | 14.80 | 3.40 | 5.10 | |||||||||||||||||||||||
01/10/2005 | 14.00 | 14.00 | 14.00 | 2.00 | 3.70 | |||||||||||||||||||||||
01/01/2007 | 14.00 | 15.20 | 17.50 | 2.00 | 3.70 | |||||||||||||||||||||||
01/03/2007 | 13.60 | 14.50 | 16.70 | 1.89 | 3.00 | |||||||||||||||||||||||
01/04/2008 | 9.10 | 9.50 | 11.20 | 1.71 | 2.70 | |||||||||||||||||||||||
01/05/2009 | 6.55 | 6.75 | 7.75 | 1.39 | 1.71 | 2.70 | ||||||||||||||||||||||
01/04/2010 | 3.13 | 3.23 | 3.70 | 1.39 | 1.71 | 2.24 | 3.2 | |||||||||||||||||||||
01/07/2013 | 2.50 | 2.58 | 2.96 | 1.39 | 1.71 | 2.24 | 3.2 | |||||||||||||||||||||
31/10/2014 | 2.50 | 2.58 | 2.96 | 1.39 | 1.71 | 2.24 | 3.2 |
Effective from July 2013, Turkcell is paid TRY 0.0043 per SMS for SMS termination on its network. Respective rates for Vodafone are TRY 0.0043 per SMS and for TT Mobil TRY 0.0047.
| SMS (TRY Kurus) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| TURKCELL | VODAFONE | TT MOBIL | TURK TELEKOM | |||||||||
01/04/2010 | 1.70 | 1.73 | 1.87 | 1.70 | |||||||||
01/07/2013 | 0.43 | 0.43 | 0.47 | 1.70 | |||||||||
31/10/2014 | 0.43 | 0.43 | 0.47 | 1.70 |
SMS (TRY Kurus) | ||||||||||||||||
TURKCELL | VODAFONE | TT MOBIL | TURK TELEKOM | |||||||||||||
01/04/2010 | 1.70 | 1.73 | 1.87 | 1.70 | ||||||||||||
01/07/2013 | 0.43 | 0.43 | 0.47 | 1.70 | ||||||||||||
31/10/2014 | 0.43 | 0.43 | 0.47 | 1.70 |
Effective from October 2014, Turkcell is paid TRY 0.0086 per MMS for MMS termination on its network. Respective rates for Vodafone are TRY 0.0086 per SMS and for TT Mobil TRY 0.0094.
| MMS (TRY Kurus) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| TURKCELL | VODAFONE | TT MOBIL | |||||||
31/10/2014 | 0.86 | 0.86 | 0.94 |
MMS (TRY Kurus) | ||||||||||||
TURKCELL | VODAFONE | TT MOBIL | ||||||||||
31/10/2014 | 0.86 | 0.86 | 0.94 |
dd.cc. Agreements Concluded with the Fixed Telecommunication Services Operators
(i) Interconnection/Call Termination Agreements
Turkcell, as an “operator"operator holding significant market power”power", entered into interconnection/call termination agreements with fixed telecommunication service operators that applied to Turkcell for an agreement. Interconnection rates are regulated by the ICTA. Turkcell pays fixed-line operators TRY 0.0320 per minute and fixed-line operators pay Turkcell TRY 0.0250 per minute for national voice call traffic. However, it was decided to remove the cost-based price obligations for SMS/MMS services by October 1, 2021.
(ii) International Transit Traffic Services Agreements
Turkcell entered into International Transit Traffic Carrying Services Agreements with operators who applied to Turkcell for an agreement. Under these Agreements, we may carry calls to these operators’operators' switches for onward transmission to their destinations and these operators should provide the termination of
these calls on the relevant network. These operators charge us at various prices identified within the scope of the agreement for calls directed to numerous networks around the globe.
(iii) SMS Termination Agreements
During 2011, Turkcell entered into SMS Termination Agreements with alternative operators who applied to Turkcell for an agreement. In accordance with the ICTA regulations on SMS Termination Rates on Turkcell’sTurkcell's network, Fixed Telephony Service Operators pay Turkcell TRY 0.0043 per SMS.
As of December 31, 2020, operators which originate message services are obliged to establish direct interconnection with mobile network operators where the calls will be terminated in accordance with the ICTA Board Decision dated March 24, 2020.
dd. ee.MVNO Services
The ICTA designated Turkcell as the operator having significant market power in the mobile access and call origination markets, which had implications such as mandatory MVNO access and cost-oriented call origination and termination rates.
The ICTA decision dated April 12, 2017, stating that an ex-ante regulation was no longer needed for Mobile Access Call Origination Market, and that Turkcell’sTurkcell's SMP designation was to be lifted after a period of one year, has been cancelled following the ICTA’sICTA's new decision dated April 4, 2018 stating that the transition period had been extended for an additional year until April 12, 2019. A new ICTA decision taken on April 3, 2019 has for the last time extended the transition period until December 31, 2019. Accordingly, Mobile Access and Call Origination Market will beis deregulated and Turkcell’sTurkcell's SMP designation is lifted as of January 1, 2020.
ff. A full MVNO agreement was signed between Turkcell and Netgsm, a local telecommunications company, on November 5, 2020. The scope of the agreement is to wholesale mobile communication services including data, voice and SMS. The term of the agreement is two years.
ee. Agreements Concluded with Directory Service Providers
Turkcell entered into agreements relating to the provision of directory services with 1112 Directory Service Providers, which are licensed by the ICTA to provide directory services. These agreements determine the principles and procedures related to the access of companies to the Turkcell database, the provision of directory services to subscribers and the clearing procedure of the parties. Such agreements are valid and binding for a term of one year. However, if neither party notifies the other party one month before the expiration of the agreement of its request to terminate, the agreement will automatically be renewed for another one-year term.
gg.ff. Agreements Concluded with Operators Licensed to Provide Satellite Services
We have an agreement with Teknomobil Uydu Haberlesme A.S., an operator licensed to provide satellite services. The scope of this agreement is the interconnection between the networks of the parties and the determination of the principles and procedures of the methods of network operation and clearance.
hh.Other regulations affecting our Company
(i)(i) Recent Amendments to the Turkish Insolvency and Restructuring Regime
The Enforcement and Bankruptcy Law No. 2004 prevents a contractual arrangement by which a contractual event of default clause is stipulated to be triggered in case of any application is made by a Turkish company for debt restructuring upon settlement within the scope of Turkish Enforcement and Bankruptcy Law No. 2004. In addition to this, on March 15, 2018, changes were introduced to the Turkish Enforcement and Bankruptcy Law No. 2004. Among other changes, one of them states that the contractual termination, default and acceleration clauses of an agreement cannot be triggered in case the debtor makes a concordat application and such application does not constitute a breach of such agreement.
(ii) Communiqués on Management and Audit of Information Systems
The Capital Markets Board’sCMB's Communiqué on Information Systems Management numbered VII-128.9 and Communiqué on Independent Audit of Information Systems numbered III-62.2, which entered into force on 5 January 2018, introduced new obligations with regards to information systems for certain legal persons, including our Company.
The Communiqué on Information Systems Management defines the technical procedures for sustainability and secure operation of information systems in a very detailed way. Notably, with regards to data protection; specific measures are to be taken as precautions to protect the secrecy of the data received, processed and stored with regard to information system operations. This Communiqué sets out various methods to be used for physical and environmental safety, network security, identity verification, limited access through authorized persons, data integrity, preserving the confidentiality of the data stored in information systems.
The Communiqué on Independent Audit of Information Systems provides the rules, policies and principles on the independent audit of the information systems. The Communiqué provides that CMB certified independent auditor companies shall audit and report to the entities whether the audited entity is in line with the information system management principles in terms of its operations, equipment and software pursuant to the Communiqué. FrequencyThe frequency of the audits to be conducted by CMB certified independent auditors varies for each entity subject to CMB regulations. The Communiqué on Independent Audit of Information Systems is expected to be applicable to publicly listed companies, such as Turkcell, only in 2021.2022 as a result of a delay in the CMB independent audit firm licence and certification process in the context of the COVID-19 pandemic.
Although the Communiqués do not include specific penalties in the event of non-compliance, Article 103 (General Principles) of the Capital Markets Law will apply.
ii. In order to strengthen the control environment, the Information Systems Compliance Committee has been established as an oversight body.
hh. Commercial Electronic Message Management System
A new commercial electronic message management system, named Commercial Electronic Message Management System ("CMMS"), has been introduced in early 2020. The CMMS, which is similar to "Robinson list" practices across the world, is a new centralized system enabling individuals to monitor and manage their consents relating to commercial electronic messages from service providers. All service providers wishing to send commercial electronic messages must register with and upload their existing databases to the CMMS. Further, service providers and intermediary service providers initiating the commercial electronic message transmission on behalf of service providers are obliged to verify the consent status of the recipients over the CMMS.
ii. Major regulations affecting our Subsidiaries
Financell
Financell is a finance company and is thereby subject to the the Financial Leasing, Factoring, and Financial Institutions Law No. 6361. The objective of this law is to regulate the establishment and operating principles of financial leasing, factoring and financing companies operating as financial institutions as well as the principles and procedures relating to financial leasing, factoring and financing contracts.
The Regulation on the Financial Leasing, Factoring, and Financing Companies Establishment and Operation Principle also regulates the duration of the loan and other financing principles. Although Financell has to abide by the Banking RegulatoryRegulation and Supervisory Agency’sSupervision Agency's regulations due to its
financing operations, it also has to abide by the Ministry of Trade’sTrade's regulations on the Consumer Credit Contract with its contents and essentials for its contracts with consumers.
Turkcell Sigorta AracılıkAracilik Hizmetleri A.S.
Turkcell Sigorta is regulated by many regulations pertaining to the insurance sector including the Insurance Law. However, since Turkcell Sigorta A.S. is an insurance agent, it is mainly regulated by the Regulations on Insurance Agents consisting of the specifications of the operations, establishment, structure, authorizations, and responsibilities of the individuals and the corporate entities which are willing to be insurance agents.
Turkcell Energy
The operations of Turkcell Energy are concentrated in the electricity market, which is heavily regulated in Turkey. The governing law is the Electricity Market Law, and the Energy Market Regulatory Authority (“EMRA”("EMRA") is the central regulatory body issuing licenses, setting tariffs and quality standards. Electricity market activities in Turkey subject to the EMRA licensing regime include power generation, power supply, system operation (at both transmission and distribution level) and market operations for which each activity requires the issuance of a separate license.
Turkcell Energy holds a power supply license issued by EMRA on May 11, 2017 that is valid for 20 years. Its license allows Turkcell Energy to buy and sell electricity capacity and energy in both wholesale and retail markets at unregulated prices.
Paycell
With the enactment of Payment Systems Law No. 6493 in August 2016, Paycell has acquired a Payment Service Provider License from the Banking Regulatory AuthorityRegulation and Supervision Agency (BRSA). After Paycell was awarded an electronic money payment license in July 2017, it launched prepaid card and utility bill payments through its application and at Turkcell shops.2017. On November 12, 2019, the BRSA’sBRSA's regulatory powers in this regard were transferred to the Turkish Central Bank of the Republic of Turkey ("CBRT"). The CBRT introduced new regulations regarding "open banking" as well as new license types, such as Payment Initiation Service (PISP) and new licenses enabling “open banking” have been introduced. Open bankingAccount Information Service (AISP). These regulations will enable Paycell to access customerits customers' bank information of banks withthough direct integration. Thus, Paycell will be able to execute payment transactions and act as a single interface to monitor all banking accounts of customers.
Lifecell Muzik & Lifecell TV
The operations of Lifecell Muzik as a music service and Lifecell TV as an OTT TV platform are within the scope of the Regulation on the Presentation of Radio, Television and On-demand Broadcasting Services on the Internet, which came into force on September 1, 2019. As per this regulation, media service providers and platform operators broadcasting services on the internet must obtain a broadcasting license and broadcasting transmission authorization, respectively, from the Radio and Television Supreme Council ("RTUK"). RTUK granted an on-demand broadcasting license to Lifecell Muzik valid for ten years as of August 29, 2019 and a broadcasting transmission authorization to Lifecell TV as of August 29, 2019 valid for one year, which has been later extended until December 31, 2021.
The following chart lists each of our key subsidiaries and our proportionate direct and indirect ownership interest as of April 12, 2021.
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For information on the country of incorporation of our key subsidiaries, see “Item"Item 4.B. Business Overview”Overview".
4.D Property, Plant and Equipment
As of December 31, 2019,2020, we operated 7879 facilities including network data centers, of which 5657 were located in Turkey, the rest in the Turkish Republic of Northern Cyprus, Belarus and Ukraine.
We have our own and leased buildings in Istanbul, including our headquarters, mobile switching centers, network data centers, customer service offices and warehouses. Our buildings in Turkey and outside of Turkey are used for the purposes of administration, sales and other service centers, as well as marketing and operation of mobile switching centers and network data centers.
As of December 31, 20192020, we also had 152156 owned and 1,2001,187 leased vehicles, used for operational purposes and provided as benefits to a number of our employees in Turkey.
a. a.Core Network Infrastructure
Our core network consists of three site Geographically Redundant Next Generation Home Location Register Home Subscriber Server (“("NG HLR”HLR"/“HSS”"HSS"), a combined Number Portability Switch Relay Function (“SRF”("SRF") and Number Portability Database and Signal Transfer Point (“STP”("STP"), Diameter Routing Agent (DRA). The Core Network is common for 2G, 3G, 4.5G radio networks and carries voice over IP, with combined Mobile Switch Centers/Visitor Location Registers (“("MSC/VLR”VLR"), Media Gateways (“MGW”("MGW"), Charging Control Node (“CCN”("CCN") and Virtual Private Network (“VPN”("VPN").
We have an IMS based VOLTE (Voice over LTE) and VoWifi (Voice over Wifi) network. We are planning to converge Core Voice and IMS Networks. With convergence of the networks, the telco based fixed and mobile services and (OTT based) application services will be delivered easier and faster.
Our core packet switching network combined of SGSNS/MME’SMME'S (Serving GPRS Support Node, Mobility Management Entity) and GGSNs/SGW/PGWs (Gateway GPRS Support Node, Serving and PDN Gateway) providing GPRS/EDGE, and HSPA/HSPA+ (High Speed Packet Access) capability for mobile packet traffic and also Policy and Charging Rules Function (“PCRF”("PCRF") for subscriber policies. In addition, we have already deployed Data Optimization equipment for enhanced customer experience.
We have switches in several cities including Istanbul, Ankara, Izmir, Adana, Bursa, Diyarbakir, Erzurum, Gaziantep, Hatay, Kayseri, Kocaeli, Malatya, Mersin, Mugla, Samsun, Trabzon, Tekirdag and Van.
In addition, we own switch buildings in different cities in Turkey, such as Istanbul (Mahmutbey, Kartal, Maltepe)Gebze), Mugla, Izmit, Diyarbakir, and Erzurum. Switch buildings are where the network switching equipment, such as MSC, MGW, BSC and RNC, is located.
b.Access Network Infrastructure
Access Network infrastructure includes (but not limited to) 2G BTSs, 3G NodeBs and 4.5G e-NodeBs which are located on rooftops and towers, Base Station Controllers (“BSC”("BSC") and Radio Network Controllers (“RNC”("RNC") at Network Data Centers (“NDC”("NDC"). Since 2014, we refer to our OMCs (Operation Maintenance Centers) as NDCs (Network Data Centers). BTSs, NodeBs and e-NodeBs consist of fixed transmitter/receiver equipment and the antennas to actualize the coverage area for voice and data connections. 2G BTSs and 3G NodeBs are connected to and controlled by BSC or RNC, respectively. 4.5G e-NodeBs have an important difference in that they are directly connected to the 4.5G Core Network. In addition to macro sites that serve large areas, there are sites using small base stations called small cells, which serve certain specific and limited areas. We have been adding small cells to densify our network and meet certain performance objectives (enhanced user experience, higher speeds, higher capacity, improved coverage, etc.). Depending on the suitability and cost-effectiveness of the candidate solution, we are using small cell systems, repeaters or relay systems to augment our service quality.
In 2009, the ICTA resolved that operators may transfer the right of use of their towers to third parties. In accordance with this resolution, we transferred the rights of certain towers to our subsidiary, Global Tower.
c.Transmission Network Infrastructure
Turkcell’s Turkcell's mobile backhaul utilizes various transport technologies to provide for an efficient, resilient and cost effective transmission network. Connectivity between sites is provided using Microwave Radio Links and Ethernet over DWDM where appropriate. In cell sites, site connectivity is mostly served by point-to-point
microwave radio links owned and managed by Turkcell, makemaking up 76%71% of our network. Also 93%94% of our fiber connectivity to our cell sites is currently provided by our subsidiary, Turkcell Superonline.
The rest of the leased lines are provided by Turk Telekom and Vodafone. As a result, the overall infrastructure capacity usage is fully optimized and a high grade of availability is achieved through topology resiliency and packet base IP mobile backhaul network infrastructure.
ITEM 4A. UNRESOLVED STAFF COMMENTS
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None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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The following discussion and analysis of our management with regard to our financial condition and the results of our operations should be read together with the Consolidated Financial Statements included in this annual report. In addition to historical information, the following discussion contains forward-looking statements based on current expectations that involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in “Item"Item 3.D. Risk Factors”Factors" and elsewhere in this annual report.
I. Overview of the Turkish and International Economy
In The end of the 2019 was marked by the emergence of the COVID-19 virus in China, which then quickly transformed into an unprecedented global growth decelerated substantiallypandemic. Subsequent worldwide lockdowns and travel restrictions, ranging from border restrictions to tests and quarantines, resulted in a slowdown in the weakenedglobal economic activity. As a consequence, global inflation was at 2.7%, the lowest figure in the last three decades according to the International Monetary Fund ("IMF"). In the first two quarters of 2020, industrial production declined considerably and world trade contracted as well. Commercial services trade decreased annually by 28% in the second quarter of 2020, including the tourism industry which was hit the hardest, while merchandise trade decreased by 15% in the same period. The volume of merchandise trade decreased by 5.3% in 2020 according to the World Trade Organization. The selling of financial assets globally triggered the demand for US dollar and, investment environment duein spite of the US Central Bank's (the Federal Reserve, "FED") expansionary steps, the rally for the US dollar persisted. Central banks globally responded to the situation with monetary easing, while governments increased their spending to alleviate the negative effects of the pandemic, resulting in an increase in public debt. Despite this, during the fourth quarter of 2020, stock markets witnessed all-time highs. Although the containment measures were eventually successful at slowing the spread of COVID-19 in certain regions, these measures resulted in economic disruption, deterioration in the labour market and uncertainties. The impact of the pandemic, together with the import tariff dispute between the U.S. and China Brexit relatedand Brexit-related political uncertainty in Europe, resulted in declines in GDP of major countries. According to the IMF, the global economy contracted by 3.3% in 2020.
In the U.S., in response to the pandemic and geopolitical tension indeclining inflation, the Middle East. ForFED cut rates by 150 bps (from 1.50%-1.75% to 0%-0.25%). As a significant part of 2019, global manufacturing activity slowed markedly and global trade in goods contracted, while business and investor sentiment deteriorated notably. Further, as a result of weak demand, commodity prices decreased. Inmonetary easing, the second halfbalance sheet of the year, global recession worries triggered monetary policy easing by major central banks,FED increased to USD 7.4 trillion from USD 4.2 trillion with asset purchases. Fiscal stimulus reached USD 3.8 trillion, and 18% of GDP in the subdued inflation environment, emerging countries cut policy rates to support waned growth. At the end of 2019, along with the alleviation of Brexit uncertainty and diminished trade tension, financial market sentiment improved notably and global financing conditions eased significantly. Despite weak global investor sentiment, emerging markets’ borrowing costs decreased and debt issues rose.
In the US, due to global recession worries, low levels of inflation and a diminishing contribution of tax cuts and public spending, the Fed cut its policy rate by 75 bps in 2019.2020. In Europe, economic activity decreaseddeclined significantly as a result of diminished global demand, hampered auto sector production, resulting from new emission standards,the pandemic as well as Brexit uncertainty. The ECB decreasedkept its policydeposit rate at –0.50% and continued its quantitative easing by increasing balance sheet to negative levels7.0 trillion EUR from 4.7 trillion EUR. At the same time, expansionary fiscal policies were implemented across Europe, including a EUR 267 billion stimulus in Germany, a EUR 84 billion stimulus in France, a EUR 100 billion stimulus in Italy and restarted quantitative easing. Ina GBP 295 billion stimulus in the UK. Meanwhile, China experienced a sharp decline in economic growth slowed due to the trade dispute with the U.S., country specific economic transformationpandemic and weak domestic demand, resulting in monetary and fiscal policies becoming more accommodative.
In Turkey, following a strong rebalancing period with 2.3% and 1.6% year-on-year contractionsrecovered in the first two quarterssecond quarter of 2019, the Turkish economy grew 0.9% year-on-year2020. Meanwhile, recovery in 2019, particularly with the help of household and government spending and inventory contribution. The business confidence index, capacity utilization rate, consumer loan growth, manufacturing PMI and retail sales growth have returned to pre-crisis levels. In addition, the pick-up in commercial loan growth is indicatingworld production lagged behind. Since April, there has been a slow recovery in investment activity followingEast Asia, Europe, North America and Latin America.
In the acceleration in consumption.
Inflation followed a downward trend throughoutsecond half of 2019, slowing from nearly 20.35% year-on-year in January to 11.8% in December. The improvement was driven by a more stable currency, strong base effect, favorable food prices and muted inflation expectations. The fiscal outlook deteriorated in 2019 due to higher expenditures to support the slowing economy and lower tax revenues. However, this was balanced by non-recurring revenues, most of which are in various forms of transfers from the Central Bank of the Republic of Turkey (“CBRT”("CBRT"). cut the policy rate gradually by 1200 basis points in total. As a result of easing monetary policy, Turkey started to show positive GDP growth. The 12-month cumulative budget deficit widenedGDP increased by 6.36% in the last quarter of 2019 and continued to around 2.9%grow in the first quarter of 2020 by 4.46%, on a year-on-year basis. The first COVID-19 case was observed on March 11, 2020 in Turkey, and accordingit imposed the first lockdown in the beginning of April. As a result of the US dollar rush in the global markets, the Turkish Lira depreciated 18% until the beginning of May. On May 4, 2020 the government announced a gradual lifting of containment measures to support the economy, including the tourism industry which constitutes a substantial portion of the Turkish economy. To avoid adverse effects of the lockdown, the CBRT cut the policy rate by 150 basis points from March to the national definition,end of May. The Turkish economy contracted 10.30% in the primary deficitsecond quarter year-on-year, which was approximately 0.5%one of GDPthe best performances among the developed and emerging countries. In addition to this, the government-initiated credit-channel stimulus through state banks for corporates and individuals. As a result, the Turkish economy was the fastest growing country in December 2019.
the world in the third quarter, namely 6.29% year-on-year, boosting positive growth expectations for 2020. In the last quarter of 2020, the effect of credit expansion combined with monetary easing resulted in the depreciation of the Turkish Lira, a deterioration in inflation and current account deficit. Inflation fluctuated throughout 2020 and increased from nearly 12.15% year-on-year in January to 14.60% in December. The deterioration in inflation was driven by credit expansion as well as the passthrough effect of the currency depreciation. In response to the increasing inflation rate in the last quarter, Turkey reversed its monetary approach. The CBRT and the Turkish Banking Regulation and Supervision Agency (“BRSA”("BRSA") enacted a series of measures and rules to ensure financial and economic stability and support the Turkish Lira. In 2019,Normalization steps included increasing the CBRT cut its policy rate to 17%, implementing an orthodox policy by 1200 basis points and started to fundfunding banks via swap facilities instead of the existingwith only one-week repo channel and changed banks’channels, emphasizing financial stability, changing banks' reserve requirement regulations to encouragediscourage them to grow their Lira loan books. Further,books and increasing swap limits with foreign banks. Moreover, the CBRT madeBRSA removed asset rule ratios starting from December 31, 2020, implicating a commitment to grow its’ holding of government bonds from about TRY 20 billion currently to at least TRY 32 billion over the course of 2020.
The recent global outbreak of the Coronavirus (“COVID-19”) has caused and may cause additional slowdown in future credit growth. As a consequence of these positive steps, Turkish assets gained value and Turkey's credibility has improved. The Turkish Lira appreciated by 13% against US dollar and 5Y CDS declined to 306 from 566 from November to year end. In the globalsame period, eurobonds and stocks rallied. The fiscal outlook deteriorated in 2020 due to higher expenditures to support the slowing economy as is evidenced bydue to the ongoing sharp fall in investments, exports and industrial production. On March 27, 2019, the International Monetery Fund officially declared that the global economy has entered recession aspandemic. As a result of the spread of COVID-19. As COVID-19 spreads globally, financial markets are factoringpandemic, the 12-month cumulative budget deficit widened to around 3.42% in higher riskDecember 2020. Turkey had 5.87% growth in their pricesthe fourth quarter year-on-year. Growth was driven in particular by household spending, investment and experiencing historical levels of volatilityinventory contribution in 2020.
In January and selloffs. Turkey has beenFebruary 2021, the CBRT kept the policy rate constant at 17%, and will continuethen increased the policy rate by 200 bps on March 18, 2021 to be affected. A series of measures have been announced19%, in Turkeyreaction to combat the effects of COVID-19, suchinflationary risks stemming from international developments and accelerating domestic loan growth. Mr Sahap Kavcioglu replaced Mr Naci Agbal as the Central Bank of Turkey’s targeted additional liquidity facilities to banks aimed at securing uninterrupted credit flow toCBRT governor on March 20, 2021. The new governor Kavcioglu stated that the corporate sector, tax cuts and primary debt and interest payments deferments. However, we cannot predict the impact, if any, of these measures on the Turkish economy. In addition, these measurespolicy rate will be costlyabove inflation until a permanent decline in inflation is secured. Moreover, exchange rate developments which are driven by changes in global financial conditions and will thus addTurkey's risk premium is likely to Turkey’s state debt and may eventually result in additional pressure on the value of the TRY relative to other currencies.affect monetary policy.
II. Taxation Issues in the Telecommunications Sector and Other Sectors in which the Company Operates
Under current Turkish tax laws, there are several taxes imposed on the services provided by telecommunications operators in Turkey and other sectors in which the Company operates. With regard to the taxes specific to the telecommunications sector, these taxes are charged to subscribers by mobile operators and remitted to the relevant tax authorities. They may be charged upon subscription, on an annual basis or on an ad valorem basis on the service fees charged to subscribers.
The following are the most significant taxes imposed on our telecommunications services and on other sectors where we operate:
a. a.Special Communications Tax
The Turkish government imposed a 25% special communications tax (“SCT”)SCT on mobile telephone services as part of a series of new taxes levied to finance public works required to respond to the earthquakes that struck Turkey’sTurkey's Marmara region in 1999. Starting in August 2004, other telecom services (i.e., fixed lines and TV/radio transmission) are also included within the scope of the SCT.
As of March 1, 2009, the SCT rate for wireless and mobile internet service providers was set to 5% (previously such tax was 25% on mobile and 15% on fixed lines). Other than mobile broadband services, all mobile telecommunication services were subject to 25% and other telecommunication services (i.e., fixed lines and TV/radio transmission) were subject to a 15% SCT up until December 31, 2017. As of January 1, 2018, the SCT rate for all services within the scope of the tax has been set to 7.5%. Since January 1, 2018, only the mark-up amount on subscribers’subscribers' invoices for roaming services is subject to the SCT. As of January 30, 2021, the SCT rate for all services within the scope of the tax has been set at 10%.
Under Law No. 6322, effective July 1, 2012, new mobile subscriptions for Machine to Machine (“M2M”("M2M") SIM cards are not subject to the SCT levied upon new subscriptions.
The SCT on new mobile subscriptions was TRY 79, TRY 65 and TRY 53 in 2020, 2019 and TRY 47 in 2019, 2018, and 2017, respectively. As of January 1, 2020,2021, this has been increased to TRY 79.86. The tax has had a correlative negative impact on mobile usage.
As of January 1, 2018, the SCT is calculated for TRY and bundle package sales and also calling cards sales by including the margin of the distributor or/and retailer and these amounts. Mobile electronic telecommunication operators and authorized fixed telecommunication operators are responsible for the calculation and self-reporting to the tax authorities of the SCT amount on these pre-paid sales.
The tax collected from subscribers in one calendar month is remitted to the tax authorities within the first 15 days of the following month.
b.Value Added Tax (“VAT”("VAT")
Like all services in Turkey, services provided by GSM operators are subject to VAT. The general VAT rate for telecom services is 18% (1% rate for digital publishing was set at 18% for 2019 and subsequent years). We declare VAT to the Ministry of Treasury and Finance within 26 days and remit VAT paid by our subscribers within the first 26 days of the month following which the tax was incurred, after the offset of input VAT incurred by us.
VAT for roaming services was, until November 3, 2009, calculated solely on the mark-up amount on subscribers’subscribers' invoices for roaming services. Following the Ministry of Treasury and Finance’sFinance's declaration of a change in its position regarding roaming charges, we began imposing VAT and the special communications tax on the entire amount of roaming charges, starting from November 3, 2009, to comply with this change in position. As of January 1, 2018, the VAT mechanism on roaming charges prior to November 3, 2009 was restored, and since then only the mark-up amount on subscribers’subscribers' invoices for roaming services is subject to VAT.
As of January 1, 2018, reverse charge VAT exemption is applied on the invoices which are related to roaming services issued by foreign GSM operators.
Additionally, as of January 1, 2018, if a non-resident e-service provider performs e-services from abroad to real persons who are located in Turkey, the service provider must be a VAT tax payer in
Turkey. E-service providers have to declare VAT over the sales amount of e-services, with a VAT return within 26 days and pay within the first 26 days of the following month. Further, service providers can consider as deductible VAT which they have paid as a VAT amount to the Turkish entities related to these e-services.
As of January 1, 2018, VAT is calculated for TRY and bundle package sales and also calling card sales by including the margin of the distributor and/or retailer and these amounts. Mobile electronic telecommunication operators and authorized fixed telecommunication operators are responsible for the calculation and self-reporting to the tax authorities of the VAT amount on these pre-paid sales.
c.License and Annual Utilization Fees
According to Article No. 46 of the Electronic Communications Law, subscribers registered in the system are subject to both license and annual utilization fees. GSM operators are charged with the duty of collecting these fees. The license fee is paid once on the subscription per subscriber. The license fee was TRY 34.15, TRY 27.86 and TRY 22.52 in 2020, 2019 and TRY 19.68 in 2019, 2018, and 2017, respectively. As of January 1, 2020,2021, the license fee is TRY 34.15.37.26. Since January 1, 2018, subscriptions for FATIH Project of Ministry of National Education (launched with the purpose of improving the use of technology at schools) and machine to machine (M2M) SIM cards are not subject to license and annual utilization fees.
The payment of the annual utilization fee to the government depends on whether a subscriber is postpaid or prepaid. For postpaid subscribers, the monthly utilization fee was TRY 2.85, TRY 2.32 and TRY 1.88 in 2020, 2019 and TRY 1.64 in 2019, 2018, and 2017, respectively, and is charged to subscribers monthly. As of January 1, 2020,2021, the monthly utilization fee is TRY 2.85.3.11. For prepaid subscribers, the annual utilization fee is calculated by multiplying the number of registered prepaid subscribers at the previous year end with the annual utilization fee, and the calculated bulk annual utilization fee is paid by mobile operators the following year on the last business day in February. Since June 2011, we have collected utilization fees from most of our prepaid subscribers.
Other than subscribers’subscribers' license and annual utilization fees, operators must pay license and annual utilization fees for wireless equipment to the ICTA. Prior to January 1, 2018, such fee amount to be paid was calculated with respect to the amount per unit of wireless equipment (TRx); however, following a legislative change, since January 1, 2018 the fee is being calculated as 5% of the monthly net sales amount (sales amount in relation to FATIH Project is not subjected to TRx), and is to be paid within the last working day of the following month.
d.Special Consumption Tax
The Special Consumption Tax (“SCT”) is a tax on prescribed goods, which includes mobile phones. The Special Consumption Tax is charged on mobile phones (mobile phones are legally defined as “transmitter/"transmitter/receiver cellular phones”phones") either when they are imported or when they are sold by Turkish manufacturers. As of May 1, 2019, the SCTSpecial Consumption Tax rates are set as provided in the table below and cannot be less than TRY 160 per cellular phone device.
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Cellular wireless phone devices with a receiver | |||||||||
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With the Communiqué on the Implementation of Supervision of Imports No.2020/6, published in the Official Gazette on May 8, 2020. Accordingly, for mobile phone imports under USD 200, the
surveillance certificate will have to be submitted to the customs administration at the time of import. Importers must increase their tax bases to minimum USD 200 in order to make imports without a surveillance certificate.
e.Digital Services Tax
On March 1, 2020, the Digital Services Tax (“DST”("DST") to be paid through certain digital services, particularly all advertising services delivered in the digital environment, was introduced. The tax is to be paid at a rate of 7.5% per month over the revenues generated from the following digital services performed in Turkey:
Tax payers exceeding a revenue threshold of €750 million in global revenues (under the draft CommuniqueCommuniqué provisions, local revenues are also considered under global revenues) and TRY 20 million in local revenues are subject to DST.
DST returns must be declared through monthly basis payments, and made by the end of the following month. No deductions are allowed and taxpayers may not separately disclose DST on invoices. The DST amount which is paid by taxpayers is deductible from the income or corporate tax base.
The President has the authority to reduce the rate to a minimum of 1%, or increase it to a maximum of 7.5%, based on service type, separately or collectively.
Digital service taxpayers are defined as digital service providers. Their state of being fully liable, or not, as per the Income Tax Law No. 193 and the Corporation Tax Law No. 5520, under limited liability status, does not affect the tax liability for digital services. Neither does the question of whether they are performing with the related activities through a place of business or through permanent representatives in Turkey which affects the digital service tax liability.
In cases where the taxpayer has no residency, legal entity and/or business center in Turkey and other cases where it is deemed appropriate, the Ministry of Treasury and Finance may determine the taxpayer to be the parties to the transaction which is subject to taxation or the ones who mediate the transaction and payment.
Revenues generated from the provision of the following services are exempt from DST:
Revenues generated from some services provided by Turkcell Group are subject to DST; however, the total of those revenues do not exceed the stated thresholds as at March 20,December 31, 2020. We will continue to monitor such revenues and any updates in the related legislation.
f.Turkish Radio and Television (“TRT”("TRT") Association Banderol Fee
According to Article No. 4 of the Law on TRT Revenues, mobile phones are subject to the TRT banderol fee over (i) VAT base (excluding SCT) related to the sales amount for produced products (ii) VAT base (excluding SCT) of the customs declaration amount for import products. Since June 2016, the following rates
have been applied for this purpose: (i) 7% for mobile phones which can receive radio or television broadcasts via integrated tuner, and (ii) 6% for mobile phones which can receive radio or television broadcasts via internet connection. As of July 2017, all mobile phones which have 8517.12.00.00.11a certain customs tariff statistics status, are subject to a TRT banderol fee at the rate of 10%.
g.Treasury Share, Universal Service Fund Contribution
Due to our licenses (2G and 3G) and Authorization Certificate (4.5G), we are required to pay a treasury share equal to 15% of our gross revenue including some exemptions. 10% of the treasury share is paid as a universal service fund contribution. In addition, we must pay annual contributions in an amount equal to 0.35% of our net revenue towards the ICTA’sICTA's expenses.
Since 2005, we are required to pay 90% of the treasury share to the Turkish Treasury and 10% to the Ministry of Transport and Infrastructure as a universal service fund contribution as mentioned above. As of January 1, 2018, all of our treasury share is paid to the ICTA, which then transfers it to the Turkish Treasury and the Ministry of Transport and Infrastructure as detailed above. The calculation method for the treasury share has also been revised and accordingly, the following are not to be considered in the calculation of the treasury share: (i) overdue interests which are accrued to the subscribers for any unpaid balance, (ii) accrual amounts for the purpose of reporting, (iii) reflecting the installation and maintenance costs of the mobile radio stations to other mobile operators and finally and (iv) amounts for the purpose of correction accounting records which occur in the same year due to errors (such as customer information, type of business, amount and price).
Also, we are required to pay a Universal Service Fund Contribution equal to 1% of net sales revenue for Turkcell Superonline, Global Tower and Rehberlik Hizmetleri Servisi A.S. (“("Rehberlik Hizmetleri”Hizmetleri"). These amounts are paid annually within the month of June of each following year.
In addition, we must pay annual contributions in an amount equal to 0.35% of our net revenue to the ICTA’sICTA's expenses for all companies.
h. h.Other Tax Legislations
Amendments The amendments to the tax laws and the latest taxes introduced through the Law No. 71947256 published in the Official Gazette dated December, 7, 2019November 17, 2020 are summarized as follows:
As per the new bracket added to the income tax tariff for the income exceeding TRY 500,000 (including wages), these incomes
The rate for the banking and insurance transaction tax applied as 1 per thousand relating to foreign exchange transactions since May 15, 2019 has increased to 2 per thousand.
On December 7, 2019, Article 376 of the Tax Procedural Law regulating the deduction of tax penalties was amended, and the discount rate set at 50%.
An article titled “abandonment of legal remedy” was added to the Tax Procedure Lawimposed in order to resolve the tax disputes between theprevent fully taxpayer and the administration.
As of January 1, 2019, the VAT rate is set as 18% for the sale of newspapers, magazines, electronic books and similar publicationscapital companies from tax-free dividend distribution through acquiring their own shares.
The late feescope of temporary Article 67.
The corporate tax rate has been set at 25% for the periodfiscal year 2021 and 23% for the fiscal year 2022 in accordance with Law No. 7316 published in the Official Gazette dated April 22, 2021. The corporate tax rate shall be applied as 20% for the fiscal years starting 2023 assuming there will be no additional legislation.
As of July 1,December 30, 2019, and October 1, 2019, and thenthe late fee rate is set at 2% per month from October 1, 2019 onwards.1.6%.
Through adding foreign exchange differences to the components included in VAT base, in deliveries and services performed based on foreign currency domestically as in imports, a legal basis for the VAT subjection of exchange differences arising when the price is fully or partially collected afterwards is ensured.
Pursuant to the section within the Act of Fees Tariff No. 8 “Passenger"Passenger phone usage fee”fee", the utilization permit for cellular wireless phone devices with a receiver brought by passengers for self-usage with non-commercial purpose is subject to a fee. The amount of the fee to be applied for 2019in 2021 is TRY 2,006 which was set at TRY 618.60. This amount was then increased to TRY 1,500 for 2019 and stands at TRY 1,838 for1,839 in 2020.
The Cultural Fund for mobile phones (imported or manufactured mobile phones which have voice recording qualifications) will beis paid as ofsince March 19, 2020. The Cultural Fund is set at 1% over, (i) the custom value for imported devices and (ii) the production value for the devices which are manufactured in Turkey. This fund will beis considered as a cost of goods item and willis not be reflected directly as a tax to the customers on the invoices.
Withholding rates on the interest obtained from Turkish Lira deposit accounts and the dividends paid to participation accounts by participation banks have been temporarily reduced through the Presidential Decision No.3032 published in the Official Gazette dated September 30, 2020. Accordingly:
The amendments indicated below have been made to the Decision No. 2006/10731 determining the withholding rates in the temporary Article 67 of the Income Tax Law, through the Presidential Decision No. 3321 published in the Official Gazette dated December 23, 2020.
Accordingly, 5%, 3% and 0% withholding will be applied on the income and gains obtained from the concerning securities depending on the maturity and holding period of the paper.
i.Tax disputes
Changes in the Ministry of Treasury and Finance’sFinance's interpretation of the taxation codes, especially changes regarding consumption taxes (VAT and SCT), may adversely affect consumer prices. In addition to the prospective financial impact of such changes, unanticipated tax liabilities and fines may also be levied against our financial results in prior years, since companies’companies' operations in the previous five years may be subject to financial investigation. Regulations that became effective from July 1, 2010, however, have strengthened our rights with regards to this risk, particularly with regards to the following:
For a description of various tax related disputes to which we are party, see “Item"Item 8.A. Consolidated Statements and Other Financial Information—I. Legal Proceedings”Proceedings".
III. Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements and for the period then ended. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, actuarial estimates, current conditions and various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments on the carrying values of assets and liabilities, and are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies are disclosed in Note 2 (Basis of preparation and summary of significant accounting policies) to our Consolidated Financial Statements in this annual report on Form 20-F.
IV. Reportable Segments and Reporting Currency
Our operations are aggregated under two main reportable segments, Turkcell Turkey and Turkcell International:
BiP Iletisim.
Our “Other”"Other" reportable segment is comprised mainly of information and entertainment services in:of: (i) Turkey and Azerbaijan, (ii) non-group call center operations of Turkcell Global Bilgi, (iii)(ii) consumer financing service operations of Financell, Turkcell Odeme and Paycell LLC, and TOFAS, (iv)(iii) electricity energy trade operations of Turkcell Enerji, (v)(iv) insurance agency activities of Turkcell Sigorta as well as (vi) the development and production of electric passenger cars and (vii) the carrying out of trading activities of Turkiye’nin Otomobili and Sofra.Sigorta. The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies.
The Group has transferred its total shareholding in Inteltek to the other shareholder, Intralot Iberia Holding SAU. The transfer of shares and proceeds were completed on September 30, 2020.
The Group has transferred its total shareholding in Azerinteltek, controlled by Inteltek, to another shareholder of Azerinteltek, Baltech. The share purchase agreement was signed on November 15, 2018 and the transfer of proceeds to Inteltek was completed on December 27, 2018. The Group lost control over the subsidiary unconditionally on December 27, 2018 following the transfer of money. The transfer of shares to Baltech was completed subsequently on January 11, 2019.
Starting from October 1, 2016, Fintur was classified as held for sale and reported as discontinued operations. The Group signed the definitive agreement on December 12, 2018 to transfer its total shareholding in Fintur to another shareholder of Fintur, Sonera Holding. The transfer to Sonera Holding was completed on April 2, 2019 for a final value of EUR 352.9 million.2019. See Note 16 to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F.
Our financial statements are presented in TRY only, the currency in which we recognize the majority of our revenues and expenses.
Our audited Consolidated Financial Statements as of December 31, 20192020 and December 31, 20182019 and for each of the years in the three-year period ended December 31, 20192020 included in this annual report have been prepared in accordance with IFRS as issued by the IASB.
I. Overview of Business
Turkcell, a joint stock company organized and existing under the laws of the Republic of Turkey, was incorporated in 1993 and commenced its operations in 1994. We operate under a 25-year GSM license (the “2G License”"2G License") and a 20-year GSM license (the “3G License”"3G License"). We were granted the 2G License in April 1998 upon payment of an upfront license fee of $500 million. On April 30, 2009, we signed a license agreement with the ICTA, which provides authorization for providing IMT 2000/UMTS services and infrastructure. We acquired the A-type license providing the widest frequency band for a consideration of EUR 358 million (excluding VAT). The 3G License is effective for 20 years starting from April 30, 2009. Pursuant to the agreement, we started to provide IMT 2000/UMTS services as of July 30, 2009.
In the 4.5G auction held on August 26, 2015, we were awarded a total frequency band of technology agnostic 172.4 MHz, the largest amount of spectrum of any operator in Turkey. We commenced offering 4.5G services from April 1, 2016. The 4.5G license is effective for 13 years until April 30, 2029. The total fee of EUR 1,623.5 million (excluding VAT and interest payable on the installments) was paid in four installments.
Our services portfolio includes high-quality mobile and fixed voice, data, TV and digital services over our network. We continue to focus on our customer-oriented approach and our ability to provide quick and differentiated solutions to meet our customers’customers' needs through lifestyle segments and usage habits.
Our subscriber base has grown substantially since we began operations in 1994. At year-end 1994, we had 63,500 subscribers at Group level, and by year-end 2019,2020, that number for the Group had grown to 46.747.9 million including the subscribers of our subsidiaries.
In the mobile segment, we increased our postpaid subscriber base from 56% in 2018 to 62% in 2019 to 66% in 2020 due to our focus on value. As of December 31, 2019,2020, we had approximately11.5 million prepaid subscribers and 22 million postpaid subscribers, compared to 12.4 million prepaid subscribers and 20.4 million postpaid subscribers compared to approximately 14.9 million prepaid subscribers and 18.8 million postpaid subscribers as of December 31, 2018.2019.
Our average minutes of usage (MoU) in Turkey increased 16%25% to 519 minutes in 2020 from 415 minutes in 2019 from 359.5 minutes in 2018 as a result of high bundle packages utilization. Our mobile ARPU in Turkey increased to TRY 39.845.5 in 20192020 compared to TRY 33.939.8 in 20182019 mainly driven by our upsell strategy, favorable change in customer mix, increasing data consumptionand digital services usage and price adjustments.
Churn rate is the percentage calculated by dividing the total number of subscriber disconnections during a period by the average number of subscribers for the same period. For these purposes, we define the “average"average number of subscribers”subscribers" as the number of subscribers at the beginning of the period plus one half of the total number of gross subscribers acquired during the period. Churn refers to subscribers that are both voluntarily and involuntarily disconnected from our network. For a more detailed discussion, please see “Item"Item 4.B. Business Overview – Overview—V. Churn”Churn".
In the fixed segment, our subscriber base was at 2.3exceeded 2.4 million for the year ended December 31, 2019. 1.52020. 1.7 million of this base are fiber customers. Fixed residential ARPU increased to TRY 69.6 in 2020 from TRY 63.2 in 2019 mainly by upsell strategy and acquisition of higher revenue generating customers. Monthly average fixed churn rate improved to 1.9% in 2020 from 2.1% in 2019.
We booked an impairment provision for contract assets, other assets and receivables from financial services in our Consolidated Financial Statements at the amount of TRY 795.8787.2 million and TRY 938.5795.8 million as of December 31, 20192020 and 20182019 respectively, which we believe to be adequate. The main reasons for the change in impairment losses include collections made in 20192020 amounting to TRY 283.7229.7 million and a write-off of overdue receivables amounting to TRY 493.1300.1 million which was netted of with an impairment loss recognized amounting to TRY 622.6579.3 million.
II. International and Other Domestic Operations
In addition to our businesses in Turkey, we have telecommunications operations in Ukraine, the Turkish Republic of Northern Cyprus Belarus and Germany.Belarus. For a description of, and additional information regarding, our international and other domestic operations, see “Item"Item 4.B. Business Overview”Overview".
III. Revenues
Revenues include telecommunication services, equipment revenues, revenue from financial services, call center revenues and commission fees on betting business call center revenues and revenues from financial services. (which is relevant for the year 2019).
Telecommunication service revenues mainly include voice, data, messaging, digital services and solutions, interconnect, roaming, and wholesale.
IV. Operating Costs
a. a.Cost of Revenues
Cost of revenues includes depreciation and amortization charges, cost of goods sold, payments for ourthe treasury share and universal service fund, transmission fees, radio costs, billing and archiving costs, cost of goods sold, depreciation and amortization charges, cost of revenues from financial services, roaming charges paid to international operators for calls made by our subscribers while outside Turkey, interconnection and termination feescosts mainly paid to Turk Telekom and Vodafone, employee benefit expenses for technical personnel, radio costs, frequency expense, transmission costs, roaming expenses paid to international operators for calls by our subscribers outside Turkey and frequency fee.cost of revenue from financial services.
b.Administrative Expenses
Administrative expenses consist of employee benefit expenses for non-technical, non-marketing, and non-sales employees’employees', service expenses, consultancy expenses, collection expenses, maintenance and repair expenses, travel and entertainment expenses consultancy expenses, collection expenses, and other overhead charges.
c. c. Selling and Marketing Expenses
Selling and marketing expenses consist of dealer and distributor commissions, advertising, employee benefit expenses of sales and marketing related employees, sponsorship expenses, communication expenses, and other expenses, including travel expenses, officestamp duty expenses, insurance, and training and communication expenses.office expensess.
d.Net Impairment Losses on Financial and Contract Assets
Net impairment losses on financial and contract assets consist of impairment losses incurred through assessment of the Group at the end of each reporting period to consider whether there is objective evidence that a financial asset or group of financial assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’'loss event') and that loss event had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost was considered an indicator that the assets were impaired.
e.Results of Operations
The following table shows information concerning our consolidated statements of operations for the years indicated:
| For the years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | |||||||
| (in TRY) millions | |||||||||
Revenue | 28,272.8 | 23,996.3 | 20,173.4 | |||||||
Revenue from financial services | 831.0 | 1,140.9 | 1,119.1 | |||||||
Total revenue | 29,103.7 | 25,137.1 | 21,292.5 | |||||||
Cost of revenue | (20,161.1 | ) | (16,816.7 | ) | (13,751.2 | ) | ||||
Cost of revenue from financial services | (175.0 | ) | (266.8 | ) | (394.8 | ) | ||||
Total cost of revenue | 20,336.1 | (17,083.5 | ) | (14,146.0 | ) | |||||
Total gross profit | 8,767.7 | 8,053.7 | 7,146.5 | |||||||
Administrative expenses | (749.6 | ) | (779.8 | ) | (673.4 | ) | ||||
Selling and marketing expenses | (1,373.0 | ) | (1,555.2 | ) | (1,626.7 | ) | ||||
Net impairment losses on financial and contract assets | (349.6 | ) | (338.9 | ) | (346.4 | ) | ||||
Other operating income/(expenses), net | (523.3 | ) | (346.6 | ) | (140.1 | ) | ||||
Operating profit | 5,772.3 | 5,033.3 | 4,359.9 | |||||||
Finance costs | (3,251.2 | ) | (2,025.1 | ) | (3,364.1 | ) | ||||
Finance income | 2,119.5 | 297.5 | 1,677.1 | |||||||
Net finance (costs)/income | (1,131.7 | ) | (1,727.7 | ) | (1,687.0 | ) | ||||
Share of loss of equity accounted investees | (13.8 | ) | (15.7 | ) | (0.1 | ) | ||||
Profit before income taxes | 4,626.8 | 3,289.9 | 2,672.8 | |||||||
Income tax expense | (387.2 | ) | (785.6 | ) | (495.5 | ) | ||||
Profit from continuing operations | 4,239.6 | 2,504.3 | 2,177.3 | |||||||
Gain from discontinued operations | — | 772.4 | — | |||||||
Profit for the year | 4,239.6 | 3,276.7 | 2,177.3 | |||||||
Attributable to: | ||||||||||
Owners of the Company | 4,237.1 | 3,246.5 | 2,021.1 | |||||||
Non-controlling interests | 2.5 | 30.2 | 156.3 | |||||||
Profit for the year | 4,239.6 | 3,276.7 | 2,177.3 |
For the years ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(in TRY) millions | ||||||||||||
Revenue | 23,996.3 | 20,173.4 | 16,917.1 | |||||||||
Revenue from financial services | 1,140.9 | 1,119.1 | 715.0 | |||||||||
Total revenue | 25,137.1 | 21,292.5 | 17,632.1 | |||||||||
Cost of revenue | (16,816.7 | ) | (13,751.2 | ) | (11,058.3 | ) | ||||||
Cost of revenue from financial services | (266.8 | ) | (394.8 | ) | (291.8 | ) | ||||||
Total cost of revenue | (17,083.5 | ) | (14,146.0 | ) | (11,350.2 | ) | ||||||
Gross profit | 8,053.7 | 7,146.5 | 6,281.9 | |||||||||
Administrative expenses | (779.8 | ) | (673.4 | ) | (645.2 | ) | ||||||
Selling and marketing expenses | (1,555.2 | ) | (1,626.7 | ) | (2,005.4 | ) | ||||||
Net impairment losses on financial and contract assets | (338.9 | ) | (346.4 | ) | — | |||||||
Other operating income/(expenses), net | (346.6 | ) | (140.1 | ) | (698.9 | ) | ||||||
Operating Profit | 5,033.3 | 4,359.9 | 2,932.4 | |||||||||
Finance costs | (2,025.1 | ) | (3,364.1 | ) | (920.1 | ) | ||||||
Finance income | 297.5 | 1,677.1 | 597.2 | |||||||||
Net finance (costs)/income | (1,727.7 | ) | (1,687.0 | ) | (322.9 | ) | ||||||
Share of loss of equity accounted investees | (15.7 | ) | (0.1 | ) | — | |||||||
Profit before income taxes | 3,289.9 | 2,672.8 | 2,609.5 | |||||||||
Income tax expense | (785.6 | ) | (495.5 | ) | (571.8 | ) | ||||||
Profit from continuing operations | 2,504.3 | 2,177.3 | 2,037.8 | |||||||||
Gain from discontinued operations | 772.4 | — | — | |||||||||
Profit for the year | 3,276.7 | 2,177.3 | 2,037.8 | |||||||||
Attributable to: | ||||||||||||
Owners of the Company | 3,246.5 | 2,021.1 | 1,979.1 | |||||||||
Non-controlling interests | 30.2 | 156.3 | 58.6 | |||||||||
Profit for the year | 3,276.7 | 2,177.3 | 2,037.8 |
The following table shows certain items in our consolidated statement of operations as a percentage of revenue:
| Year ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | |||||||
Results of Operations (% of revenue) | ||||||||||
Revenue | 100.0 | 100.0 | 100.0 | |||||||
Cost of revenue | (69.9 | ) | (68.0 | ) | (66.4 | ) | ||||
Gross margin | 30.1 | 32.0 | 33.6 | |||||||
Administrative expenses | (2.6 | ) | (3.1 | ) | (3.2 | ) | ||||
Selling and marketing expenses | (4.7 | ) | (6.2 | ) | (7.6 | ) | ||||
Net impairment losses on financial and contract assets | (1.2 | ) | (1.3 | ) | (1.6 | ) | ||||
Other operating income/(expenses), net | (1.8 | ) | (1.4 | ) | (0.7 | ) | ||||
Operating profit | 19.8 | 20.0 | 20.5 |
Year ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Results of Operations (% of revenue) | ||||||||||||
Revenue | 100.0 | 100.0 | 100.0 | |||||||||
Cost of revenue | (68.0 | ) | (66.4 | ) | (64.4 | ) | ||||||
Gross margin | 32.0 | 33.6 | 35.6 | |||||||||
Administrative expenses | (3.1 | ) | (3.2 | ) | (3.7 | ) | ||||||
Selling and marketing expenses | (6.2 | ) | (7.6 | ) | (11.4 | ) | ||||||
Net impairment losses on financial and contract assets | (1.3 | ) | (1.6 | ) | — | |||||||
Other operating income/(expenses), net | (1.4 | ) | (0.7 | ) | (4.0 | ) | ||||||
Operating Profit | 20.0 | 20.5 | 16.6 |
V. Segment Overview
Our operations are aggregated under two main reportable segments, Turkcell Turkey and Turkcell International:
|
group call center operations of Turkcell Global Bilgi, Turktell, Turkcell Teknoloji, Global Tower, Rehberlik Hizmetleri, Turkcell Gayrimenkul, Lifecell Dijital Servisler, Lifecell Bulut, Lifecell TV, Lifecell Muzik and BiP Iletisim.
Our “Other”"Other" reportable segment is comprised mainly of information and entertainment services in Turkey and Azerbaijan, non-group call center operations of Turkcell Global Bilgi, consumer financing service operations of Financell, Turkcell Odeme, Paycell LLC, TOFAS, electricity energy trade operations of Turkcell Enerji, insurance agency activities of Turkcell Sigorta, as well as the development and production of electric passenger cars and to the carrying out of trading activities of Turkiye’nin Otomobili and Sofra.Sigorta. The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies.
Until and including December 31, 2018 in the consolidated financial statements, Turkcell Odeme had been reported under the Turkcell Turkey segments because of its revenue and operational structure. As of December 31, 2019 in the consolidated financial statements, Turkcell Odeme is classified under “Other”"Other" segment given that a significant portion of its revenue consists of non-group and consumer financing services. The Company has presented financials of December 31, 2018 accordingly in the consolidated financial statements.
The Group transferred its total shareholding in Inteltek to the other shareholder of the company, Intralot Iberia Holding SAU. The transfer of shares and proceeds were completed on September 30, 2020. This transaction has no material effect on the Group's financial statements.
The Group has transferred its total shareholding in Azerinteltek, controlled by Inteltek, to another shareholder of Azerinteltek, Baltech. The share purchase agreement was signed on November 15, 2018 and the transfer of proceeds to Inteltek was completed on December 27, 2018. The Group has lost the control over the subsidiary unconditionally on December 27, 2018 with transfer of money. The transfer of shares to Baltech was completed subsequently on January 11, 2019.
Starting from October 1, 2016, Fintur was classified as held for sale and reported as discontinued operations. The Group has signed the definitive agreement on December 12, 2018 to transfertransferred its total shareholding in Fintur to another shareholder of Fintur, Sonera Holding. The transfer to Sonera Holding which was completed on April 2, 2019 for a final value of EUR 352.9 million.2019. See Note 16 to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F.
| Turkcell Turkey | Turkcell International | Other | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
| (in TRY millions) | ||||||||||||||||||||||||||||||
Total segment revenue | 25,160.2 | 21,487.2 | 2,542.4 | 2,002.8 | 2,073.6 | 2,218.0 | (672.5 | ) | (570.8 | ) | 29,103.7 | 25,137.1 | |||||||||||||||||||
Inter-segment revenue | (98.1 | ) | (79.3 | ) | (88.0 | ) | (94.7 | ) | (486.5 | ) | (396.8 | ) | 672.5 | 570.8 | — | — | |||||||||||||||
Revenues from external customers | 25,062.1 | 21,407.8 | 2,454.5 | 1,908.1 | 1,587.2 | 1,821.2 | — | — | 29,103.7 | 25,137.1 | |||||||||||||||||||||
Adjusted EBITDA* | 10,585.0 | 8,789.2 | 1,169.5 | 903.9 | 541.7 | 765.8 | (25.9 | ) | (32.5 | ) | 12,270.3 | 10,426.4 | |||||||||||||||||||
Net impairment losses on financial and contract assets | (296.0 | ) | (223.9 | ) | (2.8 | ) | (5.1 | ) | (50.8 | ) | (109.9 | ) | — | — | (349.6 | ) | (338.9 | ) |
Turkcell Turkey | Turkcell International | Other | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||
(in TRY millions) | ||||||||||||||||||||||||||||||||||||||||
Total segment revenue | 21,487.2 | 18,092.6 | 2,002.8 | 1,457.0 | 2,218.0 | 2,113.7 | (570.8 | ) | (370.8 | ) | 25,137.1 | 21,292.5 | ||||||||||||||||||||||||||||
Inter-segment revenue | (79.3 | ) | (46.4 | ) | (94.7 | ) | (69.7 | ) | (396.8 | ) | (254.8 | ) | 570.8 | 370.8 | — | — | ||||||||||||||||||||||||
Revenues from external customers | 21,407.8 | 18,046.2 | 1,908.1 | 1,387.3 | 1,821.2 | 1,859.0 | — | — | 25,137.1 | 21,292.5 | ||||||||||||||||||||||||||||||
Adjusted EBITDA* | 8,789.2 | 7,403.8 | 903.9 | 612.7 | 765.8 | 801.7 | (32.5 | ) | (30.2 | ) | 10,426.4 | 8,788.0 | ||||||||||||||||||||||||||||
Net impairment losses on financial and contract assets | (223.9 | ) | (248.2 | ) | (5.1 | ) | (4.1 | ) | (109.9 | ) | (94.1 | ) | — | — | (338.9 | ) | (346.4 | ) |
Turkcell Turkey | Turkcell International | Other | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||
(in TRY millions) | ||||||||||||||||||||||||||||||||||||||||
Total segment revenue | 18,092.6 | 15,340.9 | 1,457.0 | 1,067.1 | 2,113.7 | 1,297.5 | (370.8 | ) | (73.4 | ) | 21,292.5 | 17,632.1 | ||||||||||||||||||||||||||||
Inter-segment revenue | (46.4 | ) | (31.8 | ) | (69.7 | ) | (40.9 | ) | (254.8 | ) | (0.8 | ) | 370.8 | 73.4 | — | — | ||||||||||||||||||||||||
Revenues from external customers | 18,046.2 | 15,309.1 | 1,387.3 | 1,026.2 | 1,859.0 | 1,296.8 | — | — | 21,292.5 | 17,632.1 | ||||||||||||||||||||||||||||||
Adjusted EBITDA* | 7,403.8 | 5,504.1 | 612.7 | 264.0 | 801.7 | 467.6 | (30.2 | ) | (7.4 | ) | 8,788.0 | 6,228.3 | ||||||||||||||||||||||||||||
Net impairment (losses)/ gains on financial and contract assets | (248.2 | ) | 49.5 | (4.1 | ) | (6.1 | ) | (94.1 | ) | (79.7 | ) | — | — | (346.4 | ) | (36.3 | ) |
|
| Turkcell Turkey | Turkcell International | Other | Intersegment Eliminations | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
| (in TRY millions) | ||||||||||||||||||||||||||||||
Total segment revenue | 21,487.2 | 18,092.6 | 2,002.8 | 1,457.0 | 2,218.0 | 2,113.7 | (570.8 | ) | (370.8 | ) | 25,137.1 | 21,292.5 | |||||||||||||||||||
Inter-segment revenue | (79.3 | ) | (46.4 | ) | (94.7 | ) | (69.7 | ) | (396.8 | ) | (254.8 | ) | 570.8 | 370.8 | — | — | |||||||||||||||
Revenues from external customers | 21,407.8 | 18,046.2 | 1,908.1 | 1,387.3 | 1,821.2 | 1,859.0 | — | — | 25,137.1 | 21,292.5 | |||||||||||||||||||||
Adjusted EBITDA* | 8,789.2 | 7,403.8 | 903.9 | 612.7 | 765.8 | 801.7 | (32.5 | ) | (30.2 | ) | 10,426.4 | 8,788.0 | |||||||||||||||||||
Net impairment (losses)/ gains on financial and contract assets | (223.9 | ) | (248.2 | ) | (5.1 | ) | (4.1 | ) | (109.9 | ) | (94.1 | ) | — | — | (338.9 | ) | (346.4 | ) |
Turkcell Turkey
a.20192020 compared to 20182019
Total revenues generated by Turkcell Turkey increased 18.8%17.1% to TRY 25,160.2 million in 2020 from TRY 21,487.2 million in 2019, from TRY 18,092.6 million in 2018, mainly due to asupported by solid ARPU performance driven by a favorable changeon the higher data usage and larger postpaid subscriber base, residential business growth, corporate projects, higher equipment sales on digital channels and increase in customer mix towards a higher number of postpaid subscribers, increasing data consumption, price adjustments and our upsell strategy. In 2019, postpaid ARPU excluding M2M subscribers was TRY 64.1 whereas prepaid average revenue per user was TRY 18.3, approximately 3.5 times higher. This solid performance is a result of our microsegment layered approach enabled by strong data analytics capabilities.wholesale revenues. For a more detailed discussion of the factors affecting our revenues, please see “Item"Item 4.B. Business Overview—XII. Regulation of the Turkish Telecommunications Industry”Industry" and “Item"Item 5.D. Trend Information”Information". Additionally, for additional information on how we calculate ARPU, please see "Item 3.A. Selected Financial Data—I. Operating Results".
Turkcell Turkey’sTurkey's Adjusted EBITDA increased 18.7%20.4% to TRY 10,585.0 million in 2020 from TRY 8,789.2 million in 2019, from TRY 7,403.8 million in 2018, mainly due to an increase in revenues and a decrease in selling and marketing expenses which was partially offset by an increase in cost of revenues, administrativedepreciation expenses and net impairment losses. The increase in the cost of revenues mainly resulted from an increase in treasury share expenses, interconnection cost radioof goods sold, interconnection cost, employee benefit expenses, cost of goods sold, frequency expenses and network related expenses.radio cost. Decrease in selling and marketing expenses is mainly due to the IFRS15 standard effect, which includes capitalization of subscriber acquisition costs in line with IFRS15, lower advertising and sponsorship expenses under the COVID-19 pandemic environment and our effective cost management.
b.2018 compared to 2017
Please refer to page 94 of our 2018 annual report on Form 20-F.
Turkcell International
a.2019 compared to 2018
Please refer to page 102 of our annual report on Form 20-F for the year 2019.
Turkcell International
a. 2020 compared to 2019
Total revenues generated by Turkcell International increased by 37.5%26.9% to TRY 2,542.4 million in 2020 from TRY 2,002.8 million in 2019 from TRY 1,457.0 million in 2018 mainly due to the continued strong ARPU growthcontribution of lifecell subscribers(Ukraine) operations and the currency appreciation in Ukraine and Belarus against the Turkish Lira in 2019.Lira. The annual revenue growth ratesof lifecell and Belarusian Telecom in terms of local currency of lifecellwere 14.2% and Belarusian Telecom were 13.6% and 8.0%2.7%, respectively. The revenue growth in lifecell was mainly driven by growing mobilesubscriber base growth and the rise in voice and data revenues due to the increasing data consumption of subscribers.service usage. The revenue growth in Belarusian Telecom was mainly due to the higher data revenues as a result of the rise in 4G users, coupled with a rise in voice revenues and higher data consumption. Digital service revenues also contributed to revenue growth.handset sales revenues.
Turkcell International’sInternational's Adjusted EBITDA increased by 47.5%29.4% to TRY 1,169.5 million in 2020 from TRY 903.9 million in 2019, from TRY 612.7 million in 2018, mainly due to revenue growth and the currency appreciation in Ukraine and Belarus against the Turkish Lira. The increase in Turkcell International’slifecell's Adjusted EBITDA in Turkish Lira terms by 32.7% was instrumental in this increase. lifecell's Adjusted EBITDA also grew by 11.9% in local currency terms, mainly due to an increase in lifecell’s Adjusted EBITDA by 45.4% in terms of Turkish Lira. lifecell’s Adjusted EBITDA increased by 17.4% in terms of local currency, mainly due to an increasethe rise in revenue and the effective cost control measures.
b.20182019 compared to 20172018
Please refer to page 95102 of our 20182019 annual report on Form 20-F.
VI. Year ended December 31, 20192020 compared to the year ended December 31, 20182019
We had 33.4 million mobile subscribers in Turkey, including 22 million mobile postpaid subscribers, as of December 31, 2020, compared to 32.7 million mobile subscribers in Turkey, includingwith 20.4 million mobile postpaid subscribers, as of December 31, 2019, compared to 33.7 million mobile subscribers in Turkey, with 18.8 million mobile postpaid subscribers, as of December 31, 2018.2019. During 2019,2020, we recorded a net decreaseincrease of 1.0 million Turkish712 thousand mobile subscribers. This is mainly due to a 2.6 million decrease in prepaid customers onDespite the backnegative effect of 1.9 million disconnections resulting from the new ICTA regulation that requires deactivationdisconnection of prepaid lines which lack residency documents by the sixth month of subscription, and deactivation of 580 thousand inactive prepaid customerssubscribers in line with our churn policy.policy and the regulatory change requiring deactivation of deceased customers' subscriptions, we recorded a solid increase in our subscriber base.
In the fixed segment, our subscriber base remained at 2.3exceeded 2.4 million for the year ended December 31, 2019,2020, of which 1.51.7 million were fiber customers, compared to 1.41.5 million fiber customers for the year ended December 31, 2018.
In Ukraine, we had 9.09.3 million and 9.9 million registered mobile subscribers as of December 31, 2019 and 2018, respectively. During 2019, we lost approximately 0.92020 compared to 8.9 million subscribers from Ukraine, where three-monthas of December 31, 2019. Three-month active subscribers increased to 8.1 million from 7.37.4 million to 7.4 million.during the same period. The increase in three-month active subscribers was primarily due to the attractive offers and a focus on customer retention.
In Belarus, we had 1.4 million registered mobile subscribers as of December 31, 2020 compared to 1.5 million as of December 31, 2019, respectively. Three-month active subscribers was stable at 1.1 million.
Kuzey Kibris Turkcell mobile subscribers was stable at 0.5 million.
a. a.Total Revenue
Total revenues for the year ended December 31, 2019 increased 18.1%15.8% to TRY 29,103.7 million in 2020 from TRY 25,137.1 million in 2019 from TRY 21,292.5 million in 2018.2019.
Total revenues generated by Turkcell Turkey increased 18.8%,17.1% to TRY 25,160.2 million in 2020 from TRY 21,487.2 million in 2019, from TRY 18,092.6 million in 2018, mainly due to a solid ARPU performance driven by anon higher data usage and larger postpaid base, residential business growth, corporate projects, higher equipment sales on digital channels and increase in the proportion of postpaid subscribers, increasing data consumption, price adjustments and our upsell strategy. This solid performance results from our microsegment layered approach enabled by strong data analytics capabilities.wholesale revenues.
Postpaid subscriber ARPU is considerably higher than that of a prepaid subscriber with a comparatively lower churn rate. In Turkey, during 2019,2020, we maintained our focus on the postpaid segment and launched new campaigns, offers and promotions to motivate customers to switch from the prepaid to the postpaid segment as well as attracting new subscribers. Accordingly, our postpaid mobile subscriber base increased by 1.51.6 million net annual additions, and the postpaid ratio increased from 56% in 2018 to 62% in 2019.2019 to 66% in 2020. In 2019,2020, postpaid ARPU excluding M2M subscribers was TRY 64.167 whereas prepaid ARPU was TRY 21.8. In addition, average revenuemonthly mobile data usage per user was TRY 18.3. These figures indicate that postpaid average revenue per user is approximately 3.5 times thatrose 58.1% to 11.7 GB in 2020, driven mainly by the increasing number and data consumption of the prepaid. Therefore, the increase in the4.5G users, and rising number of postpaid subscribers has had a positive impact on the blended mobile average revenue per user.Superbox subscribers.
Total revenues generated by Turkcell International increased by 37.5%,26.9% to TRY 2,542.4 million in 2020 from TRY 2,002.8 million in 2019, from TRY 1,457.0 million in 2018, mainly due to growth inwith the contribution of our Ukraine and Belarus businesses, mainly through higher ARPU levelsbusiness and the appreciation of UAH and BYN against TRY during the period. The annual growth rates of lifecell and Belarusian Telecom, in terms of local currency were 13.6%was 14.2% mainly from subscriber base growth and 8.0%, respectively.the rise in voice and data services usage.
Other subsidiaries’subsidiaries' revenues, mainly comprised of our revenues from information and entertainmentfinancial services, call center services and financial services, grewenergy business declined by 4.9%6.5% to TRY 2,073.6 million in 2020 from TRY 2,218.0 million in 2019 from TRY 2,113.7 million in 2018.2019. Significant factors that impacted our revenues from other subsidiaries in the year 20192020 include
the following: (i) the sale of our sports betting in Azerbaijan was completed as of January 11, 2019 and hence, we did not report any revenues from this business in the year 2019, (ii) our contract to carry out sport betting operations in Turkey ended inon August 28, 2019 and hence, the year 2019 figures includes revenues from this business until this date and (iii)(ii) Financell revenues were impactedcontracted yearly by 37% in 2020, mainly due to the decline in the consumer loan portfolio from TRY 4.2 billion as at the year end of 2018 to TRY 2.4 billion as at the year end of 2019 mainly due to TRY 1.9 billion as at the year end of 2020, given the installment limitation on consumer loans for telecom devices. Meanwhile, the revenue growth of our energy business and the expansion of Paycell positively contributed to our revenues from other subsidiaries.
b.Cost of revenue
Cost of revenue, including depreciation and amortization, increased by 20.8%19% to TRY 20,336.1 million in 2020 from TRY 17,083.5 million in 2019, from TRY 14,146.0 million in 2018,mainly due to anthe increase in depreciation and amortization charges payments for ourand cost of goods sold as well as treasury share expenses, interconnection cost, employee benefit expenses, radio cost, frequency expenses, transmission cost, roaming expenses despite the decline in cost of revenue from financial services. As a percentage of revenues, cost of revenues increased 1.9 percentage points to 69.9% in 2020 from 68.0% in 2019. This was mainly due to the increase in cost of goods sold by 2.3 percentage points, depreciation and amortization by 0.5 percentage points, radio cost by 0.2 percentage points, employee benefit expenses by 0.2 percentage points despite the decline in cost of revenue of financial services by 0.5 percentage points, treasury share and universal service fund interconnectionby 0.5 percentage points and termination fees, network relatedroaming expenses employee benefit expenses and frequency expenses.of 0.2 percentage points.
Depreciation and amortization charges (including impairment charges) increased by 17.7%,18.4% to TRY 5,974.8 million in 2020 from TRY 5,046.6 million in 20192019. The depreciation expense for our network infrastructure increased to TRY 2,270.5 in 2020 from TRY 4,288.02,006.7 million in 2018.2019 mainly due to the new network investment. The amortization expense for our GSM licensecomputer softwares and other telecommunication operating licenses wassubscriber acquisition costs (SAC) were TRY 611.21,023.2 and TRY 721.6 million in 2020, mainly attributable to new software additions and higher capitalization of SAC in accordance with IFRS15, up from TRY 768.2 and TRY 495.9 million in 2019, mainly attributable to lifecell’s 4G license, up from TRY 533.3 million in 2018.respectively.
Cost of goods sold increased 77.4%44.9% to TRY 3,302.0 million in 2020 from TRY 2,278.3 million in 2019, from TRY 1,284.2 million in 2018, due to the increased volume in equipment sales, partially due to our equipment business, universal service project and higher cost of energy sold as a reflection of higher revenues fromfocus on sales through our energy business.digital platforms.
Treasury share and universal service fund over our mobile revenues paid to the Ministry of Transport and Infrastructure increased 16.2%10.5% to TRY 2,749.7 million in 2020 from TRY 2,488.5 million in 2019, from TRY 2,141.0 million in 2018, mainly due to the increase in mobile revenues.
Interconnection and termination fees increased 8.3%,17.7% to TRY 2,247.6 million in 2020 from TRY 1,909.6 million in 2019, from TRY 1,763.4 million in 2018, mainly due to the increase in off-net traffic.
Employee benefit expenses for technical personnel increased by 25.8%,20.4% to TRY 1,741.6 million in 2020 from TRY 1,447.0 million in 2019 (previously reported as TRY 1,501.6 million in 2019 fromwhich TRY 1,194.054.6 million was reclassified to other costs of revenue in 2018,2020), mainly due to the regular annual increase in wages and salaries. Employee benefit
Radio cost increased by 25.4% to TRY 921.2 million in 2020 from TRY 734.6 million in 2019, mainly due to higher energy prices, roll out expenses and the impact of financial services have been excluded from wages, salaries and personnel expenses which is also reflecteddepreciation in the 2018 and 2017 results. The amounts are TRY 8.5 million and TRY 4.8 million, respectively. These values are now under cost of revenues from financial services.Turkish Lira.
Frequency expenses increased by 29.0%,10.5% to 887.2 million in 2020 from TRY 803.0 million in 2019, from TRY 622.4 million 2018, due toreflecting the increase in revenues as 5% of net revenue is paid as a frequency fee.
Radio cost increased by 44.4%, to TRY 734.6 million in 2019 from TRY 508.9 million in 2018, mainly due to increases in energy prices and roll out expenses.
Transmission costs increased by 3.0%,26.8% to TRY 426.0 million in 2020 from TRY 336.0 million in 2019, from TRY 326.1 million in 2018, mainly due to increases in roll out, capacity and effectthe impact of depreciation in Turkish Lira.
Roaming expenses decreased 9.9% to TRY 214.5 million in 2020 from TRY 238.1 million in 2019, mainly due to the travel restrictions due to the COVID-19 pandemic.
Cost of revenue from financial services decreased 36.5%43.7% to TRY 135.2 million in 2020 from TRY 240.3 million in 2019, from TRY 378.5 million in 2018, mainly due to the installment limitation on consumer loans for smartphones which have led to a decline in the loan portfolio of Financell.
Roaming expenses increased 5.0% to TRY 238.1 million in 2019 from TRY 226.8 million in 2018, mainly due to the depreciation of the TRY against the EUR and the increase in overall mobile network traffic.
As a percentage of revenues, cost of revenues increased 1.6 percentage points, to 68.0% in 2019 from 66.4% in 2018, mainly as a result, of an increase in cost of goods sold of 3.0 percentage points, radio cost of 0.5 percentage points, frequency expense of 0.3 percentage points, employee benefit expenses of 0.4 percentage points, as well as a decrease in cost of revenue from financial services of 0.8 percentage points, interconnection costs of 0.7 percentage points, treasury share and universal fund of 0.2 percentage points and other cost of revenue 0.6 percentage points.
Grosstotal gross profit margin decreased 1.61.9 percentage points from 33.6% in 2018 to 32.0% in 2019.2019 to 30.1% in 2020.
c.Administrative expenses
Administrative expenses increased 15.8%,decreased 3.9% to TRY 749.6 million in 2020 from TRY 779.8 million in 2019, from TRY 673.4 million in 2018, mainly due to an increase in employee benefit expenses, collection expenselower office overhead costs and consultancy expenses, service expenses and trainingtravel expenses. As a percentage of revenues, general and administrative expenses decreased slightly to 2.6% for the year ended December 31, 2020 from 3.1% for the year ended December 31, 2019, from 3.2% for the year ended December 31, 2018.2019.
Employee benefit expenses for non-technical and non-marketing employees increased 13.6%,1.3% to TRY 479.9 million in 2020 from TRY 473.8 million in 2019 (previously reported as TRY 483.4 million in 2019 fromwhich TRY 425.79.6 million was reclassified to other administrative expenses in 2018, primarily2020), mainly due to periodic increasesregular annual increase in wages and salaries as well as the increase in the number of personnel.
Other administrative expenses increased 19.6%,decreased 11.8% to TRY 296.3269.7 million in 20192020 from TRY 247.7305.9 million in 2018,2019, with the impact of the collection expenses, consultancy expenses, service expensestravel and trainingentertainment expenses.
d.Selling and marketing expenses
Selling and marketing expenses decreased 4.4%,11.7% to TRY 1,373.0 million in 2020 from TRY 1,555.2 million in 2019, from TRY 1,626.7 million in 2018, mainly due to the decreasedecline in selling expenses, which was partially offset by the increase in employee benefit and marketing expenses. As a percentage of revenues, selling and marketing expenses decreased from 7.6%to 4.7% for the year ended December 31, 2018 to2020 from 6.2% for the year ended December 31, 2019, driven by the decline in selling expenses by 1.20.8 percentage points, the decline in marketing expenses by 0.5 percentage points and the decline in other cost items by 0.2 percentage points.
Selling expenses, which consist of distributor and dealer commissions and other selling expenses decreased 37.1%50.4%, to TRY 173.1 million in 2020 from TRY 349.3 million in 2019, from TRY 555.2 million in 2018, mainly due to the additional subscriber acquisition costs being capitalized in accordance with IFRS15.
Marketing expenses, which consist of advertising, market research and sponsorships expenses, increased 0.6%,decreased 8.4% to TRY 507.9 million in 2020 from TRY 554.5 million in 2019, from TRY 551.1 million in 2018, mainly due higherto lower advertising expenses.expenses and lower sponsorship expenses due to the COVID-19 pandemic environment.
Employee benefit expenses for selling and marketing employees increased 25.1%,15.9% to TRY 634.4 million in 2020 from TRY 547.1 million in 2019 (previously reported as TRY 551.8 million in 2019 fromwhich TRY 441.04.7 million was reclassified to other selling and marketing expenses in 2018,2020), primarily due to the periodicregular annual increase in wages and salaries and the increase in the number of personnel.
e.Net impairment losses on financial and contract assets
Net impairment losses on financial and contract assets decreased 2.2%,increased 3.2% to TRY 349.6 million in 2020 from TRY 338.9 million in 2019 from TRY 346.4 million in 2018. This decrease was mainly driven by better collection performance as well2019. Net impairment losses on financial and contract assets as a changepercentage of revenues was at 1.2% in assumption for bad debt provisioning2020 compared to 1.3% in relation to frequency usage fees paid on behalf of customers in line with IFRS9.2019.
We booked an impairment provision of TRY 795.8787.2 million and TRY 938.5795.8 million for contract assets, other assets and receivables from financial services for the years ended December 31, 20192020 and 2018,2019, respectively, depending on the evidence of impairment as a result of one or more events that occurred following the initial recognition of the asset and that loss event had an impact on the estimated future cash flows of the asset.
f.Other operating income/(expenses)
Other net operating expenses increased to TRY 523.3 million in 2020 from TRY 346.6 million in 2019, from TRY 140.1 million in 2018, mainly due to restructuring costslitigation expenses and tax settlements as explained in Note 38 (Commitments and Contingencies) to our Consolidated Financial Statements in this annual report on Form 20-F.20-F and donation expenses.
g.Operating profit
Operating profit increased by 15.4%,14.7% to TRY 5,772.3 million in 2020 from TRY 5,033.3 million in 2019 from TRY 4,359.9 million in 2018.2019. As a percentage of revenues, operating profit decreased slightly from 20.5% in 2018 to 20.0% in 2019 to 19.8% in 2020, mainly due to an increase in cost of revenue and other operating expenses which was partially offset by the decrease in selling and marketing expenses and net impairment losses on financial and contract assets.administrative expenses.
h.Net finance income/(costs)
Net finance costs increaseddecreased to TRY 1,131.7 million in 2020 from a TRY 1,727.7 million net expense in 2019, from a TRY 1,687.0 million net expense in 2018, due to a decreasethe increase in finance income to TRY 2,119.5 million in 2020 from TRY 297.5 million in 2019 from TRY 1,677.1 million in 2018. Lower interest income on bank deposits and higher interest expenses resulting from borrowings and lease obligations despite2019. This was due mainly to lower foreign exchange losses after hedging were instrumental in this trend. As of December 31, 2019,despite higher interest income and expense on financial assets measured at amortized cost are shown netted of in our consolidated statement of profit or loss. The Company has presented financials as of December 31, 2018 accordingly, which amount is TRY 255.0 million.time deposits.
Finance income decreasedincreased by 82.3%,612.6% to TRY 2,119.5 million in 2020 from TRY 297.5 million in 2019, from TRY 1,677.1 million in 2018, mainly due to changes in the fair value of derivative instruments, cash flow hedges-hedges—reclassified to profit or loss and lowerhigher interest income on bank deposits. The decreaseincrease interest income on bank deposits are mainly due to the decreaseincrease in interest rates. As of December 31, 2019,2020, the average effective interest rates of TL, USD and EUR deposits were 17.4%, 2.8% and 1.8% (as of December 31, 2019: 10.7%, 2.3% and 0.4% (as of December 31, 2018: 22.5%, 5.9% and 3.3%), respectively.
Finance costs decreasedincreased by 39.8%,60.5% to TRY 3,251.2 million in 2020 from TRY 2,025.1 million in 2019, from TRY 3,364.1 million in 2018, mainly due to the decreaseincrease in net foreign exchange losses, changes in the fair value of derivative instruments and cash flow hedges being reclassified to profit or loss.losses. Net foreign exchange losses decreased fromincreased to TRY 2,695.02,409.6 million in 2018 to2020 from TRY 1,039.6 million in 2019. The
Both net foreign exchange losses increase and the change in the fair value of derivative instruments and cash flow hedges being hedges—reclassified to profit or loss are due to the appreciationdepreciation of Turkish Lira and decline in interest rates compared to 2018.Lira.
i.Income tax expense
Income tax expense increased 58.6%,decreased 50.7% to TRY 387.2 million in 2020 from TRY 785.6 million in 2019, from TRY 495.5 million in 2018, mainly due to an increase in profit from operations.the deferred tax credit of TRY 665.8 million which relates to the carried-forward tax losses of lifecell (in Ukraine). lifecell recorded positive taxable profits for the year ended December 31, 2020, mainly as a result of increased subscriber numbers and cost management. The Group has concluded that the deferred tax assets will be recoverable using the estimated future taxable profits based on the business plan of lifecell. The tax losses can be carried forward indefinitely and have no expiry date.
The effective tax rate was 19.3%8.4% and 18.5%19.3% for the years ended December 31, 2020 and 2019, and 2018, respectively.
Entities incorporated in Turkey are subject to corporate tax rate of 20%.rate. Published in the Official Gazette on December 5, 2017, Law No. 7061 on the Amendment of Some Tax Laws and Some Other Laws increased the corporate tax rate under the Corporate Tax Law, No. 5520, to 22% from 20% to 22% for tax years 2018, 2019, and 2020. The corporate tax rate is expected to decrease tohas been set at 25% for the fiscal year 2021 and 23% for the fiscal year 2022 in accordance with Law No. 7316 published in the Official Gazette dated April 22, 2021. The corporate tax rate shall be applied as 20% from 2021 onwards.for the fiscal years starting 2023 assuming there will be no additional legislation.
Differences between the effective tax rate and our corporate tax rate include, but are not limited to, the effect of allowance for deferred tax assets, tax rates in foreign jurisdictions, tax-exempt income and non-deductible expenses. The main driver of the increasedecrease in the effective tax rate in 20192020 is the recognition of deferred tax exemption effectassets of the Fintur sale.lifecell.
j.Gain/(loss) from discontinued operations
Starting from 1 October 2016, Fintur was classified as held for sale and was reported as a discontinued operation (Note 16). Fintur is therefore disclosed separately as discontinued operations in our Consolidated Financial Statements in this annual report on Form 20-F. Comparative periods in the Consolidated Financial Statements are restated to reflect the classification of Fintur as discontinued operations.
The Company signed the definitive agreement on December 12, 2018 to transfer its total shareholding in Fintur to the other shareholder of Fintur, Sonera Holding. The deal was completed on April 2, 2019 subsequent to obtaining the regulatory approvals on March 29, 2019. The final transaction value is realized as TRY 2,229.6 million (EUR 352.9 million). The share transfer was completed in 2019, and the gain on this transaction, amounting to TRY 772.4 million, is recognized under gain from discontinued operations in the consolidated financial statements.
No loss are recorded from discontinued operations for the years 2018 and 2019.
k.Non-controlling interests
Non-controlling interests in the net profit of our consolidated subsidiaries is classified separately in the consolidated financial statements of operations under “non-controlling interests”"non-controlling interests". Profit allocated to non-controlling interests amounted to TRY 30.22.5 million for the year ended December 31, 2019,2020, compared to a TRY 156.330.2 million for 2018.2019.
Profit allocated to non-controlling interests from net profit generated by Inteltek for the years ended December 31, 2019 and 2018 amounted to TRY 30.2 million and TRY 105.1 million, respectively.
l. l.Profit for the year attributable to owners of the Company
Profit for the year attributable to owners of the Company increased to TRY 4,237.1 million in 2020 from TRY 3,246.5 million in 2019, from TRY 2,021.1 million in 2018, mostly due to an increase in results from operating activities and a decrease in foreign exchange lossesnet finance costs and income tax expense which was partially netted off with an increasethe decrease in interest expense financial assets measured at amortized cost and net fair value losses on derivative financial instruments and interest, cash flow hedges—reclassifiedprofit from discontinued operations due to profit or loss andthe sale of subsidiaries (Fintur). in 2019.
VII. Year ended December 31, 20182019 compared to the year ended December 31, 20172018
Please refer to section starting on page 96102 of our 20182019 annual report on Form 20-F.
VIII. Effects of Inflation
According to the Turkish Statistical Institute (TUIK), along withdue to easing in the stabilizingmonetary policy in the second and third quarter aimed at avoiding the COVID-19 pandemic effects, depreciation of the currency, easingprice increases in cost push factorsfood, transportation and a strong base effect,other goods and services, the annual inflation in Turkey decreased to 11.8%rose 14.60% in December 2019,2020, which is considerably lowerhigher than the 20182019 year-end figure of 20.3%11.8%. The inflation expectation of the CBRT in its first Inflation Report for 20202021 is 8.2%9.4%. The latest CBRT expectations survey, as of March 2020,April 2021, indicated that inflation is expected to be at 9.98%13.12% at the end of 2020,2021, which is above the CBRT’sCBRT's official target of 5.0%. For additional information, see “Item"Item 3.D. Risk Factors”Factors".
Inflation deceleratedaccelerated relatively in 20192020 in Belarus. Headline inflation decreasedincreased to 7.4% in 2020 from 4.7% in 2019, from 5.6% in 2018, according to the data provided by the National Statistical Committee of the Republic of Belarus. The National Bank of the Republic of Belarus (NBRB) has been on an easing trajectory since the beginning of 2018, bringing
the refinancing rate down to 10% from 17% with gradual rate cuts in 2018 and down to 9% from 10%7.75% in 2019.2020. While the policy rate is still 7.75%, as the inflation target is 5%, in order to have the inflation under control, NBRB may strengthen control over the growth of the broad money supply or may
increase the policy rate in 2021. Economic activity continues to recover, even though the momentum of the growth diminished slightly. Macroeconomic stability is still fragile due to the country’scountry's reliance on the Russian economy.economy and political instability. On the external side, key risk factors include disruptions in energy price arrangements with Russia.
In Ukraine, inflation followed a downward path in 2019,until the last quarter of 2020, due to weakening food prices amid more ample supply and an increasedecrease in economic activity. AnnualThe effects of fiscal and monetary easing have been seen in the last quarter and annual inflation declinedwas 5.0% in 2020 compared to 4.1% in 2019, from 9.8% at the end of 2018,2019, according to the National Bank of Ukraine (NBU). The rapid decline in inflationpandemic led to a steady easing of the monetary policy by the NBU, which cut its key policy rate by 450750 bps, to 13.5% in 2019, and is expected to enact further cuts6.0% in 2020. Furthermore, if global liquidity conditions become tighter, in particularOn March 4, 2021 NBU increased the rate to 6.5% to prevent rapid inflation growth. If inflation increases further, due to the pass-through effect of depreciation of the currency and large increase in the context ofminimum wage which will increase the ongoing COVID-19 crisis,domestic demand, the UAHpossible next action will most likely come under increased pressure.be a rate hike from the NBU.
IX. Foreign Currency Fluctuations
We conduct our business in several currencies other than functional currencies of each of our locations. As a result of our exposure to foreign currency, exchange rate fluctuations have a significant impact, in the form of both translation and transaction risks, on our Consolidated Financial Statements.
Exchange rate movements impact our assets and liabilities denominated in currencies other than TRY, namely Ukrainian Hryvnia, Belarusian Rubles and Euro forgiven our operations also in Turkey, Ukraine Belarus, and Germany, respectively.Belarus. We hold some of our cash portfolio in foreign currency to manage our non-TRY denominated liabilities in Turkey. Additionally, derivative financial instruments such as forward contracts, swap contracts, future contracts and options are used.
The foreign exchange risks in Turkey as the result of purchases and borrowings in U.S. Dollars, Euros and EurosChinese Yuan have been manageable, as there is a developed market enabling the hedging of such risk. While we are currently able to hedge our principal TRY exposure to the U.S. Dollar and the Euro on commercially reasonable terms, no assurance can be given that we will continue to be able to do so under all circumstances in the future, in particular taking into account the context created by the COVID-19 epidemic,pandemic, which has had, and is likely to continue to have, a material impact on the volatility of global markets which, in turn, may lead to a material increase in our financing costs. Additionally, in Belarus and Ukraine, the tools are non-existent or insufficient to hedge foreign exchange rate risks effectively due to restricted, thin and underdeveloped financial markets. In Belarus, no international bank offers hedging instruments and local banks are too undercapitalized to be able to enter into transactions.
Prior to 2019, the only hedging product proposed by local banks in Ukraine was non-deliverable forward (“NDF”("NDF") which is cash settled product in U.S. Dollars, a short-term forward contract on a non-convertible foreign currency which could not be delivered offshore. At the same time the share of NDF transactions has always been insignificant due to complexity and low demand in the market.
In February 2019, the new Law of Ukraine on Currency and Exchange Transactions entered into force and lifted a number of restrictions in the foreign exchange market. In particular, the National Bank of Ukraine:
Overall, 20192020 was a challenging but positive year for Ukraine. The political cycle was successfully completed. The Ukrainian economy saw its highest growth overDue to the last eight years. Macroeconomic stabilization helped increasing investors’ interest in Hryvnia financial instruments. Thispandemic, the NBU decreased the policy rate 750 basis points which led to an increased inflow of foreign currency to Ukraine anda depreciation in the appreciation of the national currency (UAH appreciateddepreciated against USD by 14.4%19.4% in
2019 2020 compared to 1.4%14.5% appreciation in 2018)2019). Another positive indicator is that Ukraine’sOn the other hand, the appetite of foreign investors came back in the last quarter and there are considerable inflows to Ukrainian assets. As a results of the inflow, Ukraine's international reserves increased by 22%15% in 20192020 and amounted to USD 25.329.1 billion as of January 1, 2020. Meanwhile, the IMF announced a new three-year USD 5.5 billion arrangement with the country, which is expected to cement financial stability in 2020. Furthermore, royalties from a new five-year gas transit contract with Russia, signed in December, should provide additional support to the government’s accounts going forward.2021.
In the current economic environment and considering the aforementioned fragile economic conditions, there is a possibility of volatility in the financial markets both in Ukraine and in Belarus. Furthermore, the COVID-19 epidemicpandemic has had, and is likely to continue to have, a material impact on the volatility of global markets.
Our foreign currency risk management policy is focused on hedging foreign currency exposure arising from non-TRY denominated liabilities and purchase commitments. See “Item"Item 11. Quantitative and Qualitative Disclosures aboutAbout Market Risk”Risk".
X. Interest Rate Hedging
Monitoring and examining financing opportunities to improve our financial flexibility and performance has been a continuous process for us. Depending on the availability in both domestic and international debt/capital markets, we continuously monitor new financing alternatives for contingency purposes as well as to fund potential new investments or acquisitions. We are exposed to interest rate risk as part of our total debt portfolio’sportfolio's dependency on floating rates. We also closely monitor various hedging alternatives to hedge our interest rate risk with interest rate derivatives with a minimum cost, although this might become increasingly difficult to achieve in the context of the ongoing COVID-19 crisis. In 2018 and in 2019, apandemic. A significant portion of our floating FX debt portfolio was hedged through interest rate derivatives.derivatives in 2020.
a.New Accounting Standards Issued
See Note 2 (Basis of preparation and summary of significant accounting policies) of our Consolidated Financial Statements in this annual report on Form 20-F.
5.B Liquidity and Capital Resources
a.Liquidity
We require significant liquidity to finance capital expenditures for the expansion and improvement of our mobile communications network, for operational capital expenditures, for working capital, and to service our debt obligations. Below is a summary of our consolidated cash flows for the years ended December 31, 20192020 and 2018:2019:
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
| TRY million | ||||||
Net cash inflow from operating activities | 13,092.8 | 9,026.6 | |||||
Net cash (outflow) from investing activities | (6,780.6 | ) | (3,027.3 | ) | |||
Net cash (outflow) from financing activities | (4,267.8 | ) | (3,478.0 | ) | |||
Net increase in cash and cash equivalents | 2,044.3 | 2,521.3 | |||||
Effects of exchange rate changes on cash and cash equivalents | (422.5 | ) | 298.2 |
2019 | 2018 | |||||||
TRY million | ||||||||
Net cash inflow from operating activities | 9,026.6 | 5,829.9 | ||||||
Net cash (outflow) from investing activities | (3,027.3 | ) | (4,535.6 | ) | ||||
Net cash (outflow) from financing activities | (3,478.0 | ) | (534.4 | ) | ||||
Net increase in cash and cash equivalents | 2,521.3 | 759.9 | ||||||
Effects of exchange rate changes on cash and cash equivalents | 298.2 | 1,947.0 |
Net cash provided by our operating activities was TRY 13,092.8 million in 2020 and TRY 9,026.6 million in 2019 and TRY 5,829.9 million in 2018.2019.
The increase in profit amounting to TRY 1,099.4962.9 million compared to 20182019 has had a positive impact on net cash inflow from operating activities. We consider the subtotal after the adjustments for
profit for the period in order to analyze the increase in cash inflow from operating activities. Since these lines are adjusting in nature, they are to be excluded from net cash from operating activities, as they either do not have any effect on net cash inflow from operating activities, or they have an offsetting effect on the changes in working capital. As a result, the trend in cash inflow from operating activities should be correlated with the trend in results from operating activities, interest paid and income tax paid. The corresponding subtotal, after adjustments, increased to TRY 15,078.1 million in 2020, from TRY 11,915.6 million in 2019, from TRY 9,821.9 million in 2018.2019. Furthermore, the increase in changes in trade receivables, from financial operations,the increase in other current assets, the increase in change in trade and other payables, the decrease in income taxinterest paid to TRY 611.41,653.7 million in 20192020 from TRY 657.72,090.7 million in 2018,2019, partially netted off with the decrease in changes in trade receivables from financial operations and the increase in interestincome tax paid to TRY 2,090.7634.1 million in 2020 from TRY 611.4 million in 2019 from TRY 1,658.3 million in 2018 resulted in a 55%45.0% increase in net cash provided by our operating activities.
Net cash outflow from investing activities decreasedincreased to TRY 6,780.6 million in 2020, from TRY 3,027.3 million in 2019, from TRY 4,535.6 million in 2018.2019. This change is mainly due to the increasedecrease in proceeds from sale of subsidiary, despite the increases in acquisition of property, plant and equipment and acquisition of intangible assets anddespite the increasedecrease in net cash outflow from financial assets. For the year ended December 31, 2019,2020, we received TRY 2,219.61.2 million from sale of subsidiary compared to TRY 118.52,219.6 million in 2018.2019.
Net cash outflow from financing activities for the year 20192020 amounting to TRY 3,478.04,267.8 million, whereas net cash usedoutflow was TRY 534.43,478.0 million for 2018.2019. This change is mainly attributable to the decrease in proceeds from issues of loans and borrowings, the increases in other cash outflows from financing activities and issuancerepayment of bonds which partially netted off with a decrease in the repayment of borrowings. The cash generation from issuance of loans and borrowings decreased to TRY 22,983.2 million in 2020, compared to TRY 29,060.5 million in 2019, compared to TRY 44,341.1 million in 2018. The cash generation from the issuance of bonds decreased to TRY 311.6 million in 2019 from TRY 2,188.3 million in 2018.2019. In addition, we repaid TRY 31,297.926,354.5 million of our loans and borrowings in 2019,2020, compared to TRY 43,987.131,297.9 million in 2018.2019.
For a discussion of our consolidated cash flows for the year ended December 31, 20182019 compared to the year ended December 31, 2017,2018, please refer to page 104108 of our 20182019 annual report on Form 20-F.
b. b.Sources of Liquidity
Turkcell had applied to the Capital Markets BoardCMB and, on September 15, 2015, obtained its approval of an issuance certificate to issue bonds, commercial paper or any other debentures with an amount of up to $1 billion (or its equivalent in another currency) to real and legal persons domiciled outside of Turkey through private placement and/or sales to qualified investors without a public offering. In October 2015, Turkcell issued a Eurobond with an aggregate principal amount of $500 million, 10-year maturity, a redemption date of October 15, 2025 and coupon rate of 5.75% (based on a 5.95% reoffer yield to investors). The bond issuance was completed and the proceeds of the issue were transferred to the Company’sCompany's account on October 15, 2015. The notes have since been listed on the official list of the Irish Stock Exchange.Exchange Euronext Dublin.
On September 16, 2015, Turkcell signed a club loan facility with a group of international banks with a U.S. Dollar tranche of USD 500 million and a Euro tranche of EUR 445 million. The facility hashad a maturity of five years, with a semi-annual principal amortization during the last three years of the loan. Interest on the loan iswas payable quarterly. The facility iswas unsecured and hashad an interest rate of three-month LIBOR/EURIBOR +2.0% per annum. The company fully utilized both tranches in June 2016 and repayments commenced as of June 2018. On February 11, 2020 Turkcell decided to prepay the loan. Accordingly, the last two principal repayments of the loan, which arewere due in June 2020 and September 2020 as per the loan agreement and which in total amount to EUR 148.4 million and USD 166.7 million, were completedprepaid on March 23, 2020.
On October 23, 2015 we signed two loan agreements with China Development Bank (“CDB”("CDB") for an amount of up to EUR 500 million (available for two years), to refinance some of the Group’sGroup's existing loans, and for an amount of up to EUR 750 million (available for three years), to finance a part of our procurement requirements from Chinese suppliers in relation to our infrastructure investments. Both loan facilities have a final maturity of 10 years, with semi-annual equal amortization during the last seven years of the loan. The annual interest rate of the loans was EURIBOR+2.20%. The EUR 500 million facility was immediately fully utilized in October, 2015 whereas the EUR 750 million facility was planned to be utilized in the three-year availability period until April, 2019. On March 5, 2018 the scope of the EUR 750 million loan facility (of its EUR 690 million unutilized portion by then) was expanded. In this respect, in addition to Turkcell Iletisim Hizmetleri A.S., our subsidiaries Turkcell Superonline, Financell and lifecell will also be able to make drawdowns under the facility. In addition, the amendment authorized the abovementioned borrowers to make drawdowns in U.S. Dollars and Renminbi (“CNY”("CNY") besides the original loan currency of EUR. The respective interest rates for USD and CNY loans were set at LIBOR + 2.22% and 5.51% whilst interest rates for EUR loans remained the same (EURIBOR +2.20%). In June 2019, in order to manage our floating interest rate risk, we entered into an interest rate swap transaction for the USD 75 million portion of this loan. With this transaction, we have fixed the annual interest rate of the respective portion of the loan at 4.07% in USD terms, starting from April 10 – October10-October 10, 2019 up until maturity. As of the end of the availability period of April 2019, we had utilized EUR 550 million equivalent in EUR, USD and CNY currencies out of the EUR 750 million facility and cancelled the remaining EUR 200 million limit. Furthermore, in August 2019, the annual interest rates of the USD and EUR denominated loans, which were LIBOR + 2.22% and EURIBOR+2.20%, were revised at LIBOR+2.17% and EURIBOR+2.15%, respectively. The updated rates have been effective from the April 10, 2019 – October2019-October 10, 2019 interest period and up until maturity. There have been no changes to the maturity or the repayment terms of the loan. Semi-annual repayments of the EUR 500 million and EUR 750 million facilities have started in April, 2019 and October, 2019, respectively.
On March 22, 2018, the Capital Markets BoardCMB approved our application with respect to issuing debt instruments with an amount up to USD 750 million or its equivalent in another currency, to be sold in international markets, through private placement and/or sales to qualified investors domiciled outside of Turkey. Following this approval, on April 11, 2018 we issued a Eurobond with an aggregate principal amount of $500 million with a fixed coupon rate of 5.80% per annum (based on a 6.10% reoffer yield) and 10 years maturity. The notes have since been listed on the official list of the Irish Stock Exchange Euronext Dublin.
On February 25, 2019, we signed a USD 150 million, 10-year semi-annual amortizing export finance facility funded by J.P. Morgan and Swedish Export Credit Corporation (SEK), and covered by Exportkreditnämnden (EKN) of Sweden in order to finance our procurement from a global vendor between 2018 and 2021. The loan consists of three equal tranches, with the first tranche having a total annual cost of LIBOR+2.10% whereas the second and third tranches have a fixed 5.35% total cost per annum. Total cost includes the margin and annualized portions of the EKN premium and upfront fee.
On May 10, 2019, we signed a sustainability linked loan agreement of EUR 50 million with BNP Paribas Fortis SA/NV for general corporate purposes. The respective loan has a maturity of three years and one week and its total annual cost will be in the Euribor+EURIBOR+2.00%-2.20% range. The total cost (i.e. margin plus annualized upfront fee) of the loan can potentially decline to Euribor+EURIBOR+2.00% or increase to Euribor+EURIBOR+2.20%, subject to meeting sustainability-based environmental objectives set as part of the loan agreement. These objectives include the collection of electronic waste, use of solarpurchased hourly average certified renewable energy for electricity consumption and reducing paper consumption through increased use of Dergilik application which enables users to read magazines and newspapers in digital format.
On March 11, 2020, we signed a EUR 50 million Green Loan agreement with ING European Financial Services Plc in order to finance sustainable investments such as renewable energy, energy
efficiency, green digital services and green buildings under the internationally recognized Green Loan Principles. The loan has a maturity of five years and the total annual cost is Euribor + 1.95%.
On June 18, 2020, Turkcell and Superonline utilized a CNY 22 million re-discount loan from the CBRT with 169-day tenor and 4.10% interest rate, which matured on December 4, 2020. It was followed by a second utilization on December 4, 2020 for an amount of CNY 50 million with 6-month tenor and 5.21% interest rate. The outstanding balance is CNY 50 million as at December 31, 2020. On August 7, 2020, we signed a loan package of EUR 500 million with CDB which can be utilized in both EUR and RMB terms for financing Turkcell Group's infrastructure investments in the next three years. The respective loan has a maturity of eight years and a grace period of three years. The loan will be repaid in the proceeding five years after the three-year grace period (availability period) in accordance with the repayment schedule filed as part of the 6-K at the time of signing. The annual interest rate is EURIBOR+2.29% for the EUR denominated portion and 5.15% fixed for the RMB denominated portion.
On December 18, 2020, we signed US$90 million, 10-year semi-annual amortizing export finance facility funded by ING N.V. and Swedish Export Credit Corporation (SEK) and covered by Exportkreditnämnden (EKN) of Sweden in order to finance our procurement from a global vendor between 2021-2023. The loan agreement comprises three tranches, each with a maturity of 10 years. Each tranche has an availability period of 15 months and the last tranche can be utilized until April 2024. The tranches are to be repaid in semi-annual installments, and the total annual cost of each is 3.04%. Total cost includes annualized portions of the EKN premium and upfront fee.
Financell has had a considerable portion in Turkcell group debt balance although its share has decreased sincebefore August 2018, when the BRSA decreased the maximum number of installments in mobile phone related consumer loans. Financell mainly relies on bilateral loans from local and international banks. However, the company has been preferring short-term local currency loans from Turkish banks since its loan book and average maturity of receivables began to shrink. If the bank borrowings are in hard currencies, they are immediately swapped into TRY liabilities in order to avoid FX risk. Whenever Financell borrowed in hard currencies in the past three years, it executed cross currency swap transactions that matched the full cash flow of the subjectrelevant loan during its maturity. MajorLong-term foreign exchange funding sources of Financell are USD 150 million in two bilateral loans from Export Development Canada (EDC) maturing in September and December 2020; a USD 50 million amortizing bilateral loan utilized from J.P. Morgan on March 19, 2018 with Libor + 1.70% interest rate and fully maturing on March 23, 2023. This loan was sold to Garanti International N.V. in March 2023 and athe secondary market in April 9, 2020 by J.P. Morgan. The outstanding balance is USD 35.7 million as at December 31, 2020. A EUR 40 million amortizing loan utilized on June 24, 2018 and October 17, 2018 from Bank of China maturingwith Euribor + 1.25% interest rate, of which EUR 8 million and EUR 4 million were prepaid in March 2020 and September 2020, respectively. As of December 31, 2020 the outstanding balance is EUR 4 million and the final maturity date is on March 21, 2021. Foreign exchange funding sources with 1-year maturity term are; a EUR loan which was utilized from Intesa on September 23, 2020 with 1.75% interest rate, a EUR 20 million loan which was utilized from MUFG on December 3, 2020 with 1.45% interest rate and a EUR 24 million loan which was utilized on December 22, 2020 with 1.70% interest rate from Turkiye Finans Katilim Bankasi. The remainder of the borrowings are local currency loans from Turkish banks. As of December 31, 2019, Financell’s2020, Financell's total loan portfolio was TRY 1,7331,038 million and 81%70% of this portfolio consists of foreign currency loans (TRY 1,407724 million), which are converted into TRY liabilities with cross currency swaps and thus do not carry any FXforeign exchange risk.
In order to diversify its borrowing resources, Financell also resorted to other funding alternatives. It applied to the Capital Markets Board of Turkey (“CMB”)CMB for the issuance of asset-backed security (ABS). Following the respective approvals of the CMB, Financell mandated Aktif Yatirim Bankasi A.S. which issued six ABS at a total nominal size of TRY 485 million between April 2017 and December 2019 to qualified investors without public offering where Financell was the originator and the user of funds. TRY 125 million of these issuances were made in 2019 in two transactions and the outstanding ABS amount asfully matured on September 23, 2020.
Table of December 31, 2019 is TRY 87 million.Contents
In June 2019, Financell applied to the CMB for the approval of to the issue of debt instruments in Turkey of up to TRY 500 million within one year to be utilized in various amounts and times based on financing needs. The respective debt instruments will have various interest rates and terms, various maturities of up to 1 year, and will be TL denominated. The instruments will be offeringoffered through adomestica domestic placement without public offering, and/or through a domestic sale to qualified investors in one or more tranches. No issuances have been made under this approval in 2019.2019 and 2020. Following the expiration of the CMB approval, on October 12, 2020 the Board approved a new resolution to allow Financell to issue debt instruments for an amount of up to TRY 500 million under the same conditions mentioned above. On October 21, 2020, Financell applied to the CMB for the approval of the issue and the approval was obtained on November 13, 2020. Financell issued commercial paper with a nominal value of TRY 100 million, 175-day maturity on the domestic market on February 26, 2021.
On December 18, 2017, the Turkcell Board of Directors approved the issuance of management agreement basedagreement-based lease certificates (wakala sukuk)(sukuk) in accordance with capital markets legislation by Turkcell Superonline through an asset leasing company in the domestic market for an amount of up to TRY 300 million and up to 12-month tenor. On January 19, 2018, application for the approval of the issue programme for lease certificates was made to the CMB and the approval was obtained on March 1, 2018. The first issue of TRY 125 million with a six-month176-day tenor and 13.67% interest rate was made on March 22, 2018 and fully matured on September 13, 2018. The second issue of TRY 75 million came on December 13, 2018 with 103-day tenor and the22.00% interest rate. The third issue of TRY 100 million followed on February 13, 2019 with 121-day tenor.tenor and 21.75% interest rate. The issues were conducted to meet the short-term funding
needs of Turkcell Superonline and were purchased by domestic institutional investors. Following the complete utilization of the previous Turkcell Board of Directors resolution and the CMB approval, on February 1, 2019, the Board approved a new resolution to allow Turkcell Superonline to issue lease certificates for an amount of up to TRY 500 million under the same conditions mentioned above. On May 2, 2019, an application for the approval of a new issue programme for lease certificates of up to TRY 500 million was made to the Capital Markets Board,CMB, and the approval was obtained on May 16, 2019. The first issue of TRY 75 million under the new issue programme was made on June 14, 2019 with a 116-day tenor and matured on October 8, 2019.23.70% interest rate. It was followed by the second issue of TRY 150 million on October 8, 2019, with 119-day tenor, which matured on February 4, 2020,and 14.00% interest rate, and further followed by the third issue of TRY 175 million with a 140-day tenor and 9.60% interest rate on February 4, 2020. OnFollowing the complete utilization of the previous Turkcell Board of Directors resolution and the CMB, on March 24, 2020, the Turkcell Board of Directors approved the issuance ofa new resolution to allow Turkcell Superonline to issue lease certificates by Turkcell Superonline throughfor an asset leasing company based in Turkey. The issuance, in the amount of up to TRY 600 million must be made in Turkish Lira terms with maturities of up to 12 months, and offered in the domestic market, in one or more tranches, through private placements and/or sales to institutional investors without a public offering. Onunder the same day,conditions. On April 17, 2020, an application for the approval of a new issue programme for lease certificates was made to the CMB, and the approval was obtained on June 4, 2020. The first issue of TRY 100 million under the new issue programme was made on June 23, 2020 with a 148-day tenor and 8.10% interest rate. It was followed by the second issue of TRY 50 million on November 18, 2020, with 125-day tenor and 14.95% interest rate, which matured on March 23, 2021.
On March 24, 2020, the Turkcell Board of Directors approved the issuance of lease certificates by Global Tower through an asset leasing company based in Turkey. The issuance of up to TRY 300 million must be in Turkish Lira terms, with maturities up to 12 months, and be offered in the domestic market in one or more tranches as private placement and/or sold to institutional investors with no public offering.
On January 8, 2021, the Turkcell Board of Directors approved the issuance of management agreement based lease certificates in accordance with capital markets legislation by Turkcell Odeme through an asset leasing company or a financial institution based in Turkey. The issuance of up to TRY 100 million must be in Turkish Lira terms with maturities up to 12-months, and be offered in the domestic market in one or more tranches as private placement and/or sold to institutional investors
with no public offering. On February 4, 2021, we obtained approval from the CMB for a one year period.
Our borrowings consist of bilateral and club loans from local and international financial institutions, 144A/ RegS Eurobonds sold to qualified investors in the international markets and finance lease obligations with either fixed or floating interest rates. A significant portion of our borrowings is utilized to finance our consolidated subsidiaries’subsidiaries' financing needs and acquisition of GSM licenses. Our loans are denominated in several currencies including U.S. Dollar, BYN, CNY, EUR, UAH or TRY. The floating interest rates vary from LIBOR + 0.58%1.70% to LIBOR + 2.17%2.42% and from EURIBOR+1.25% to EURIBOR+2.20%2.15% for the loans denominated in U.S. Dollars and EUR, respectively. The fixed interest rates vary from (i) 3.84% to 5.80% for the loans denominated in U.S. Dollars, (ii) 0.82%1.45% to 3.35%1.75% for the loans denominated in EUR, (iii) 9.25%6.50% to 10.60%16.85% for the loans denominated in TRY, (iv) 11.50%6.00% to 18.00%10.85% for the loans denominated in UAH, and (v) 12.00%5.21% to 16.00% for the loans denominated in BYN and (vi) 5.51% for the loans denominated in CNY. Our borrowings are payable over the period spanning from 20192020 to 2031. As of December 31, 2019,2020, our borrowings consist of USD 752360 million and EUR 846628 million based on floating-rate pricing (i.e. LIBOR and EURIBOR), of which USD 300232 million and EUR 480388 million will still be outstanding as of January 1, 2022.2023. As we understand from what we observe in the market, the Financial Conduct Authority (FCA) plans to phase out LIBOR by the end of 2021 and from then on, the Secured Overnight Funding Rate (SOFR) is expected to replace LIBOR. Furthermore, regulators are also discussing to replace EURIBOR, yet it is expected to remain in force for another period of five years. As of March 20, 2020,April 12, 2021, we have neither discussed with nor approached by any financial institution to replace LIBOR and/or EURIBOR with a new reference rate. We shall continue to monitor the developments on this matter and aim to take necessary actions if and when possible in conjunction with financial institutions that we are in continuous contact with.
We believe we have a strong liquidity position with the cash-equivalent of USD 1.71.6 billion in hard currencies, which approximately equals our debt service (including principal and interest) due in the next three years, (excluding the consumer finance unit which is a self-financing company thanks to its consumer loan receivables). Beyond that, we currently have a debt service (including principal and interest) amounting to approximately USD 1,9201,812 million in total between 20232024 and 2031.
The ratio of our debt to equity is 104% as of December 31, 2020, compared to 112% as of December 31, 2019, compared to 126% as of December 31, 2018.2019. We have been able to maintain our leverage at a satisfactory level and in line with our targets. For more information, see Note 29 to our Consolidated Financial Statements.
We are continuing our efforts to selectively seek out and evaluate new investment opportunities. These opportunities could include the purchase of licenses and acquisitions in markets inside and outside of Turkey.
Under the current assumptions and circumstances, we expect to generate adequate levels of cash to maintain a positive position in the future and to have positive cash flow related to our communications and technology activities in Turkey. According to our current business plan for the operations in Turkey, we believe that we will be able to finance our current operations, capital expenditures, and financing costs as well as maintain and enhance our network through our operating cash flow existing credit facilities and other available credit lines. However, we continue to experience difficult pricing and competitive conditions in our markets, which we expect will continue. In addition, our working capital requirements may increase should the BRSA increases the maximum number of instalments on mobile phone related loans or with our possible entry to the smart device
leasing business for consumers. The working capital requirements related to terminal financing and bad debt expenses are planned to be managed by our consumer finance company, which commenced operations in 2016.loans. We are also facing increased capital needs to finance our technological advancements and geographicbusiness expansion, which may increase our net cash used for investing activities. These pressures have reduced, and may continue to reduce, our liquidity and may lead to an increase in borrowing needs and net cash used by financing activities.
Our cash outflows through 20192021 include potential dividend payments, depending on the result of our general assembly meeting, quarterly corporate tax payments, capital expenditures, debt service and working capital needs.
We expect that our total operational capital expenditures as a percentage of revenues in 20202021 will be around 16%-18%20%.
The forward-looking statements made here regarding our liquidity and any other financial results are not a guarantee of performance. They are subject to risks and uncertainties that could cause future activities and results of operations to be different from those set forth in this annual report.
Important factors that may adversely affect our projections include general economic conditions, changes in the competitive environment, legal risks, developments in the domestic and international capital markets, increased investments, changes in telecommunications regulations and mismatches between the currencies in which we generate revenue and hold liquid assets and the currencies in which we incur liquid obligations and debt. See “Item"Item 3.D. Risk Factors”Factors" for a discussion of these and other factors that may affect our projections.
c. c.Capital Transactions
In 2019,2020, we have entered into buyback transactions on our own shares; please refer to “Item"Item 10.B. Share Buy-Backs”Memorandum and Articles of Association–III. Capital Structure", as well as Item 16.E.
d.General Economic Conditions
Turkey’s Despite the COVID-19 pandemic, Turkey's economic growth slowed toexpanded 1.8% in 2020 from 0.9% in 2019 from 2.6% in 2018 and it is expected to accelerate to around 3.3%6.0% in 2020.2021, according to IMF. However, the various measures taken infuture developments relating to the fight against COVID-19 pandemic and other macroeconomic and political challenges may negatively impact this growth rate. Please refer to “Item"Item 5. I. Overview of the Turkish and International Economy”Economy".
e.Dividend Payments
On March 23, 2016, the Board of Directors proposed a dividend distribution for the year ended December 31, 2015 amounting to TRY 1,200.0 million (equivalent to USD 202.0 million as of December 31, 2019), which represented approximately 58% of net distributable income for the relevant year. This dividend proposal was discussed and rejected at the Ordinary General Assembly of Shareholders held on March 29, 2016.
On May 25, 2017, the Company’s General Assembly approved the payment of a dividend amounting to TRY 3,000.0 million (equivalent to USD 505.0 million as of December 31, 2019) out of profits for the period from January 1, 2010 to December 31, 2016. This represents a gross cash dividend of full TRY 1.3636364 (equivalent to full USD 0.23 as of December 31, 2019) per share. The Company paid TRY 3,000.0 million in total including withholding taxes in three installments on June 15, September 15 and December 15, 2017 to the shareholders.
On March 29, 2018, the Company’sCompany's General Assembly approved the payment of a dividend amounting to TRY 1,900.0 million (equivalent to USD 319.9258.8 million as of December 31, 2019)2020) from the net distributable profit for the year ended December 31, 2017. This represents a gross cash dividend of full TRY 0.8636364 (equivalent to full USD 0.150.1176536 as of December 31, 2019)2020) per share. The distribution to shareholders was performed in three equal installments that took place on June 18, September 17 and December 17, 2018, respectively.
On September 12, 2019, the Company’sCompany's General Assembly approved the payment of a dividend amounting to TRY 1,010.0 million (equivalent to USD 170.0137.6 million as of December 31, 2019)2020) from the net distributable profit for the year ended December 31, 2018. This represents a gross cash dividend of full TRY 0.4590909 (equivalent to full USD 0.080.0625422 as of December 31, 2019)2020) per share. The distribution to shareholders was performed in a single payment on October 31, 2019.
On October 21, 2020, the Company's General Assembly approved the payment of a dividend amounting to TRY 811.6 million (equivalent to USD 110.6 million as of December 31, 2020) from the net distributable profit for the year ended December 31, 2019. This represents a gross cash dividend of full TRY 0.3689190 (equivalent to full USD 0.0502580 as of December 31, 2020) per share. The distribution to shareholders was performed in a single payment on November 30, 2020.
On April 15, 2021, the Company's General Assembly approved the payment of a dividend amounting to TRY 2,585.8 million (equivalent to USD 320.3 million as of April 15, 2021) from the net distributable profit for the year ended December 31, 2020. This represents a gross cash dividend of full
TRY 1.1753577 (equivalent to full USD 0.1455930 as of April 15, 2021) per share. The distribution to shareholders will be performed in three equal installments on April 30, July 30, and October 27, 2021.
For additional details regarding our dividend policy, see “Item"Item 8.A. Consolidated Statements and Other Financial Information—II. Dividend Policy”Policy".
5.C Research and Development, Patents and Licenses, etc.
We own a number of patents, utility models, trademarks and industrial designs.
The activities of our technology center, which houses all of our R&D operations in a single location, include the following:
a.Changing Subscriber Base and Usage Patterns
The proportion of postpaid subscribers in our subscriber base in Turkey was 62%66%, 62% and 56% in 2020, 2019 and 54% in 2019, 2018, and 2017, respectively, due to our value focus.
As our market and business strategy evolve, we expect that the percentage of our revenues from mobile data and fixed data will continue to increase with increased smartphone penetration, a larger postpaid subscriber base and rising data consumption. For these reasons and with an increased focus on our OTTdigital services, we also expect that the percentage of our revenues from digital services will also increase. On the other hand, revenues from voice and SMS traffic are expected to continue to decrease as a percentage of our revenues, reflecting the declining demand for these conventional telecommunication services.
In the context of the COVID-19 pandemic, we have observed a decrease in roaming revenues arising from travel restrictions since March 2020.
b.Regulations affecting our prices
The ICTA has on several occasions intervened to place caps on the tariffs that we charge in the Turkish market. In the past, the ICTA’sICTA's intervention in our retail voice and SMS prices negatively affected our ability to design and launch campaigns and offers and, consequently, had a negative impact on our business. In 2016, ICTA removed the regulation on lower limit on on-net retail prices and campaigns. These pricing regulations were valid on all single voice tariffs and campaigns, whereas we were obliged to maintain our minimum on-net SMS rate on network base.
The ICTA has in the past intervened to decrease interconnection rates. With respect to the interconnection rates that we charge, following the ICTA’sICTA's board resolution dated June 17, 2013, our mobile termination rates were set at TRY 0.0250. In addition, the ICTA with a board resolution dated April 12, 2013, lowered SMS termination rates for Turkcell from TRY 0.0170 to TRY 0.0043. With its latest decision dated October 22, 2014, the ICTA also set the tariff for MMS termination rates for Turkcell at TRY 0.0086.
The table below shows the on-net prices and MTR rates:
TRY | Before July 1, 2013 | July 1, 2013- August 6, 2016 | As at April 12, 2021 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Minimum on-net voice price | 0.0313 | 0.0428 | — | |||||||
Minimum on-net SMS price | — | 0.0073 | — | |||||||
Voice MTR | 0.0313 | 0.0250 | 0.0250 | |||||||
SMS TR | 0.0170 | 0.0043 | 0.0043 |
TRY | Before July 1, 2013 | July 1, 2013 – August 6, 2016 | As at March 20, 2020 | |||||||||
Minimum on-net voice price | 0.0313 | 0.0428 | — | |||||||||
Minimum on-net SMS price | — | 0.0073 | — | |||||||||
Voice MTR | 0.0313 | 0.0250 | 0.0250 | |||||||||
SMS TR | 0.0170 | 0.0043 | 0.0043 |
The maximum tariffs (also referred to as price caps) set by the ICTA may constituterepresent the highest rates we may charge for the services included in our service packages. Generally, the maximum tariffsprice caps set by the ICTA for particularcertain services are set higher than the standard tariffs determined by the ICTA for those services. Such caps were in force until they were annulled following a decision rendered in March 2016 annulled the maximum tariffs.2016. On September 20, 2018, the ICTA set the maximum tariffsprice caps at 0.5670 TRY/min for voice and TRY 0.4075 for SMS with regard to Turkcell and Vodafone on the basis of the obligations in their licence agreements. SinceBecause TT MobilMobil's licence does not haveprovide for such an obligation, in its
licence, a policy decision was taken by the Ministry of Transportation and Infrastucture for TT Mobil to comply with maximum tariffs.price caps. The latest ICTA Board Decision dated September 23, 2019 sets the rates at TRY 0.6494 TRY/min for voice and TRY 0.4668 for SMS as of October 1, 2019. Following the ICTA Board Decision dated November 17 2020, the ICTA announced that Turk Telekom was exempted from the maximum tariff regulation. The latest ICTA Board Decision dated March 31, 2021 sets the rates at TRY 0.8064 TRY/min for voice and TRY 0.5796 for SMS as of April 1, 2021 for Turkcell and Vodafone.
The ICTA has in the past intervened and may again intervene, impacting the prices we charge for our tariffs.
Further cuts in interconnection rates may makelead us redesignrestructure our tariffs and may impact our operational results.
By Following its Board decision dated April 19, 2017, numbered 2017/DK-SRD/131, the ICTA finalized its Mobile Call Termination market analysis and decided to deregulate SMS and MMS termination services within a transition period of one year, as of April 19, 2018. On the other hand,year. Moreover, the Significant Market Power status would continue in the call termination market for mobile operators, operators that offer satellite communications services, and Mobile Virtual Network Operators (MVNO), which could offer call termination services for the incoming calls of their subscribers. Nevertheless, with its decision dated April 12, 2018, the ICTA later cancelled the deregulation of the SMS/MMS Termination Market. As a result, the SMS/MMS termination services are being regulated and continue to be within the scope of obligations under the Mobile Call Termination Market Analysis. Following the last Mobile Call Termination Market Analysis, the ICTA has decided to remove the cost-based price obligation for SMS/MMS services by October 1, 2021. Afterwards, SMS termination rates are expected to be determined by commercial agreements.
c.Liquidity
Our activities have traditionally generated a strong positive cash flow. According to our current business plan for the operations in Turkey, we believe that we will be able to finance our current operations, capital expenditures, and debt service and maintain and enhance our network through our operating cash flow, existing committed and non-committed credit facilities. However, we continue to experience difficult pricing and competitive conditions in our operating markets, which we expect will continue. The working capital requirements related to terminal financing and bad debt expenses are managed by our consumer finance company, Financell. Following the BRSA’s limitation on the number of instalments with regard to consumer loans for handsets and smart devices, we expect that the decrease in demand will continue, and that consequently there will not be any additional working capital need for Financell. Indeed, we expect Financell’s indebtedness to continue to gradually decrease throughout 2020, as has been the case since September 2018. We are also facing increased capital needs to finance our technological and geographic expansion,advancements, which may increase our net cash used for investing activities. These pressures have reduced, and may continue to reduce, our liquidity and may lead to an increase in borrowing needs and net cash used by financing activities.
We expect that our total operational capital expenditures as a percentage of revenues in 20202021 will be around 16%-18%20%.
The forward-looking statements made here regarding our liquidity and any other financial results are not a guarantee of performance. They are subject to risks and uncertainties that could cause future activities and results of operations to be different from those set forth in this annual report.
Important factors that may adversely affect our projections include general economic conditions, changes in the competitive environment, legal risks, developments in the domestic and international capital markets, increased investments, changes in telecommunications regulations and mismatches between the currencies in which we generate revenue and hold liquid assets and the currencies in which we incur liquid obligations and debt. In particular, our projections may be adversely affected by measures taken by the public and private sectors, both in Turkey and abroad, in response to the COVID-19 crisis, including travel restrictions, the closure of stores (including ours), the promotion of social distancing and the adoption of work-from-home by companies and institutions.pandemic. Such measures may significantly impact the amount and ways our customers use our networks and other products and services and, in turn, our business and our investment requirements. The COVID-19 pandemic has, namely, resulted in a substantial decrease in international travel, which has had an adverse effect on our roaming services (both inbound and outbound), and has also led to the closure of our stores and changes in general consumer behavior have begun to affect the volume of sales of equipment.stores. If continued for a longlonger duration, this will result in a material adverse effect on our revenues and liquidity. Although we are monitoring the potential impact of COVID-19 to our business in Turkey and abroad, its impact on our business and financial condition is unknown at this time. See “Item"Item 3.D. Risk Factors”Factors" for a discussion of these and other factors that may affect our projections.
d.Currency devaluation and impairments
Our results of operations and the value of certain of our assets have been adversely affected by devaluations in the currencies of certain countries, in particular Ukraine, Belarus, and Turkey in the last few years. The value of the Turkish Lira against USD decreased relativelysignificantly in 2019,2020, depreciating by 23.6% in 2020 compared to 12.9% in 2019 compared to 39.5%
in 2018.2019. Ukraine Hryvnia appreciateddepreciated significantly against USD by 19.4% in 2020 compared to appreciation 14.5% in 2019 compared to 1.4% in 2018.2019. In Belarus, the Belarusian Ruble appreciated 2.6%depreciated 22.6% in 2020 in contrast with depreciationappreciation by 9.5%2.6% in 2018.2019. Any currency devaluation remains a risk and may continue to have an adverse effect in the future. Furthermore, operational and technological changes, general macroeconomic conditions, in particular in the context of the ongoing COVID-19 crisis,pandemic, legal, regulatory or political obstacles in Ukraine and Belarus may lead to further impairments in the values of certain of our assets in the future.
5.E Critical Accounting Estimates
Off-Balance Sheet Arrangements
Off-balance sheet arrangements refer to any transaction, agreement, or other contractual arrangement involving an unconsolidated entity (other than contingent liabilities arising from litigation, arbitration or regulatory actions) under which a company has:
a. a.Contingent Liabilities
The following table illustrates our major contingent liabilities as of December 31, 2019.2020.
| | Amount of contingent liability expiration per period— Remaining commitment | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total amount committed | At December 31, 2020 | Indefinite* | Less than one year | 1-3 years | 3-5 years | Over 5 years | |||||||||||||||
| TRY million | |||||||||||||||||||||
Bank Letters of Guarantee | 1,975.5 | 1,975.5 | 1,128.0 | 374.9 | 149.3 | 41.8 | 281.5 |
�� | Amount of contingent liability expiration per period— Remaining commitment | |||||||||||||||||||||||||||
Total amount committed | At December 31, 2019 | Indefinite* | Less than one year | 1-3 years | 3-5 years | Over 5 years | ||||||||||||||||||||||
TRY million | ||||||||||||||||||||||||||||
Bank Letters of Guarantee | 1,518.7 | 1,518.7 | 879.3 | 285.4 | 105.9 | 28.4 | 219.7 |
|
As of December 31, 2019,2020, we are contingently liable in respect of bank letters of guarantee obtained from banks and given to the ICTA, custom authorities, private companies and other public organizations amounting to TRY 1,518.71,975.5 million. We also provided guarantees to distributors amounting to TRY 294.4199.6 million.
See “Item"Item 5.B. Liquidity and Capital Resources—b. Sources of Liquidity”Liquidity".
5.F Tabular Disclosure of Contractual Obligations
The following tables illustrate our major contractual and commercial obligations and commitments as of December 31, 2019.2020.
| Payments due by period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||
| (TRY million) | |||||||||||||||
Loans and borrowings(*) | 23,179.9 | 4,799.8 | 5,075.4 | 8,075.5 | 5,229.1 | |||||||||||
Lease obligations | 3,210.1 | 841.2 | 977.5 | 550.6 | 840.8 | |||||||||||
Payable in relation to the acquisition of Belarusian Telecom | 734.1 | — | — | 24.4 | 709.7 | |||||||||||
Trade and other payables | 3,713.6 | 3,712.6 | 0.9 | — | — | |||||||||||
Due to related parties | 40.4 | 40.4 | — | — | — | |||||||||||
Total Contractual Cash Obligations | 30,878.0 | 9,394.0 | 6,053.9 | 8,650.5 | 6,779.6 |
| Amount of Commitment | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Other Commercial Commitments | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||
| (TRY million) | |||||||||||||||
Purchase obligations | 840.2 | 451.7 | 313.3 | 71.9 | 3.4 |
Payments due by period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||
(TRY million) | ||||||||||||||||||||
Loans and borrowings(*) | 22,137.8 | 7,322.8 | 3,540.3 | 2,833.0 | 8,441.7 | |||||||||||||||
Lease obligations | 2,456.5 | 643.8 | 705.5 | 363.7 | 743.5 | |||||||||||||||
Payable in relation to the acquisition of Belarusian Telecom | 594.0 | — | — | — | 594.0 | |||||||||||||||
Trade and other payables | 2,789.3 | 2,789.3 | — | — | — | |||||||||||||||
Due to related parties | 12.1 | 12.1 | — | — | — | |||||||||||||||
Total Contractual Cash Obligations | 27,989.7 | 10,768.0 | 4,245.8 | 3,196.7 | 9,779.2 |
|
Other Commercial Commitments Purchase obligations Amount of Commitment Total Less than
1 year 1-3 years 3-5 years After
5 years (TRY million) 819.5 331.0 410.0 78.5 —
As at December 31, 2019,2020, outstanding purchase commitments with respect to the acquisition of property, plant and equipment, inventory and purchase of sponsorship and advertisement services amounted to TRY 819.5840.2 million.
To avoid foreign exchange risk, the Company usedGroup uses currency swaps, participating cross currency swap contracts, currency forward contracts and commitments related to those derivative financial liabilities amounted to TRY 86.6119.1 million as at 31 December 2020 (Note 35).
Not applicable.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
6.A Directors and Senior Management
I. Board Members
Under the Turkish Commercial Code and our Articles of Association, the Board of Directors is responsible for our management. OurUpon the amendment of our Articles of Association, of which details will be provided below, mandates a Board of Directors containing sevennine members. Members of our Board of Directors are generally appointed for a term of three years. The CMB has a statutory authority to take actions ex officio where publicly held companies whose shares are traded on the exchange fail to comply with corporate governance principles partially or completely.
The CMB resolved in 2013 that Atilla Koc, Mehmet Hilmi Guler and Ahmet Akca would serve as “independent"independent board members”members" of our Board of Directors according to Article 17/2 of the Capital Markets Law No. 6362. Mr. Ahmet Akca, Mr. Atilla Koc and Mr. Mehmet Hilmi Guler continued to serve as independent Board Members as per the letter of Capital Markets BoardCMB dated March 8, 2019, and were subsequently replaced by Nail Olpak, Afif Demirkiran and Tahsin Yazar as per the resolution issued by the CMB on March 5, 2020.
The CMB with its resolutions dated August 15, 2013 and September 13, 2013 announced the appointment of Mehmet Bostan, Bekir Pakdemirli, Jan Erik Rudberg and Erik Jean Christian Antoine Belfrage, as board members who satisfy the independence criteria. The latter two members were chosen from the independent nominees list submitted by Telia Company. They were appointed by the CMB pursuant to sub-paragraph (k) of the first paragraph of article 128 of Capital Markets Law No. 6362, in place of members of our Board of Directors who were elected at the general assembly meeting on April 29, 2010 for a duty period of three years, and whose duty periods have expired and whose successors could not be elected at the general assembly meetings.
At the ordinary general assembly meeting held on March 29, 2018, Mustafa Kiral, Hasan Tuvan Yalim and Ingrid Maria Stenmark were elected as board members in lieu of Jan Erik Rudberg, Erik Jean Christian Antoine Belfrage and Mehmet Bostan, respectively, for a duty period of three years. After Bekir Pakdemirli resigned from his office as of July 11, 2018 due to his appointment as Minister of Agriculture and Forestry, the Board of Directors functioned with six members until March 7, 2019, which is permitted by the Company’sCompany's Articles and Associations agreement as long as meeting and decision quorums is observed. On March 7, 2019, following the Board of Director’sDirector's decision, Mr. Bulent Aksu was appointed as a Board Member to the vacant seat, pursuant to Article 363 of the Turkish Commercial Code. On March 8, 2019 Mr. Hasan Tuvan Yalim resigned from his duties and our Company’sCompany's Board of Directors decided on the same day to appoint Mr. Huseyin Aydin to the seat which became vacant following Mr. Yalim’sYalim's resignation, pursuant to Article 363 of the Turkish Commercial Code. Mr. Guler iswas elected as Ordu City Mayor on March 31, 2019. In our General Assembly Meetinggeneral assembly meeting of September 12, 2019, Huseyin Aydin and Bulent Aksu were proposed by Turkcell Holding and elected as Board Members for 3 years. On November 27, 2019, Mustafa Kiral resigned from his duties within the group, and on December 13, 2019, Christopher James Powell was appointed as Board Member in lieu of Mr. Mustafa Kiral pursuant to Article 363 of the Turkish Commercial Code.
TheAs aforementioned, the CMB with its resolution dated March 5, 2020, announced the replacement of Atilla Koc, Mehmet Hilmi Guler and Ahmet Akca on our Board of Directors, who had been serving as independent board members at our Company since March 11, 2013, with three new members, Mr. Nail Olpak, Mr. Afif Demirkiran and Mr. Tahsin Yazar, who serve as “independent"independent board members”
members" according to article 17/2 of the Capital Markets Law No. 6362. Mr. Bulent Aksu was elected as the Chairman of the Board of Directors of our Company at the Board of Directors meeting of our Company convened on March 12, 2020.
At the annual general assembly meeting held on October 21, 2020, amendments were made to the Articles of Association of our Company, changing the board of directors' structure and functioning. Thus, the Board of Directors' size has increased from seven members to nine members, and an option to attend the Board meetings by electronic means as per Article 1527 of Turkish Commercial Code and the Communiqué on Electronic Meetings Held in Commercial Companies, Other Than General Assembly Meetings of Joint Stock Companies has been introduced. Furthermore, meeting and decision quorums have been amended, allowing the Board of Directors to convene with the presence of a minimum of five members and shall resolve by the affirmative votes of at least five members present at the meeting. Furthermore, as the holder of Group A shares of the Company, our main shareholder TWF has the right to appoint a total of five of the nine members of our Board of Directors (excluding independent board members), including its Chairman, thereby effectively giving TWF control of our Board of Directors. Please see Item 10.B "Memorandum and Articles of Association" for further details.
On October 22, 2020, Christopher James Powell and Ingrid Maria Stenmark resigned from their duties within the group.
At the annual general assembly meeting held on April 15, 2021, Bulent Aksu, Figen Kilic, Huseyin Aydin, Tahsin Yazar and Senol Kazanci, which were proposed by our main shareholder TVF BTIH, were elected as members of Board of Directors for a period of three years. Afif Demirkiran, Nail Olpak and Huseyin Arslan, which were proposed by TVF BTIH, were elected as independent members with the consent of the CMB for a period of three years. Furthermore, Julian Michael Sir Julian Horn-Smith was elected as member of Board of Directors for a period of three years. Bulent Aksu was elected as the Chairman of the Board of Directors at the Board of Directors meeting on April 20, 2021.
As of MarchApril 20, 2020,2021, our Board of Directors had the following members:
Name | Date first appointed to the Board of Directors | ||||||
---|---|---|---|---|---|---|---|
Bulent Aksu (Chairman) | March 7, 2019 | ||||||
| January 29, 2021 | ||||||
Huseyin Aydin | March 8, 2019 | ||||||
| March 6, 2020 | ||||||
| April 15, 2021 | ||||||
Julian Michael Sir Julian Horn-Smith | April 15, 2021 | ||||||
Afif Demirkiran | March 6, 2020 | ||||||
| |||||||
| |||||||
| March 6, 2020 | ||||||
Huseyin Arslan | April 15, 2021 |
II. Executive Officers
We are managed on a day-to-day basis by the Corporate Executive Team with the guidance of the Board of Directors. Officers do not have fixed terms of office. On May 30, 2019, Mr. Murat Erkan has been appointed as Chief Executive Officer. The following table sets forth the name and office of each member of our Corporate Executive Team as of March 20, 2020.April 12, 2021.
Name | Office | ||||
---|---|---|---|---|---|
Murat Erkan | Chief Executive Officer | ||||
Izzet Serhat Demir | Executive Vice President—Legal and Regulation
| ||||
Osman Yilmaz | Executive Vice President—Finance (CFO) | ||||
Kadri Ozdal | Executive Vice President—Consumer Sales | ||||
Ceyhun Ozata | Executive Vice President—Corporate and Residential Sales | ||||
| Executive Vice President—Marketing | ||||
Atac Tansug | |||||
Serkan Ozturk | Executive Vice President—Information and Communication Technologies | ||||
Aziz Gediz Sezgin | Executive Vice President—Network Technologies | ||||
Ali Turk | Executive Vice President—Supply Chain Management |
III. Biographies
a.Current Board Members
Bulent Aksu, born in 1974, was first appointed to the Turkcell Board of Directors by the Board of Directors decision in March 2019.2019 and re-elected at annual general meeting on April 15, 2021. Mr. Aksu was appointed as the Chairman of Turkcell's Board of Directors effective as of March 12, 2020. Bulent Aksu has 2225 years of managerial experience in finance, accounting, tax and management fields in various sectors including telecommunications, energy, petrochemicals, textiles and audit. His professional career began at Kuveyt Turk’sTurk's Inspection Board as an Auditor, and then undertook Finance Manager and Group Finance Director roles, and then took office at Calik Holding in 2003 to serve as Finance Manager and Group Finance Director, respectively. InBetween 2008 and 2012 he served as CFO and Board Member at Akfel Group. Mr. Aksu worked as CFO for Azerbaijani National Oil and Gas Company’sCompany's (SOCAR) subsidiaries Petkim Petrokimya Holding A.S. and STAR Rafineri A.S. respectively between 2012 and 2016. Bulent Aksu executed many Merger&Acquisitionscarried out numerous mergers and acquisitions transactions in various industries, and actively ranmanaged financial transactions such as project financing and bond issuance in international and domestic markets. He led the conclusioncompletion of the financing agreement for the USD 3.3 billion and 18 years maturity financing deal signed with 23 local and international financial institutions forand STAR Rafineri, one of the topmost prominent industrial investments of our country. This loan agreement washad been the top project financing transaction ever made in Turkey in terms of the total sum and the term. In addition, it became the largest financing transaction in Europe for the year 2014. Bulent Aksu served as CFO of Turkcell between July 20, 2016 and July 17, 2018. In additionMr. Aksu made valuable contributions to Turkcell having implemented international practices enabling Turkcell to become an exemplary company of our country in terms of balance sheet and fx exposureFX risk management he made great contributions to Turkcellalong with his innovative solutions for investments financing. For the first time, it hasto funding investments. Mr. Aksu strengthened andTurkcell's leading Turkcell’s position in local and international capital markets by issuinghaving carried out first Asset Backed Securities (VDMK),(ABS) issuance in non-banking sector, and having led financing bills,
bill, lease certificates and Eurobonds. He served as Board Member of Turk Telekomunikasyon A.S. between November 2018—March 2019. Mr. Aksu has taken office as Deputy Minister for the Ministry of Treasury and Finance as of August 3, 2018. Bulent Aksu was appointed to the Turkcell Board of Directors on March 7, 2019. On May 13, 2019 he was appointed as the Chairman of Board of Directors of Turk Eximbank. BetweenEurobonds transactions. In 2016 and 2018, Mr. Aksu was voted among the top 50 most influential CFOs in Turkey by the magazine Fortune Turkey.Turkey magazine. Mr. Aksu served as Deputy Minister for the Ministry of Treasury and Finance between August 3, 2018 and January 29, 2021. He served as Board Member of Turk Telekomunikasyon A.S. between November 2018-March 2019. Mr. Aksu represented the Republic of Turkey as Sherpa at the G20 summit in 2018, and as Turkey Governor at the Asian Development Bank (ADB) and the African Development Bank (AfDB); Turkey Deputy Governor at the World Bank
(WB), European Bank for Reconstruction and Development (EBRD) and Asian Infrastructure Investment Bank (AIIB); as Turkey Executive Director at the Islamic Development Bank (IsDB) between August 2018 and January 2021. Bulent Aksu graduated from Istanbul University Faculty of Business Administration (English) in 1996.
Figen Kilic, born in 1970, was first appointed to the Turkcell Board of Directors by the Board of Directors decision in January 2021 and re-elected at annual general meeting on April 15, 2021. Figen Kilic graduated from the Selcuk University, Electrical Electronics Engineering department and received her Electrical Engineering Master's Degree from Gebze High Technology Institute. Trained in project management, process management, and test engineering, Ms. Kilic also graduated from the Anadolu University Faculty of Open Education, Department of Law, and is studying in the Department of Business Administration of the same university. Figen Kilic, started her career as technical translator in Ihlas Group, before moving to Istanbul UniversityMunicipality BELBIM A.S. for a lengthy period, working on payment projects as R&D engineer, Project Coordinator and R&D Manager. In 2010, she transferred to E-Kent Odeme Sistemleri A.S. (Calik Holding) where she served as IT and Operational team manager for electronic ticket system integration and management projects in 1996.various cities of Turkey. In 2014, Figen Kilic worked at Turkcell and in 2015 was appointed to the Information and Communication Technologies Authority (ICTA) of Turkey as its first women board member. After her term in office ended in 2019, she acted as Service Delivery General Manager of the Republic of Turkey Ministry of Family, Labor and Social Services. Figen Kilic currently serves as Advisory Board Member of BILTEG Group at TUBITAK and Chairwomen of Kibris Turk Denizcilik A.S.
Huseyin Aydin, born in 1959, was first appointed to the Turkcell Board of Directors by the Board of Directors decision in March 2019.2019 and re-elected at annual general meeting on April 15, 2021. Huseyin Aydin graduated from the Ankara Academy of Economics and Commercial Sciences (Faculty of Economics) in 1981. He began his career as an Assistant InspectorAuditor at Ziraat Bank and served as a Director in various departments at Ziraat Bank until March 27, 2003.Auditor, the Head of Department, Duisburg/ Germany Representative and Branch Manager. After working as an Executive Board member at Halkbank, as a Board member at Pamukbank and as Deputy Chairman at Ziraat Bank between 2003 and 2005, Mr. Aydin workedserved as the General Manager and Board Member at Halkbank between May 31, 2005 and July 14, 2011. Having joined2011, when the bank went public in 2007 as the biggest transaction of the country since then. Huseyin Aydin served as CEO of Ziraat Bank as the CEO onfrom July 15, 2011 to March 26, 2021. Mr. Aydin also serves as the Chairman of the Banks AssociationBoard of TurkeyDirectors of Ziraat Katilim A.S. since February 18, 2015 and is a Board Member of Turkiye Wealth Fund Management Co. Huseyin Aydin was appointed to the Board of Directors on March 8, 2019.since 2017.
Afif DemirkıranTahsin Yazar, born in 1952,1975, was appointed to the Turkcell Board of Directors as independent board member by decision taken by the Capital Markets BoardCMB in March 2020. HavingAt annual general meeting on April 15, 2021, he was re-elected as a board member as one of the individuals proposed by our main shareholder, TVF BTIH. He graduated from Ankara University Faculty of Law in 1996. After starting his career as a freelance lawyer, he continued at Devres Law Office and Zorlu Holding A.S. respectively. Mr. Yazar joined Calik Holding Inc. in 2010 as Director of Energy Group Legal Affairs and also acted as a board member of Yesilirmak Electricity Distribution Inc. and Aras Electricity Retail Sales Inc. Mr. Yazar was appointed as Advisor to the Minister of Energy and Natural Resources in 2016. As of August 1, 2018, he was appointed as Advisor to the Minister of Treasury and Finance and he held this position until the replacement of Minister.
Senol Kazanci, born in 1975, was appointed to the Turkcell Board of Directors at the annual general meeting on April 15, 2021. He graduated from Istanbul University, Faculty of Law. Senol Kazanci worked as TVNET General Manager between 2007 and 2011, as the Advisor of the Prime Minister between 2011 and 2014, and as Chief Advisor to the President in 2014. He lastly served as the Chairman and General Manager of Anadolu Agency between 2014 and 2021.
Julian Michael Sir Julian Horn-Smith, born in 1948, was appointed to the Turkcell Board of Directors at the annual general meeting on April 15, 2021. He graduated from Hons London
University, Department of Economics. He completed his primarymaster's degree in Business Administration at Bath University and secondary educationwas awarded with an Honorary Doctorate by the University of Bath. He held various senior positions at Vodafone Group between 1984 and 2006, and served as Deputy General Manager between 2000 and 2006. Sir Julian Horn-Smith served as the Member of the Board of Directors and Risk Committee of Lloyds Banking Group and Advisor to the Chairman of Etisalat. He is currently the Chairman of the Board of eBuilder AB (Sweden) and Board Member of the Digicel Group. He works as consultant at FTSE Directorships, AlixPartners and UBS Investment Bank.
Afif Demirkiran, born in Siirt, Afif Demirkıran1952, was first appointed to the Turkcell Board of Directors as independent board member by decision taken by the CMB in March 2020. Mr. Demirkiran was re-elected as an independent board member at the annual general meeting on April 15, 2021. Mr. Demirkiran graduated from Mining Faculty of Istanbul Technical University in 1973. Later he studied engineering and had master’smaster's degree at the Leeds University in UK. He served as an executive inat Etibank, as Head of Foreign Investment Department at the Undersecretariat of State Planning Organization, as General Manager of Foreign Investment Directorate atDepartmentat the Undersecretariat of Treasury, as a Board Member of Eregli Iron and Steel Inc. and Sumerbank A.S., asat various executive positions in private sector companies, as General Manager and Chairman of Turkish Electricity Generation and Transmission Company (TEAS), and General Manager of Vakif Enerji ve Madencilik A.S. Being active in politics since 2002, Afif DemirkıranDemirkiran served as Batman Deputy in the 22nd, and Siirt Deputy at the 23rd and 24th periods of the Grand National Assembly Turkey. In the 22nd period, he also served as a member of the State Economic Commission for Enterprises, member of Turkish Group OSCE PA and member of the Turkey-EU Joint Parliamentary Commission. In the 23rd and 24th periods, he was the President in the Turkey-EU Joint Parliamentary Commission. In the 22nd, 23rd and 24th periods, he served as the Chairman of Turkey-Spain Inter-Parliamentary Friendship Group. In the 24th period, he also was the Deputy Chairman of Turkey-Pakistan Inter-Parliamentary Friendship Group. Since 2016, he has been the Deputy Chairman of Foreign Affairs Directorate of Justice and Development Party.
Nail Olpak, born in 1961, was first appointed to the Turkcell Board of Directors as independent board member by decision taken by the Capital Markets BoardCMB in March 2020. HeMr. Olpak was re-elected as an independent board member at the annual general meeting on April 15, 2021. Having graduated from Aydın High School. Holding a degree of Mechanical Engineering Faculty from Istanbul Technical University Faculty of Mechanical Engineering, Mr. Olpak completed his postgraduate educationmaster's degree in the field of Energy field at YıldızYildiz Technical University. Starting his professional career at Umar Makina A.S., Olpak, held the position as Vice Factory Manager at Ozgun A.S. Mr Olpak worked as senior executive levels at Cankurtaran Holding and he left the group as Vice President. Mr. Olpak established his own businesses named NORA Elektrik A.S., Pak Yatirim A.S. and OMN Insaat A.S. He still holds the positionsserves as the Chairman of the Board of the two companiesNORA Elektrik A.S., PAK Yatirim A.S. and OMN A.S. and as the board member of the third company.
Nailcompanies in which these three companies have shareholdings. As part of his activities in NGOs and for public welfare, Mr. Olpak serves as the President of the Foreign Economic Relations Board (DEIK) since September 22, 2017. Also, Nail OLPAK currently serves as;
President & Chairman of the Executive Board (DEIK)
of DEIK, Board Member of Export Credit Bank of Turkey (TURK EXIMBANK)
, Board Member TURKCELL Company
Board Member,of Istanbul Development Agency (ISTKA)
Member of Coordination Commitee for the Improvement of the Investment Environment (YOIKK)
President of World Turkish Business Council (DTIK)
, Member of High Advisory Board of MUSIAD
(Independent Industrialists and Businessmen's Association), Member of the Founding Committee of International Technological, Economic and Social Research Foundation (UTESAV)
, Member of the Board of Trustees of Tourism Development and Education Foundation of Istanbul Chamber of Commerce (TUGEV)
, Member of Founders Board of Ilim Yayma Foundation,
Member of the Board of Trustees of Huzur Hospital Foundation,
Member of the Board of Trustees of Human Development and Societal Education Foundation (IGETEV)
, Member of the Board of Trustees Theof the Foundation for the Support of Istanbul Medeniyet University,
Founding Member of the Board of Trustees and Vice President of the Executive Board, Kandilli Club
Member of Chamber of Mechanical Engineers in The Union of Chambers of Turkish Engineers and Architects (UCTEA)
Member of Association of Mimar Sinan Architects & Engineers Union
Member of the Advisory Board, Faculty of Mechanics of Istanbul Technical University, (ITU)
Member of Aydın High School Graduates Association (ALMED)
Club. Nail Olpak also served as the Chairman of MUSIAD (Independent Industrialists and Businessmen’s Association) for the 5th Term and the Chairman of MUSIAD High Advisory Board, Vice-Chairman of IBF (International Business Forum), Council Member of B20 Steering Committee of Turkey, Council Member of ITO (Istanbul Chamber of Commerce), Board Member of IDTM (Istanbul World Trade Centre)Center), Board Member of the Huzur Hospital Foundation, Board Member of ENVERDER (Energy Efficiency Association), Member of High Advisory Board and Board Member of MMG (Architects and Engineers Group), Founding Committee Member of Turkish-Japanese University, Member of the Board of Trustees of Commercialize Center Istanbul (CCI), Board Member
of Turkey Silicon Valley.
Nail Olpak was granted the title of Honorary PhD in the branch of International Relations by Ahi Evran University and Mehmet Akif Ersoy University. Olpak is married and is the father of two sons who are Architect and Mechatronic Engineer. He speaks English very well.
Christopher James PowellHuseyin Arslan,, born in 1977, was appointed to the Turkcell Board of Directors in December 2019. Mr. Powell was appointed as the Chief Finance Officer of LetterOne Technology in 2015. Mr. Powell has a broad remit including accounting, reporting, tax, structuring and commercial transactions. He also serves as a Board member for various companies within LetterOne. Mr. Powell was previously the Head of Finance at Pallinghurst, a boutique private equity investment house, where he was responsible for financial reporting, accounting, investment valuations and investor relations. Prior to Pallinghurst, he worked within the financial reporting team for Anglo American plc, on the company’s transition to International Financial Reporting Standards and technical accounting. Mr. Powell also led various finance transformation projects. Mr. Powell has a BA in History and an MA in Modern European History, both from the University of Manchester. He qualified as a chartered accountant (ICAEW) with Deloitte in 2004.
Ingrid Maria Stenmark, born in 1966, was appointed to the Turkcell Board of Directors by the General Assembly decision in 2018. Ms. Stenmark is currently the Senior Vice President and Head of CEO Office, Strategy & Combined Assurance at Telia Company. She is responsible for Group Strategy, Enterprise Risk Management, Ethics and Compliance and also overseeing Internal Audit at Telia Company. In addition, she has the responsibility for the associate operations in Turkcell and Latvia. Since joining Telia Company in 1994, Ms. Stenmark has held a number of senior positions in the Group, including Head of Group Regulatory Affairs, acting General Counsel, and responsible for the associates Turkcell and MegaFon. Ingrid Maria Stenmark holds a Master of law from the University of Stockholm.
Tahsin Yazar, born in 1975,1968, was appointed to the Turkcell Board of Directors as independent board member by decision taken byat the Capital Markets Board in March 2020.annual general meeting on April 15, 2021. He was graduated from AnkaraMiddle East Technical University, FacultyDepartment of LawElectrical and Electronics Engineering in 1996. After starting1992. He completed his careermaster's degree in 1994 and his doctorate in 1998 at the Southern Methodist University Electrical Engineering Department. Mr. Arslan worked as a freelance lawyer,research engineer at ERICSSON, consultant at ANRITSU Company, and held Membership of TUBITAK Science Board and ULAK A.S and he continuedhas also won numerous national and international scientific awards. He received his professor degree in 2013, and is currently working as faculty member at Devres Law OfficeIstanbul Medipol University and Zorlu Holding A.S. respectively. Mr. Yazar joined Calik Holding Inc. in 2010South Florida University, and as Director of Energy Group Legal Affairs and also acted as a board member of Yesilirmak Electricity Distribution Inc. and Aras Electricity Retail Sales Inc. Mr. Yazar was appointed as Advisor to the Minister of Energy and Natural Resources in 2016. He was then appointed as Advisor to the Minister of Treasury and Finance in 2018.
b. b.Executive Officers
Murat Erkan, born in 1969, was appointed as Turkcell Chief Executive Officer on March 15, 2019. Mr. Erkan, who started his career at Toshiba, worked as an Application Engineer at Biltam Muhendislik and then served as the first “System Engineer”"System Engineer" of Turkey at Cisco Turkey. He served as Chief Officer at Cisco Systems in charge of Technology, Sales, Business development and Channel Management. Mr. Erkan served as the Business Unit Manager at Aneltech working on solutions related to telecommunications, mobile, ICT, the defense industry and industrial products sectors starting from 2006. Murat Erkan joined Turkcell Group in June 2008 as the General Manager of Turkcell Superonline, and he assumed the role of Executive Vice President of Sales from December 2015 to March 2019. Murat Erkan graduated from Yildiz Technical University Electronics and Telecommunication Engineering Department. He completed the Strategic Marketing Program at Harvard Business School in 2010.
Osman Yilmaz, born in 1983, was appointed as Turkcell Chief Financial Officer on August 1, 2018. Mr. YılmazYilmaz started his professional career at Turkiye Is Bankasi Treasury Department in 2006. In 2007, he worked at BNP/TEB Treasury Department. From 2008 to 2016, he served as Senior Fund Manager in Structured Products and Group Head of Fixed Income and Multi Asset Funds at HSBC Global Asset Management. In August 2016, he joined Turkcell family as Director of Treasury, Risk and Collection Management. Mr. YılmazYilmaz holds a dual BSc degree in Economics and Management from London School of Economics and Istanbul Bilgi University, MSc in Financial Engineering from Bogazici University and a PhD in Finance from Ozyegin University.
Izzet Serhat Demir, born in 1974, joined Turkcell as the Executive Vice President of Legal and Regulation Function in May 2015. In March 2020, in2015.In addition to his existingcurrent role, he has been appointedalso serving as the acting Executive Vice President of Human Resources effective as ofsince March 16, 2020. Mr. Demir started his professional career in 1997 at Dun&Bradstreet & Bradstreet Turkey office. From 2003 to 2007 he worked at YıldızYildiz Holding Legal Department and in 2007 he served as the Legal Counsel at Calik Holding A.S. Between 2009 and 2015, Mr. Demir undertook Calik Holding Legal Affairs Director role and in the meantime, he also served as member of Board of Directors at holding level and at group companies that operated in telecom and finance fields.fields in Turkey and abroad. Serhat Demir graduated from the Faculty of Law at Istanbul University. He received his MBA degree from Fatih University and completed Executive Education Program at Harvard Law School.
Kadri Ozdal, born in 1974, was appointed as the Executive Vice President of Consumer Sales on September 26, 2019. He started his professional career at Vodafone in 1999 and worked in sales, marketing and commercial operations departments. He then joined Turk Telekom and held positions in sales development, channel optimization and management functions. He served as sales development director and then as CSO from 2011 to 2012. Between 2012 and 2016, Kadri Ozdal took part in foundation and management of n11.com which is one of the largest e-commerce platforms in Turkey
and held CSO role. In February 2016, he joined Turkcell as Alternative Sales Channels Director and managed non-exclusive and digital sales channels, finally having served as Retail Channels Sales Director. Kadri Ozdal graduated from Dokuz Eylul University, Faculty of Economics and Administrative Sciences, Department of Public Administration.
Ceyhun Ozata, born in 1974, was appointed as the Executive Vice President of Corporate and Residential Sales on September 26, 2019. He started his professional career at Reuters and worked as a Customer Advisor from 1995 to 1996. He held Assistant Manager of Customer Operations role at Turkcell Superonline from 1996 to 1999. He served as a CRM and Product Management Manager at IXIR A.S. from 1999 to 2001. Starting from 2002, Mr. Ozata held Project Manager, Online Sales Manager, CRM & Direct Sales Director, and Marketing Director positions at Turkcell Superonline. From 2008 to 2015, he served as the Vice President of Retail Sales at Turkcell Superonline which accelerated fiber infrastructure investments. Lastly, he served as the Sales Director of Turkcell Residential and Small Medium Business Management starting from 2015 until his most recent assignment. Ceyhun Ozata graduated from Bogazici University, Department of Electronics.
Omer Barbaros YisFatih Alper Ergenekon, born in 1980,1974, was appointed as the Executive Vice President of Marketing on September 26, 2019. HavingApril 29, 2020. He started his professional career as a project manager at OTA NGO, Berlin, Germany in 1996. He worked as a consultant at I-BIMSA, Istanbul between 1997-2000. After getting his Master of Business Administration degree from the University of Rochester, New York, USA in 2002, he worked as a Senior Marketing Specialist at FedEx USA headquarters in Memphis, Tennessee between 2002-2005. He joined the Marketing Department at Turkcell in 2005 and was appointed as Marketing Manager in 2006 as Corporate and Consumer Pricing Specialist at Turkcell, he held various Senior Product Manager roles in the marketing department. From 2010 to 2013, he continued his career as the Global Telecom IndustryMarketing Director in Peppers & Rogers Group. In 2013 he joined Turk Telekom, where he2010. He also served as the Existing Customer ManagementStrategy Director Premium Segment Customer Management Director and then Fixed Products Revenue Management Director. In 2017, Omer Barbaros Yis joined Turkcell as Strategic and Focused Marketing Director and then he assumed Consumer Marketing Director role. Omer Barbaros Yis graduated from Koc University with a double major in Business Administration and Economics andSeptember 2018 to February 2021. Mr. Ergenekon received his Master’s Degree and PhDBachelor's degree in EconomicsIndustrial Engineering from Universitat Autonoma De Barcelona. He is fluentthe Middle East Technical University in English and Spanish.
Atac Tansug, born in 1974, was appointed as the Executive Vice President of Digital Services and Solutions on September 26, 2019. Mr. Tansug started his professional career as System Support Engineer at Datapro in 1999. Between 2002 and 2009, he served as International NGN/IMS Service Support Engineer, Team Leader and Team Manager in Alcatel-Lucent. From 2009 to 2011, he held Product Service Director role responsible for Turkey and Azerbaijan and Global Customer Service Director role in his last two years inat the company. He joined Turkcell Group as the Chief Technology Officer of Turkcell Superonline in 2013. Later he was appointed as Transmission & Core Network Planning Director at Turkcell in 2016. Lastly, he held Digital Services & Solutions Technology Director position in Turkcell. He graduated from the Department of Civil Engineering at Bogazici University.
Serkan Ozturk, born in 1976, was appointed as the Executive Vice President of Information and Communication Technologies in September 2015. Between 2017 and 2019, he also served as the Executive Vice President of Customer Experience in addition to his existing role. Serkan Ozturk joined Turkcell in 2000 as a Project Supervisor. He worked as project supervisor and manager at Turkcell Project Management Office between 2000 and 2009. He served as Chief Information Technologies Officer in life-Ukraine between 2009 and 2010 and in Turkcell Superonline between 2010 and 2011. From 2011 to 2015 he served as Turkcell Customer Relations Management and Business Intelligence Solutions (CRM & BIS) Director. Serkan Ozturk graduated from Middle East Technical University Electrical and Electronics Engineering department. He received his MBA degree from Istanbul University.
Aziz Gediz Sezgin, born in 1966, joined Turkcell as a Network Engineer in 1995. In October 2015, he was appointed as the Executive Vice President of Network Technologies. Previously, he served as Senior Vice President of Information and Communication Technologies, Chief Information and Communication Technologies Officer, Director of Application Operations, Director of Service Network under the ICT Function and held various executive positions in the Technology Function. Mr. Sezgin started his career at Alcatel Teletas in 1991. He graduated from Istanbul Technical University
Electronics and Communication Engineering Department and received his Master’sMaster's Degree and PhD from the same university.
Ali Turk, born in 1977, joined Turkcell as the Senior Vice President of Supply Chain Management in May 2016. He was appointed as the Executive Vice President of Supply Chain Management in March 2017. Mr. Turk started his career at Basak Hayat Sigorta in 1999. From 2002 to 2007, he held various managerial positions responsible for logistics planning, warehouse and supply chain management processes at Ulker Group companies. From 2007 to 2011, he worked at Ceva Lojistik as Warehouse and Value Added Operations Group Manager. Mr. Turk joined Turkish Airlines in 2011 as Cargo Operations Vice President. He was appointed as Turkish Airlines Cargo Operations President in 2012. Ali Turk graduated from Istanbul Technical University Industrial Engineering Department and completed Executive MBA program of Istanbul Technical University.
The compensation paid to members of the Board of Directors for their service on the Board is approved by the shareholders at the ordinary general assembly each year.assembly. In accordance with the Company’sCompany's corporate governance practices, the Board, although it has no final authority on remuneration, upon the recommendation of the RenumerationRemuneration Committee may decide on a proposal to the General Assembly as to whether board members will be remunerated, and if such is the case, the form and amount of compensation to be paid to board members. At our Annual General AssemblyMeeting held on April 29, 2010, it was decided that ourthe Chairman would receive a net sum of EUR 250,000 per year and each board member would receive a net sum of EUR 100,000 per year for the period of their service, effective February 25, 2010. In 2019,2018, according to Decree 32 on the Protection of the Value of the Turkish Currency (“("Decree No.32”No.32"), it was decided that board members who have Turkish nationality would receive their compensation in Turkish Lira, while others would continue to receive Euro-based salaries. TherebyIn 2020, each (Turkish) Board member received a total of TRY 683,400 in 2019, our Chairman and Turkish Board Members received their compensations in TRY.compensation, including the Chairman.
For the year ended December 31, 2019,2020, we provided, paid and accrued an aggregate of TRY 142.499.9 million to our key management personnel including indemnities, salaries, bonuses and other benefits. There was no deferred or contingent compensation accrued for the year payable to executive officers and members of the Board of Directors other than that already included in the TRY 142.499.9 million. A cash-settled long-term incentive plan offered to the management of Turkcell and group companies was introduced in January 2016 and as of December 31, 2019,2020, the Group recognized expenses of TRY 6.2TRY3.8 million regarding this plan compared to TRY 11.56.2 million in 2018.2019. We have Directors and Officers Liability Insurance that covers our directors and officers from liabilities that arise in connection with performing their duties and our liabilities in connection with our directors’directors' and officers’officers' performance of their duties. The coverage amount is $180$40 million, and there are a number
of insurers, each covering a different layer of the policy. Directors and Officers Liability insuranceInsurance is provided by AkTurkiye Sigorta A.S., an insurance company in Turkey, whereas reinsurance protection is provided by A-rated reinsurers. These insurers are from London, Korea, America,Switzerland, Turkey, Dubai and Spain.Dubai. The policy expired on October 1, 2019,2020, and we renewed its insurance limit based on the terms and conditions offered until October 1, 2020.2021.
For more information on our directors and the period during which each director has served on the board, see “Item"Item 6.A. Directors and Senior Management”Management".
Committees of the Board of Directors
a. a.The Audit Committee
We are required under Turkish laws and regulations, U.S. securities laws and regulations and the rules of the New York Stock Exchange (“NYSE”("NYSE") to have an Audit Committee of the Board of Directors appointed from among the independent members of the Board of Directors. Our Audit Committee currently has three members: Mr. Nail Olpak, Mr. Afif Demirkiran and Mr. Tahsin Yazar.Huseyin Arslan. Mr. Nail Olpak is the Chairman of the Audit Committee. All of the members are considered independent under the U.S. Sarbanes-Oxley Act of 2002, the rules promulgated thereunder by the U.S. Securities and Exchange Commission, the applicable rules of the NYSE and the CMB Corporate Governance Principles.
Similar to the Swiss Code, board committees in Turkish law merely have a “decision-shaping”"decision-shaping", rather than “decision-taking”"decision-taking" role. Additionally, as per a decision of the Board of Directors, the responsibility of the Audit Committee members is also considered as a joint responsibility of all Board members.
The principal duties of the Audit Committee include the following:
b.The Corporate Governance Committee
The Corporate Governance Committee, based on the CMB’sCMB's corporate governance principles, mainly assists the Board of Directors with the development and implementation of our corporate governance principles and presents if needed to the Board of Directors remedial proposals to that end. Duties and working principles of the Corporate Governance Committee are determined within the framework of the regulations, provisions and principles of the Turkish Commercial Code, Capital Market Law, Articles of Association of the Company and Capital Markets Board’s “CorporateCMB's "Corporate Governance Principles”Principles". In the relations between the Company and our shareholders, the Committee assists the Board. To that end, it oversees the investor relations activities.
The current members are Mr. Tahsin Yazar, Ms. Ingrid Maria Stenmark,Afif Demirkiran, Mr. Zeynel Korhan Bilek, TreasuryNail Olpak, Mr. Ali Serdar Yagci, Investor Relations and Capital Markets ManagementCorporate Finance Director, and Mr. Emre Alpman, Corporate Governance & Anti-corruption Program Officer.Capital Markets Compliance Director. Mr. Tahsin YazarAfif Demirkiran is the Chairman of the Corporate Governance Committee. Mr. Zeynel Korhan BilekEmre Alpman and Mr. Emre AlpmanAli Serdar Yagci were appointed members of the Corporate Governance Committee by a CMB communique requirement and were first appointed on November 2, 2016 and January 23, 2017 respectively.and November 13, 2020, respectively and re-appointed on April 20, 2021.
c.The Candidate Nomination Committee
On April 27, 2012, the Candidate Nomination Committee was established in accordance with the CMB corporate governance principles to perform independent board member candidate nomination and performance assessment processes. The current members are Mr. Afif Demirkiran, Mr. Bulent Aksu and Mr. Tahsin Yazar.Ms. Figen Kilic. Mr. Afif Demirkiran is the Chairman of the Candidate Nomination Committee.
d.The RenumerationRemuneration Committee
On December 19, 2012, in conformity with the CMB corporate governance principles, our Board established the RenumerationRemuneration Committee to operate under our Board of Directors. The current members are Mr. Tahsin Yazar,Nail Olpak, Mr. Bulent Aksu and Mr. Nail Olpak.Huseyin Arslan. Mr. YazarOlpak is the Chairman of the RenumerationRemuneration Committee. The Board also adopted the Renumeration Committee’sRemuneration Committee's Charter and approved that the RenumerationRemuneration Committee shall execute the duties relating to compensation issues which were earlier granted to the Corporate Governance Committee by the Corporate Governance Committee Charter, and the RenumerationRemuneration Committee shall be authorized in lieu of the Corporate Governance Committee in the “Total"Total Remuneration Policy for the Board of Directors and Top Executives”Executives" adopted by our Board.Board and posted on our website. The Committee determines the remuneration principles that apply to Board members and senior management taking into account the long-term strategic goals of the Company. It sets out the remuneration criteria for the Board members and senior management’smanagement's performance and makes compensation recommendations to the Board.
e.The Early Detection of Risks Committee
The Early Detection of Risks Committee has been established in conformity both with the new Turkish Commercial Code and CMB corporate governance principles to assist the Board in early detection of risks that may jeopardize the Company’sCompany's existence, development and continuation, and to assist the Board in taking the necessary measures and remedial actions to manage such risks. On April 30, 2019, the Board determined the number of members of the Early Detection of Risk Committee as three. Current members are Mr. Tahsin Yazar,Huseyin Arslan, Mr. Afif DemirkiranBulent Aksu and Mr. Huseyin Aydin.Tahsin Yazar. Mr. Tahsin YazarArslan was elected as the Chairman of the Early Detection of Risk Committee.
On January 28, 2016 the Board has adopted new charters relating to all of the above mentioned committees.
From our formation in 1993, we We have grown from approximately 90 employees to 21,81324,675 employees as of December 31, 2019.2020. Due to our customer growth and the increasing need for competent employees, we focus on the quality of our recruitment. The following
table sets forth the number of employees by activity employed by us at December 31, 2020, 2019 2018 and 2017.2018.
Turkcell | 2020 | 2019 | 2018 | |||||||
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Board of Directors Office | 30 | 37 | 16 | |||||||
Group Internal Audit | 55 | 64 | 60 | |||||||
CEO Office | — | 4 | 24 | |||||||
Legal & Regulation | 150 | 139 | 123 | |||||||
Finance | 277 | 262 | 260 | |||||||
Strategy | 11 | 17 | 45 | |||||||
Marketing | 192 | 187 | 193 | |||||||
Network Technologies | 1,181 | 1,284 | 1,349 | |||||||
Digital Services & Solutions | 78 | 118 | 145 | |||||||
Information & Communication Technologies(1) | 450 | 480 | 444 | |||||||
Human Resources | 220 | 226 | 231 | |||||||
Supply Chain Management | 167 | 163 | 159 | |||||||
Sales(2) | — | — | 1,016 | |||||||
Corporate & Residential Sales(2) | 810 | 746 | — | |||||||
Consumer Sales(2) | 311 | 297 | — | |||||||
International & Wholesale Management(2) | 41 | 36 | — | |||||||
Corporate Communications | 34 | — | — | |||||||
Internal Control and Continuous Management | 20 | — | — | |||||||
Turkcell Energy Solutions | 1 | — | — | |||||||
Subtotal | 4,028 | 4,060 | 4,065 | |||||||
Subsidiaries | ||||||||||
Turkcell Global Bilgi | 16,322 | 13,840 | 12,034 | |||||||
lifecell | 994 | 952 | 941 | |||||||
Belarusian Telecom | 400 | 389 | 360 | |||||||
Global Bilgi LLC | 848 | 728 | 716 | |||||||
Turkcell Superonline | 20 | 23 | 26 | |||||||
Turkcell Teknoloji | 1,179 | 1,062 | 956 | |||||||
Kibris Telekom | 197 | 192 | 195 | |||||||
Others(3) | 687 | 577 | 827 | |||||||
Subtotal | 20,647 | 17,763 | 16,055 | |||||||
Total | 24,675 | 21,813 | 20,120 |
Turkcell | 2019 | 2018 | 2017 | |||||||||
Board of Directors Office | 37 | 16 | 18 | |||||||||
Group Internal Audit | 64 | 60 | 71 | |||||||||
CEO Office | 4 | 24 | 15 | |||||||||
Legal & Regulation | 139 | 123 | 129 | |||||||||
Finance | 262 | 260 | 249 | |||||||||
Strategy | 17 | 45 | 39 | |||||||||
Marketing | 187 | 193 | 190 | |||||||||
Network Technologies | 1,284 | 1,349 | 1,345 | |||||||||
Digital Services & Solutions | 118 | 145 | 121 | |||||||||
Customer Experience & Information Technologies | 480 | 444 | 483 | |||||||||
Human Resources | 226 | 231 | 228 | |||||||||
Supply Chain Management | 163 | 159 | 142 | |||||||||
Sales(1) | — | 1,016 | 937 | |||||||||
Corporate & Residential Sales(1) | 746 | — | — | |||||||||
Consumer Sales(1) | 297 | — | — | |||||||||
International & Wholesale Management(1) | 36 | — | — | |||||||||
Subtotal | 4,060 | 4,065 | 3,967 | |||||||||
Subsidiaries | ||||||||||||
Turkcell Global Bilgi | 13,840 | 12,034 | 12,189 | |||||||||
lifecell | 952 | 941 | 980 | |||||||||
Belarusian Telecom | 389 | 360 | 353 | |||||||||
Global Bilgi LLC | 728 | 716 | 714 | |||||||||
Turkcell Superonline | 23 | 26 | 29 | |||||||||
Turkcell Teknoloji | 1,062 | 956 | 830 | |||||||||
Kibris Telekom | 192 | 195 | 199 | |||||||||
Others(2) | 577 | 827 | 507 | |||||||||
Subtotal | 17,763 | 16,055 | 15,801 | |||||||||
Total | 21,813 | 20,120 | 19,768 |
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We remain confident that high levels of subscriber satisfaction will be possible with continued investment in our people. To that end we continue to strive to attract the best talent in the market.
We are able to recruit highly qualified employees due to our leader position in the Turkish mobile communication market and our strong corporate identity. Stringent hiring and training standards have resulted in a professional organization with high-caliber employees within a challenging workplace.
With regard to employee compensation and benefits, the major principles of our policy are to preserve internal equity and external competitiveness and reflect individual performance in compensation packages.
Significant factors involved in the process of determining compensation and benefits for our employees are our grading structure (based on the HayWillis Towers Watson Grading system), market movement data and individual performance.
From Starting in the first month of 2020, all employees receive net salary instead of gross salary. Principal factors in salary adjustments are market movements and economic indicators (e.g., the rate of inflation). We pay performance bonuses quarterly to sales employees and annually to all other employees in accordance with individual and company performance results. Our performance evaluation system evaluates the whole year performance of our employees through target setting-based on strategic objectives and 360-degree evaluation. Benefits packages are designed in line with the local market practice and linked to grade bands/levels where the benefits package improves as the grade band/level increases. We run a flexible benefits plan that allows our employees to select from a pool of choices that suit them such as several shopping and travel vouchers, allowance for children and payment to the Defined Contribution Plan (the “DCP”"DCP"). The DCP is a voluntary pension system in which we and the employee make equal contributions. After a vesting period of three years, the employee gets ownership of the contribution we made. The DCP covers all employees who have been working with us for a minimum of six months.
Starting from January 2016, we have launched a long-term incentive plan offered to the management of Turkcell and group companies. This plan aims to build a common interest with shareholders, support sustainable success, and ensure loyalty of key employees. The long-term incentive plan is subject to company performance measures and linked to our share price performance. The key performance indicators of the plan are; the total shareholder return in excess of weighted average cost of capital (WACC), and ranking of total shareholder return in comparison with the BIST 30 and peer group. The bonus amount is determined according to these evaluations, and it is distributed over a three-year payment plan. Accordingly, it was calculated that, the senior management and those employees who are covered as part of this plan were deserved to be paid for 2017 and 2019.2019; the performance in 2020 did not meet the criteria. For 2017,2019, the cash equivalent of 2,065,490736,918 shares in total was paid in March 20182020 as the first installment. The second installment was paid in the cash equivalent of 1,836,740640,303 shares in total in February 2019, and the third installment was paid the cash equivalent of 1,214,266 shares in total in March 2020. For 2019, first installment was paid the cash equivalent of 1,198,450 shares in total in March 2020.2021.
Each of our employees undergoes an orientation program incorporating both classroom and e-learning training. The training provides employees with information concerning corporate culture and ethics, an introduction to our services, basic mobile communications knowledge and the functions of the departments. Each employee has the opportunity to participate in the individual, organizational, functional and managerial development programs after regular analyses of his or her training needs. In addition, each employee receives specific training for his or her particular job.
Our employees are not members of any union, and there is no collective bargaining agreement with our employees. We have not experienced any work stoppages.
With the rising need of remote working given the on-going COVID-19 pandemic, Turkcell announced "Flexible Remote Working Model" on March 5, 2021. Under this working model, upon the approval of their managers, employees can work remotely from anywhere in the country, even from abroad when and if the job requirements are suitable for flexible and remote working. Whenever our employees need to make use of office space, they are able to make office reservations through the intra-company application called Turkcell Life.
Based on reporting made to us on MarchApril 20, 2020,2021, we believe that the aggregate amount of shares owned by our Board members and senior officers at such time was 61,650 ordinary shares. No individual Board member or senior officer owned 1% or more of our outstanding shares.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
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The following table sets forth our major shareholders’shareholders' ordinary share ownership representing 51.05%100% of our Company’sCompany's capital. This information is current as of March 20, 2020,April 12, 2021, based on the information provided by the Central Securities Depository of Turkey and company share register. Our
Following the amendments of our Articles of Association at the general assembly on October 21, 2020, a new class of Group A shares has been created ("Group A Shares"). Group A shares refer to the privileged shares of the Company corresponding to 15% of its total issued share capital. Group B shares refer to the ordinary shares of the Company corresponding to 85% of its total share capital ("Group B Shares"). A nomination privilege has been created on the Group A Shares, allowing the holders thereof to nominate four candidates for appointment as members of the board of directors of the Company; and a voting privilege has been created on the Group A Shares, allowing the holders thereof to cast six votes for each Group A Share in respect of the appointment of (a) five members of the board of directors of the Company, and (b) the chairman of the presiding committee of the general assembly of shareholders. Therefore, TVF BTIH, as the sole holder of shares in this class, has the right to appoint a total of five of the nine members of our Board of Directors, including its Chairman.
For additional details regarding the voting rights, see "Item 10.B.III.d. Capital Structure—Voting Rights".
Name and Address of Owner | Nominal TRY Value of Shares Owned | Percent of Shares (%) | Percent of Group A Shares (%) | Percent of Group B Shares (%) | |||||||||
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TVF Bilgi Teknolojileri Iletisim Hizmetleri Yatirim Sanayi ve Ticaret A.S.(1) | 576,400,000.24 | 26.20% | 15.00% | 11.20% | |||||||||
IMTIS Holdings S.à r.l.(1) | 435,600,000.00 | 19.80% | — | 19.80% | |||||||||
Shares Publicly Held(2) | 1,187,999,999.76 | 54.00% | — | 54.00% | |||||||||
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Total | 2,200,000,000 | 100.00% | 15.00% | 85.00% | |||||||||
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Recent Acquisition by TWF
On June 17, 2020, certain of the Company's direct and indirect shareholders and Turkiye Varlik Fonu, the wealth fund of the Republic of Turkey ("TWF"), acting through its management company, Turkiye Varlik Fonu Yonetimi A.S., issued press releases with respect to a series of agreements signed amongst them and certain of their related parties, including TVF Bilgi Teknolojileri Iletisim Hizmetleri Yatirim Sanayi ve Ticaret A.S. ("TVF BTIH") and Ziraat Bankasi A.S. ("Ziraat").
According to these agreements, following satisfaction of a number of conditions, particularly obtainment of regulatory approvals and fulfilment of other third-party actions along with the approval of the amendments to the articles of association of the Company at the shareholders' general assembly held on October 21, 2020, each of the following transactions was completed on October 22, 2020:
Following this sale, TVF BTIH holds a 26.2% direct interest in the shares of the Company. According to Material Event Disclosure forms published on November 10, 2020 and November 13, 2020 on the Public Disclosure Platform by IMTIS Holdings, 110,000,000 of Turkcell's shares (corresponding to 5% of the issued share capital of Turkcell) has been sold at Borsa Istanbul. The shares were sold to institutional investors through accelerated bookbuild process at an approximately 7% discount. Following completion of the transactions, capital shares and voting rights of TVF BTIH and IMTIS Holdings in the Company have become 26.2% and 19.8%, respectively.
The Turkish law establishing TWF provides that TWF is exempted from several laws, notably certain capital markets and competition laws. Notably, TWF is exempted from the application of Articles 23 (Significant transactions of corporations), 24 (Right to exit of shareholders in relation to significant transactions), 25 (Takeover bids), 26 (Mandatory takeover bids in the context of change of control) and 27 (Squeeze-out and sell-out rights) of the CMB Law, as well as the secondary CMB legislation relating to those articles, with regard exclusively to transactions enabling TWF to obtain control.
As disclosed in TWF's regulatory filings with the SEC, TWF financed this acquisition through an acquisition loan under which payments will start approximately three years after the acquisition, and the Group A shares owned by TWF are subject to a three-year lock-up agreement. However, there are several circumstances under which the lock-up will not apply, among which: (i) if, following the transfer, TVF BTIH and its affiliates, cumulatively, continue to beneficially and legally own and have different voting rights.full economic exposure to at least 21.2% of the total issued and outstanding shares of Turkcell; (ii) any
such transfer is carried out in connection with security created by TVF BTIH or any of its affiliates over its shares in Turkcell in favour of a lender in relation to a loan transaction; or (iii) any such transfer is a tender by TVF BTIH and its affiliates in any bona fide third party mandatory tender offer or voluntary tender offer made for all of the shares in Turkcell, or (iv) any such transfer is made pursuant to an "exit right" exercised in accordance with the terms of the CMB Law, the Exit Right Communiqué or the Turkish Commercial Code, but only where such "exit right" arises as a result of a transaction conducted by or decided upon by Turkcell.
Name and Address of Owner | Nominal TRY Value of Shares Owned | Percent of Class | ||||||
Turkcell Holding A.S.(1) | 1,122,000,000.238 | 51.00 | % | |||||
Buyukdere Cad. | ||||||||
Yapi Kredi Plaza | ||||||||
A Blok Kat: 15 | ||||||||
34330, Levent, Istanbul, Turkey | ||||||||
Cukurova Holding A.S. | 995,509.429 | 0.05 | % | |||||
Buyukdere Cad. | ||||||||
Yapi Kredi Plaza | ||||||||
A Blok Kat: 15 | ||||||||
34330, Levent, Istanbul, Turkey | ||||||||
Shares Publicly Held(2) | 1,077,004,490.333 | 48.95 | % | |||||
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Total | 2,200,000,000 | 100 | % | |||||
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As of March 20, 2020,April 12, 2021, Turkcell had 66,406,03269,495,670 ADRs outstanding held by 6356 registered ADR holders. To the best of our knowledge, as of December 31, 2019,2020, in accordance with the loan agreements signed between our shareholders and various banks, 0.05% of shares having a nominal value of TRY 999.5995,509 have been pledged by our shareholders as security in favor of such banks.
On December 6 and 7, 2016, Sonera Holding registered 287,632,179.557 shares through the Central Securities Depository of Turkey. These shares are classified as publicly held shares of the Company. On May 10, 2017 and September 21, 2017, Sonera Holding disclosed that transaction of selling these shares was performed and their shares under the free float remained at a nominal value of TRY 1.604. Sonera Holding is no longer listed as an ordinary shareholder.
7.B Related Party Transactions
We have entered into agreements with our executive officers and with several of our current and former shareholders or affiliates of shareholders. We believe that all of such agreements are on terms that are comparable to those that would be available in transactions with unrelated parties. Our policy is to seek price quotes for services and goods we purchase and select the most favorable price. Additionally, our Board has adopted the “Rules"Rules to be Applied to Related Parties in Purchasing/Selling Assets and Services along with Transfers of Liabilities”Liabilities" to be applied by the relevant employees within the company and its group companies on November 24, 2014. For a discussion of our Related Party Transactions for fiscal year 2019,2020, see Note 39 to our Consolidated Financial Statements.
7.C Interests of Experts and Counsel
Not Applicable.
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8.A Consolidated Statements and Other Financial Information
Audited Consolidated Financial Statements as of December 31, 2020, 2019 2018 and 2017,2018, and for each of the years in the three-year period ended December 31, 2019,2020, are included in “Item"Item 18. Financial Statements”Statements".
Our Company’sCompany's Board of Directors decided to appoint PwC Bagimsiz Denetim ve Serbest Muhasebeci Mali Musavirlik A.S. (PwC Turkey) as the independent audit firm to audit our consolidated financial statements for the year 2019.2021. The decision was approved by our shareholders at the Annual General Assembly Meeting of our Company on September 12, 2019.April 15, 2021.
I. Legal Proceedings
For a discussion of the various claims and legal actions in which we are involved, see Note 38 (Commitments and Contingencies) to our Consolidated Financial Statements in this annual report on Form 20-F. This includes material disputes such as the dispute with the Turkish tax authorities regarding the Special Communication Tax and the Value Added Tax, disputes regarding the Law on the Protection of Competition and a dispute with the Ministry of Trade regarding the administrative fine imposed against the Company; as well as various other matters.
II. Dividend Policy
The 2016 General Assembly Meeting was held on May 25, 2017 and during the meeting, a dividend distribution for the year 2010-2016 was proposed by Turkcell Holding A.S., amounting to TRY 3,000.0 million, which represented approximately 52.6% of distributable net income for the
relevant years. This distribution was approved to be conducted in three equal installments on June 15, 2017, September 15, 2017 and December 15, 2017 and all installments were paid as of December 2017.
On March 29, 2018, the Company’sCompany's General Assembly approved the payment of a dividend amounting to TRY 1,900.0 million (equivalent to USD 475.8 million as of March 29, 2018, the date of the Ordinary General Assembly Meeting) from the net distributable profit for the year ended December 31, 2017. This represents a gross cash dividend of full TRY 0.8636364 (equivalent to full USD 0.2162822 as of March 29, 2018, the date of the Ordinary General Assembly Meeting) per share. The distribution to shareholders was performed in three equal installments that took place on June 18, 2018, September 17, 2018 and December 17, 2018, respectively.
On September 12, 2019, the Company’sCompany's General Assembly approved the payment of a dividend amounting to TRY 1,010.0 million (equivalent to USD 175.0 million as of September 12, 2019, the date of the Ordinary General Assembly Meeting) from the net distributable profit for the year ended December 31, 2018. This represents a gross cash dividend of full TRY 0.46 (equivalent to full USD 0.08 as of September 12, 2019, the date of the Ordinary General Assembly Meeting) per share. The distribution to shareholders was performed in a single installment that took place on October 31, 2019.
On April 17, 2020, the Law on Reducing the Effects of the Novel Coronavirus Pandemic on Economic and Social Life and the Law on the Amendment of Certain Laws No. 7244, which contains amendments to several laws, including the Turkish Commercial Code, entered into force. In order to protect the financial structure of joint-stock companies in this period and to eliminate a potential reduction of the company's resources by distributing cash dividends hence protecting the existing equity structure, an additional provisional article (namely Provisional Article 13 of the TCC) has been introduced. In this regard, a limitation has been imposed on the dividend distribution of joint-stock companies in line with the governmental measures taken for COVID-19 pandemic. Cash dividends that joint-stock companies may distribute by September 30, 2020, cannot exceed 25% of the net profit period for 2019. The dividend distribution limitation was set to end on September 30, 2020, but was extended for three months until December 31, 2020, through The Presidential Decision, which granted this extension based on the authorization provided by Provisional Article 13 of Turkish Commercial Code. Accordingly, on October 21, 2020, the Company's General Assembly approved the payment of a dividend amounting to TRY 811.6 million (equivalent to USD 110.6 million as of December 31, 2020) from the net distributable profit for the year ended December 31, 2019, not exceeding 25% of the total distributable profit in line with the limitations mentioned above. This represents a gross cash dividend of full TRY 0.3689190 (equivalent to full USD 0.0502580 as of December 31, 2020) per share. The distribution to shareholders was performed in a single payment on November 30, 2020.
On April 15, 2021, the Company's General Assembly approved the payment of a dividend amounting to TRY 2,585.8 million (equivalent to USD 320.3 million as of April 15, 2021) from the net distributable profit for the year ended December 31, 2020. This represents a gross cash dividend of full TRY 1.1753577 (equivalent to full USD 0.1455930 as of April 15, 2021) per share. The distribution to shareholders will be performed in three equal installments on April 30th, July 30th, and October 27, 2021.
We have adopted a dividend policy, which is included in our Corporate Governance Guidelines. Since 2004, the Board of Directors has endeavored to distribute cash dividends of at least 50% of our distributable net profits per fiscal year, although the payment of dividends remains subject to our cash flow requirements, applicable Turkish laws and the approval of, or amendment by, the Board of Directors and the General Assembly of Shareholders.
In order to comply with the CMB’sCMB's Communique on Dividends II-19.1 dated January 23, 2014, the Turkcell Board of Directors amended its dividend distribution policy proposal in February 2014, as stated below, which was approved by the Ordinary General Assembly held on March 26, 2015:
“"The Company shall target a dividend payout of at least 50% of its distributable net income as cash. This policy will be subject to the Company’sCompany's cash projections, business outlook, investment plans and capital market conditions. The actual dividend decision will be made for each fiscal year separately with the approval of the General Assembly of Shareholders. Dividend distribution shall be started on a date to be determined by the General Assembly of Shareholders which shall not be later than the end of the respective year in which the General Assembly convenes. The Company, in accordance with laws and regulations, may consider distributing advance dividends or making the dividend payment in equal or unequal installmentsinstallments..
Additionally, in order to create added value for its shareholders, the Company may also consider share repurchase programs depending on the conditions set forth above and applicable regulation.”"
In accordance with Turkish law, the distribution of profits and the payment of an annual dividend with respect to the preceding financial year are subject to a recommendation which may be made by the Board of Directors each year for approval by the shareholders at the annual general assembly. The Board may decide whether or not to recommend a distribution of profits together with the amount of dividends, and the shareholders, through the general assembly, may accept, amend or reject such proposal, if any. Dividends are payable on a date proposed by the Board of Directors and determined at the general assembly of shareholders, which date, under the CMB requirements, must be earlier than the end of the financial year in which the general assembly decides on dividend distribution. However, the CMB is authorized to designate another deadline for distribution of dividends in any given year.
Annual profits are calculated and distributed in accordance with our Articles of Association after deduction from our annual revenues of all expenses, depreciation, taxes, required reserves and any losses from the previous years.
Pursuant to CMB regulations, the dividend distributions of publicly held companies are regulated as follows:
From the distributable net dividend calculated as per the CMB’sCMB's regulations, the entire amount calculated according to the CMB regulations regarding the requirement of minimum dividend distribution shall be distributed in the event such amount can be covered by the distributable net dividend in the statutory records. In the event the entire amount cannot be covered by the distributable net dividend in the statutory records, the total distributable net dividend in the statutory records shall be distributed. In the event there is net loss in the financial statements prepared as per the CMB regulations or statutory records, there shall be no dividend distribution.
��The new Capital Markets Law, which came into force on December 30, 2012, stipulates that public companies shall distribute dividends in line with their dividend policy determined by their general assembly and in conformity with the relevant legislation. However, the new law entitles the Board to regulate dividends. The CMB also published a Communique on Dividends (II-19.1) on January 23, 2014 which entered into force on February 1, 2014. Within the scope of the Communique, companies shall distribute dividends through a general assembly resolution in accordance with current legislation and the policies of the company. As per the Communique, dividends may be distributed in installments in case a general assembly resolution is adopted in this regard. The Communique also sets out the principles and procedures for the distribution of dividends. This new Communique revoked the Communique on the Principles Regarding the Distribution of Dividends and Interim Dividends to be Followed by Publicly Held Joint Stock Companies subject to the Capital Markets Law Serial: IV No: 27, dated November 13, 2001.
To the extent we declare dividends in the future, we will pay those dividends in Turkish Lira. In the case of ordinary shares held in the form of ADSs, dividends will be converted into U.S. Dollars by the depositary for the ADSs, to the extent it can do so on a reasonable basis, and will be distributed to the holders of the ADSs. Because exchange rates between the Turkish Lira and the U.S. Dollar fluctuate continuously, a holder of ADSs will be subject to currency fluctuation generally, but particularly between the date on which dividends are declared and the date dividends are paid. Under current Turkish regulations, dividends or other distributions paid in respect of the ordinary shares or ADSs generally will be subject to withholding taxes. See “Item"Item 10.E. Taxation”Taxation".
For additional details regarding our dividend policy see "Item 10.B.III.c. Dividend Distribution and Allocation of Profits".
Not applicable.
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Our capital consists of ordinary shares. Pursuant to an amendment in Turkish Capital Markets Law and a communique issued by the CMB, our shares traded on the Borsa Istanbul were dematerialized as of November 2005. For detailed information on the dematerialization of our shares, see “Item"Item 10.B. Memorandum and Articles of Association—Transfer of Shares”Shares".
Our ordinary shares are traded on the Borsa Istanbul under the symbol “TCELL”"TCELL" and our ADSs are traded on the NYSE under the symbol “TKC”"TKC". Currently two ADSs represent five of our ordinary shares. Our ADSs are evidenced by American Depositary Receipts (“ADRs”("ADRs"). On July 6, 2011, we signed an amended and restated Deposit Agreement (the “Deposit Agreement”"Deposit Agreement") with Citibank N.A. (“Citibank”("Citibank"), as depositary (the “Depositary”"Depositary"), Turkcell and holders of ADRs, which transferred our ADR program from JPMorgan Chase Bank to Citibank.
Since January 1, 2006, capital gains realized without meeting a one-year holding period are subject to a withholding tax in Turkey. On July 7, 2006, a provision was added to article 1/a of Code 5527 stating that foreign-based taxpayers, natural persons and corporations are subject to 0% tax. See “Item"Item 10E. Taxation”Taxation".
Not applicable.
Our ADSs are traded on the NYSE under the symbol “TKC”"TKC" and our ordinary shares are traded on the Borsa Istanbul under the symbol “TCELL”"TCELL".
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
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Not applicable.
10.B Memorandum and Articles of Association
I. General
We are registered in the Istanbul Trade Registry under number 304844. Pursuant to Article 3 of our Articles of Association, as amended on January 30, 2009,October 21, 2020, at the ExtraordinaryOrdinary General Assembly, we are incorporated primarily forto provide the provisionservices within the context of any telephone, telecommunication and similar services in complianceconcession agreements signed with the TelegraphInformation Technologies and Telephone Law numbered 406Communication Authority with regard to "Granting License of Establishing and services stated in theOperating GSM Pan Europe Mobile Telephone System bid that was signedSystem", "Establishing, Operating and Providing IMT-2000/UMTS Infrastructures and Services" and "Authorisation Certificate for Limited Usage Rights with regard to IMT Services" and other services under the relevant legislation and administrative acts.
Substantial changes to the Company structure were made with the Ministryamendments to the Articles of TransportAssociation, which were approved by the Ordinary General Assembly on October 21, 2020. Within this framework, the major amendments are as follows:
In addition to these amendments, another essential addition to the Articles of Association has been made by the newly introduced Article 26 titled Compliance with Corporate Governance Principals, which was not previously regulated in the Articles of Association.
II. Board Members
a.General
According to our amended Articles of Association, the Board of Directors is comprised of sevennine members elected by the general assembly.
An increase in the number of members of the Board of Directors must be approved by the general assembly. However, in a series of resolutions in 2013, the CMB appointed new members to our Board, who shall remain members until new members are elected or until the CMB announces a new resolution. With the new Turkish Commercial Code number 6102 (“TCC”("TCC"), which came into force on July 1, 2012, the requirement of having a share of the company in order to become a member of Board of Directors has been abolished. Those individuals who do not have any shares in the company have been provided with an opportunity to be elected as members of the Board of Directors and carry out such duty.
The TCC does not require a Board member to be a Turkish citizen. There is no minimum age for the directors, provided that a Board member has reached the age of majority, which is 18, and there is no mandatory retirement age under applicable law. The conditions to be a Board member are regulated by the new TCC and the conditions to be an independent board member are regulated by the related CMB legislation.
For additional details regarding the election and appointment of Board Members, see "Item 10.B.III.d. Capital Structure—Voting Rights".
b.Board Members’Members' Interest
The TCC forbids a board member from entering into a transaction with us in any area relating to business, either on the board member’smember's own behalf or on behalf of someone else, thus preventing the abuse of duty by board members and protecting our interests (TCC Article 395) without the authorization of the general assembly. Our general assembly may authorize our board members to enter into these types of transactions through a specific provision in our Articles of Association, or our general assembly may grant such a right on a yearly basis.
Board members who have conflicting interests cannot participate in and sign such resolutions. If we suffer any loss because of a board member’smember's failure to raise such an issue, the board member shall be held liable to compensate us for the loss incurred due to such matters related to relatives.
Under TCC Article 396, without the authorization of the general assembly, the board members are barred from participating in similar commercial activities outside our Company. Board members cannot become shareholders with unlimited liability or become board members of companies active in similar types of business. A specific provision in our Articles of Association or our general assembly may grant such a right on a yearly basis.
Furthermore, based on the Corporate Governance Communique numbered II-17.1, which was published in the Official Gazette dated January 3, 2014, replacing the previous regulatory framework, in cases where shareholders having a management control, members of the board of directors, managers with administrative liability and their spouses, or relatives by blood or marriage up to second degree, conduct a significant transaction with the company or its subsidiaries which may cause a conflict of interest, and/or conduct a transaction on behalf of themselves or a third party, which is in the field of activity of the company or its subsidiaries, or become an unlimited shareholder to a corporation
which operates in the same field of activity as the company or its subsidiaries, such transactions need to be included in the general assembly agenda as a separate item for providing detailed information at the general assembly meeting on the matter and need to be recorded in the minutes of the meeting.
c.Compensation
Any remuneration payable to Board members in relation to their Turkcell board membership shall be determined by our general assembly. The Board of Directors has no authority to determine such remuneration. At our Annual General Assembly heldIn 2018, according to Decree 32 on April 29, 2010,the Protection of the Value of the Turkish Currency, it was decided that our Chairmanboard members who have Turkish nationality would receive a net sum of EUR 250,000 per year andtheir compensation in Turkish Lira, while others would continue to receive Euro-based salaries. In 2020, each (Turkish) Board member would receivereceived a net sumtotal of EUR 100,000 per year forTRY 683,400 in compensation, including the period of their service, effective February 25, 2010.Chairman.
According to a CMB Communique Serial: IV, No: 56 Concerning the Establishment and Implementation of the Corporate Governance Principles, which was published in the Official Gazette dated December 30, 2011, a written Remuneration Policy for Board members and senior management was prepared. This Policy was posted on the company’sCompany's website and submitted at the Annual General Assembly as a separate agenda item for information. The Corporate Governance Communique numbered II-17.1, which was published in the Official Gazette dated January 3, 2014 and replaced the Communique Serial: IV, No: 56, kept this requirement as a mandatory corporate governance principle dealing with Financial Rights of Board Members and Executives Having Administrative Responsibility. The Annual General Assembly meeting of our Company pertaining to the years 2010, 2011, 2012, 2013 and 2014 was convened on March 26, 2015, for the year 2015 was convened on March 29, 2016, for the year 2016 was convened on May 25, 2017, for the year 2017 was convened on March 29, 2018 and for the year 2018 was convened on September 12, 2019. The same item was on the agenda for the Annual General Assembly meeting held in 2019 and shareholders were informed; however, there was no proposal on the remuneration and therefore no voting took place. Payment plans such as stock options or those based on company performance are not used in the remuneration of independentinadependent board members. Remuneration of independent board members must safeguard the independency level.
d. d.Borrowing Power
To the extent the relevant provisions of Turkish law allow, the Board of Directors of our Company is the body entitled to, directly or through representatives authorized by the Board of Directors, resolve to exercise our powers to borrow money or give any form of guarantee or surety relating to our or any third party’sparty's obligations. The CMB adopted a rule on September 9, 2009, which was announced in its weekly bulletin in connection with credit extensions, that public companies can provide guarantees or pledges, including mortgages, to third parties, provided such third party (i) is fully consolidated in the company’scompany's financial statements or (ii) the ordinary business operations of the company directly requires providing guarantees, pledges or mortgages. At the Ordinary General Assembly held on April 29, 2010, Article 3 entitled Purpose and Subject Matter of Turkcell’sTurkcell's Articles of Association was amended in line with CMB’sCMB's rule dated September 9, 2009. Under our Articles of Association, our Board of Directors is authorized to issue debentures and other securities subject to the TCC, Turkish Capital Markets Law and other relevant legislation. Under Turkish Capital Markets Law, the total value of capital market instruments shall not exceed the amount specified by the CMB, for each type of instrument. However, as a general rule, the total value of debentures and other debt instruments that a publicly held company may issue as capital market instruments may not exceed the balance remaining after deducting the losses, if any, from the total sum of the outstanding and paid-up capital as shown on the latest independently audited financial statements submitted to the CMB, plus reserves and the revaluation fund stated in the latest financial statement approved by the general assembly. Pursuant to Article 3 of our Articles of Association, as amended on October 2, 2009 at the Extraordinary General Assembly, and as effective on October 7, 2009, we can extend credits to companies in which we have direct or indirect shareholding interest, both in Turkey and overseas, as well as to our main company and group companies, in Turkish Lira or other foreign currencies, on the condition that such extensions
do not conflict with applicable laws and regulations. In addition, the TCC similarly allows group companies to extend credits and guarantees to each other without abusing their authority. The Corporate Governance Communique numbered II-17.1, which was published in the Official Gazette dated January 3, 2014, incorporated the rule which was announced in its weekly bulletin on September 9, 2009 in its Article 12. Furthermore, as per Article 12, board resolutions with regard to providing guarantees or pledges including mortgages within the framework of ordinary business operations of the company should be signed by the majority of independent board members. In case the majority of independent board members do not approve the resolution, dissenting opinions should be announced to the public. In such resolutions, related board members, if any, could not participate to the relevant board meeting. The CMB further took a decision, published in its weekly bulletin on January 27, 2016, according to which the provision of any guarantees and pledges, including mortgages by non-public affiliates in favor of their public parent company, does not conflict with Article 12.
On February 25, 2020, Law No. 7222 Amending Banking Law and Certain Other Laws established the debt instrument holders' board ("DHIB") in order to ensure that investors can jointly act and facilitate a restructuring in case of default. A Communiqué was published by the CMB on September 15, 2020, which namely regulates the quorum for DIHB resolutions and their effects on other investors, and sets forth that several main points in relation to DIHBs will be highlighted in the prospectus or the issuance certificate relating to the debt instrument, among which:
e.CMB Rules Regarding Transactions with Related Parties
Initially, based on the CMB Communique Serial IV, No. 56, dated December 30, 2011, the approval of the majority of the independent members was necessary for any and all kinds of related party transactions of the company (related parties referred in the Communique will be determined in accordance with the Turkish Accounting Principles No. 24, equivalent of IAS 24), as well as for the resolutions of the board of directors with respect to giving guarantees, pledges and mortgages in favor of third parties. The CMB in a further announcement clarified that listed companies could adopt one board/general assembly resolution for the execution of transactions of a continuous and extensive nature with related parties unless the terms of those transactions had changed. In the event such changes occur, new board/general assembly resolutions will be needed. The new Capital Markets Law dated December 30, 2012 empowered the CMB to determine the nature of such transactions. Accordingly, the CMB with its Communique Serial IV, No. 63 dated February 22, 2013 restricted the scope and set out that only material related party transactions, as opposed to all kinds of transactions, shall be submitted to the approval of independent members. In cases where the majority of the independent members do not approve such material transaction, the case shall be disclosed to the public in a manner covering sufficient information with respect to the transaction within the scope of public disclosure arrangements, and the transaction shall be submitted to the general assembly for approval. During such general assembly meetings, a resolution shall be adopted by vote in which the parties to the transaction as well as the individuals related thereto are not entitled to vote. Meeting quorum shall not be necessary for the general assembly meetings to be held for those cases. Such resolutions shall be adopted by simple majority of the attendees having the right to vote. The Company shall incorporate related mandatory provisions of the said Communique in its Articles of Association (along with other mandatory provisions relating to corporate governance, see “Item"Item 16.G. Corporate Governance”
Governance"). The Corporate Governance Communique numbered II-17.1, which was published in the Official Gazette dated January 3, 2014, defined the materiality as set out by the Communique Serial IV, No. 63. Accordingly, a 10% threshold will be applied in comparison with the relevant criteria such as total annual assets, annual revenues or market value of the company. When a transaction’s
transaction's amount is above this 10% threshold, the majority vote of independent board members will be sought. Additionally, in order to ensure internal compliance with the CMB s related party transactions, our Board has adopted the “Rules"Rules to be Applied to Related Parties in Purchasing/Selling Assets and Services along with Transfers of Liabilities”Liabilities" to be applied by the relevant employees within the Company and its group companies on November 24, 2014.
III. Capital Structure
a.General
Our Board of Directors has adopted the authorized share capital system which, under Turkish law, allows us to increase our issued share capital up to the authorized share capital amount upon resolution by our Board and without need for further shareholder approval. On January 23, 2008, the CMB amended its Communique on principles regarding the registered capital system. According to this amendment, the registered capital ceiling authorization given by the CMB shall be valid for five years, including the year in which the authorization is granted. As this five-year term ended in January 23, 2013, as in 2014, the Company applied for the CMB’sCMB's authorization in order to determine its capital ceiling for a five-year term between 2018 and 2022, however the amendment of Articles of Association reflecting the capital ceiling was not approved in the General Assembly Meeting held on September 12, 2019. In an effort to harmonize new legislation with the Capital Markets Law numbered 6362, which entered into force on December 30, 2012, the CMB released the Communique on the Registered Capital System II-18.1 which became effective on December 25, 2013. The new Communique mostly includes regulations in line with the former Communique (Serial: VI, No: 38) and de facto practice of the CMB. As for the determination of the ceiling, the new Communique contemplates a limitation for the ceiling and states that the registered capital ceiling shall not be more than five times the issued capital or the equity, whichever is higher. The new Communique also sets out that the registered capital ceiling may be exceeded once within the scope of each ceiling (i) through conversion of all kinds of internal resources and dividends into the share capital; and (ii) as a result of transactions requiring general assembly resolutions such as mergers and spin-offs. However, both the former legislation and the new Communique provide that the registered capital ceiling may not be exceeded with capital increases through cash. As in the former regime, the registered capital ceiling approved by the CMB is valid for five years including the year in which the approval is granted. Upon the expiry of the term, even if the registered capital ceiling has not been reached, in order for the board of directors to adopt a capital increase resolution, the board of directors must obtain authorization for a new period at the first general assembly upon the approval of the CMB for the same ceiling, or a new ceiling. The authorisation for the ceiling of registered capital granted by the CMB, is valid for the years 2020 through 2024. After the year 2024, it is mandatory for the Board of Directors to be able to resolve on share capital increases, to obtain the authorisation of the General Assembly by also obtaining the CMB's permit for a new ceiling amount to be valid for a term of this authorization may be extended forup to five year periods through a general assembly resolution.years. In the event such authorization is not obtained, the new Communique emphasizes that companies may not realize a capital increase through a board of directors’directors' resolution, whereas under the former Communique, companies were deemed to be excluded from the registered capital system. The increase of the registered capital ceiling, extension of the permission period, capital increase and relevant resolutions of the board of directors shall be disclosed to the public within the framework of the CMB disclosure rules.
b.Preemption Rights
We may increase our capital only through the issuance of new shares, and such issuances may come in the form of a rights offering or a bonus issue. Under Turkish law, existing shareholders are entitled to subscribe for new shares, also known as preemption rights, in proportion to their respective shareholdings each time we undertake a capital increase. Our Board of Directors will generally recommend that new shares be issued at prices equal to their nominal value, which entitles the existing shareholders to subscribe for shares at a significant discount from their current market price. The exercise of preemption rights by shareholders must be made within a subscription period which we announce, which may not be less than 15 days nor more than 60 days after the issuance of the preemption rights circular. Shareholders who do not wish to subscribe for new shares may sell their rights on the Borsa Istanbul (“BIST”("BIST"). Any shares not subscribed to by the existing shareholders or purchasers of the rights coupons are sold on the BIST at the current market price. Any differences between the rights issue price and the price realized for the shares on the BIST would accrue to our surplus account. Preemption rights of shareholders related to a rights offering may be restricted wholly or in part either by an affirmative vote of the holders of a majority of the outstanding shares at an ordinary or extraordinary general assembly or a resolution adopted by the Board of Directors to such effect, provided that such authority is conferred upon the Board of Directors. CMB rules stipulate that such authority may be conferred upon the Board of Directors of companies that have received permission from the CMB to adopt the authorized capital system. As per the new Communique on the Registered Capital System II-18.1, the General Assembly shall approve the amendments to the articles of association with respect to granting authorization to the board of directors to
restrict the pre-emptive rights of the shareholders to acquire new shares. Contrary to the former Communique, the new Communique has not foreseen a meeting quorum. With regard to the decision quorum, the former Communique differentiated between companies making an initial public offering and public companies, whereas the new Communique has not stipulated any such distinction. Accordingly, the new Communique regulates that shareholders holding 2/3 of the shares having voting rights shall provide affirmative votes. In addition, the new Communique has prescribed that if at least shareholders holding half of the voting shares are present at the meeting, the decision quorum shall be the majority of the shares participating in the meeting.
By the amendment to the Articles of Association, we have conferred such authority on ourstated that the Board of Directors.Directors is not authorized to limit the pre-emption rights of the shareholders. The CMB further requires that the right of the Board of Directors to restrict the preemption rights of shareholders applies equally with respect to all shareholders. Under Turkish law, bonus issues may be undertaken in order to convert all or a portion of the revaluation fund and reserves of a company into share capital.
c. c.Dividend Distribution and Allocation of Profits
According to new Capital Markets Law, we may freely determine the amount of dividends to be distributed based on the Dividend Policy, pursuant to applicable Turkish laws and upon the approval of, or amendment by, the Board of Directors and the General Assembly of Shareholders. The Board decides whether or not to recommend an allocation of profits, as well as the amount of dividends, and the shareholders, through the general assembly, may accept, amend or reject such proposal, if any.
The new dividend distribution regime is governed by a CMB Communique on Dividends II-19.1 which was published in the Official Gazette dated January 23, 2014, numbered 28891, which entered into force on February 1, 2014. Within the scope of the Communique, companies shall distribute dividends through a general assembly resolution in accordance with current legislation and the policies of the company. As per the Communique, dividends may be distributed in installments in case a general assembly resolution is adopted in this regard. The Communique has also determined the principles and procedures for the distribution of dividends. The CMB allows public companies the possibility of choosing the timing and payment method of the dividend distribution on the condition
that the company’scompany's own dividend policy should regulate this. In any case, according to the new Communique, distribution should commence until the end of the financial year in which the general assembly decided on distributing a dividend.
In order to comply with this Capital Markets Board’sCMB's Communique, the Turkcell Board of Directors amended its dividend distribution policy proposal in February 2014, as stated below, and approved by the Ordinary General Assembly held on March 26, 2015:
“"The Company shall target a dividend payout of at least 50% of its distributable net income as cash. This policy will be subject to the Company’sCompany's cash projections, business outlook, investment plans and capital market conditions. The actual dividend decision will be made for each fiscal year separately with the approval of the General Assembly of Shareholders. Dividend distribution shall be started on a date to be determined by the General Assembly of Shareholders which shall not be later than the end of the respective year in which the General Assembly convenes. The Company, in accordance with laws and regulations, may consider distributing advance dividends or making the dividend payment in equal or unequal installments.
Additionally, in order to create added value for its shareholders, the Company may also consider share repurchase programs depending on the conditions set forth above and applicable regulation.”"
In parallel with the new Capital Markets Law, the new Communique on Dividends sets ground rules for donations: articles of association of public companies should contemplate it and an annual limit should be determined by the general assembly. On FebruarySeptember 24, 2015,2020, within the framework of the CMB regulations, our Board has resolved that, by means of determining the upper limit for the total amount of donations to be made by the Company within the year 20152020 as up to 0.2%1% of our Company’sCompany's revenue includeddisclosed in the annual consolidated financial tables relating previousto the 2019 fiscal year announced to the public pursuant to CMB regulations, this abovementionedregulations. This upper limit iswas approved by General Assembly of our Company. On January 30, 2017, our Board of Directors has resolved to determineCompany held on October 21, 2020. The General Assembly on April 15, 2021 approved the upper limit for the total amount of donations to be made by our Company within the year 20172021 as up to 1% of our Company’sCompany's revenue as set forth in the annual consolidated financial statements for the previous fiscal year as announced to the public pursuant to Capital Markets BoardCMB regulations. This limit is approved at the General Assembly of our Company held on May 25, 2017. During the General Assembly held on September 12, 2019, neither the Board of Directors nor shareholders submitted any proposal with respect to the upper limit of donations for the 2019 accounting period, therefore no vote has been taken in this regard.
Dividends are payable by transfer to the account of the shareholders with a bank in Turkey corresponding to the relevant portion of their shares. Shareholders’Shareholders' entitlement to cash dividends remains in effect for a period of five years following the date of the general assembly approving such distribution, after which time they are transferred to the Turkish government.
Part of our remaining net profit may be distributed to our shareholders as a second dividend or retained by us as retained earnings, all at the discretion of our general assembly.
However in 2020, as indicated in Item. 8.A. Consolidated Statements and Other Financial Information—Dividend Policy section, dividend distributions are limited under the "Law on Reducing the Effects of the Novel Coronavirus Pandemic on Economic and Social Life" and the "Law on the Amendment of Certain Laws". Accordingly, a company may not (i) distribute a dividends that is higher than 25% of their net profit for the 2019 financial year; (ii) distribute the dividends of the previous year(s) or free reserve funds; and (iii) authorize their boards of directors to distribute advance profits except for companies of which the state, provincial special administrations, municipalities, village administrations, or any other public legal entity is a shareholder and companies for which more than fifty percent of the capital is directly or indirectly owned by funds of which the public holds more than fifty percent. The President is authorized to extend and shorten the period of the dividend distribution limitations. The 2019 dividend distribution was paid accordingly, in line with this Law. The 2020 dividend distribution is scheduled to take place in three equal installments on April 30th, July 30th and October 27th of 2021.
For additional details regarding our dividend policy see “Item"Item 8.A. Consolidated Statements and Other Financial Information—Dividend Policy”Policy".
d.Voting Rights
Shareholders are Prior to the amendment to the Articles of Association of the Company, shareholders were entitled to one vote per share on all matters submitted to a vote of our shareholders. Contrary to the previous Articles of Association of Turkcell, the current Articles of Association of Turkcell which were approved by the Ordinary General Assembly on October 21, 2020 provides for privileged shares.
Group A shares of Turkcell refer to the privileged shares of the Company corresponding to 15% of the total issued share capital of Turkcell ("Group A Shares"). Group B shares refer to the ordinary shares of the Company corresponding to 85% of the total share capital of Turkcell ("Group B Shares"). Privilege hereunder means in relation to the appointment of the Board of Directors of Turkcell; (i) four members of the board of directors, excluding independent board members, shall be appointed by the general assembly among the candidates nominated by the owners of Group A Shares; and (ii) the chairman of the board of directors shall be elected from the members of the board of directors elected through the exercise of the privileges granted to Group A Shares as set out below. In relation to voting rights in the general assembly meetings of the Company, each Group A Share has six voting rights with respect to (i) appointment of five members of the board of directors including four members of the board of directors appointed in accordance with the foregoing sub-paragraph (i); and (ii) election of the chairman of the general assembly meetings. For the avoidance of doubt, in case the entire Group A Shares cease to be held by a single shareholder, all privileges granted under articles of association of the Company to the Group A Shares shall automatically terminate and, all Group A Shares shall automatically be converted into the Group B Shares with no privileges without any need for any further decision by the Board of Directors or the General Assembly of Turkcell. As disclosed in TWF's regulatory filings with the SEC, TWF financed this acquisition through an acquisition loan under which payments will start approximately three years after the acquisition, and that the Group A shares owned by TWF Group are subject to a three-year lock-up agreement. However, there are several circumstances under which the lock-up will not apply, among which: (i) if, following the transfer, TVF BTIH and its affiliates, cumulatively, continue to beneficially and legally own and have full economic exposure to at least 21.2% of the total issued and outstanding shares of Turkcell; (ii) any such transfer is carried out in connection with security created by TVF BTIH or any of its affiliates over its shares in Turkcell in favour of a lender in relation to a loan transaction; or (iii) any such transfer is a tender by TVF BTIH and its affiliates in any bona fide third party mandatory tender offer or voluntary tender offer made for all of the shares in Turkcell, or (iv) any such transfer is made pursuant to an "exit right" exercised in accordance with the terms of the CMB Law, the Exit Right Communiqué or the Turkish Commercial Code, but only where such "exit right" arises as a result of a transaction conducted by or decided upon by Turkcell.
CMB Communique Serial IV, No. 56 dated December 30, 2011 (see “Item"Item 16.G. Corporate Governance”Governance" for further information), initially stated that transactions considered as material (transfer, acquisition or lease of all or significant portion of company assets or constitution of limited property right there on; providing concession or changing content or subject of existing concessions and being delisted) under certain conditions those material transactions will need to be approved by the general assembly. In the event that parties to such transactions are related parties, such related parties shall not vote at the general assembly. The newsubsequent Capital Markets law dated December 30, 2012 further expanded the scope of “material transactions”"material transactions", which were exhaustively enumerated by the aforementioned Communique by adding the term “like”"like" at the beginning of the enumeration. However, the topic has once again been regulated by another CMB Communique Serial IV, No. 63 dated February 22, 2013, and the term of “material transactions”"material transactions" with regard to the implementation of
Corporate Governance Rules is again exhaustively defined in parallel with the Communique dated 2011.
The CMB issued the Communique No. II-23.1 on Common Principles Regarding Material Transactions and the Right of Separation (published in the Official Gazette dated December 24, 2013, No. 28861). Material transactions of public companies are exhaustively enumerated. Some of the issues covered by the Communique are listed below:
procedures and principles applicable to the material transactions of publicly held companies;
exercise of the right of separation in relation to the material transactions and the cases where the right of separation is not applicable;
pricing of the right of separation in non-listed companies;
mandatory tender offer in connection with the material transactions; and
mandatory meeting and decision quorums applicable to general assembly meetings with regard to material transactions.
The CMB Communique No. II-23.1 which has been amended and published in the Official Gazette No.30395 dated April 18, 2018, added another item to the list where no right of separation shall arise: in case any asset transfer is not made to the related parties and the minimum 90% of the fund to be acquired as a result of such transfer is used for the payment of debt of the publicly-held company, arising from cash loans from banks or in connection with any debt instrument issued by such publicly held companies, within one month as of the receipt of the fund no right of separation shall arise. It has been also stipulated thatFurther, in the case where the fundfunds collected isare used for repayment of thein whole of the cash bank credits and/or the debt originated from the debt instruments, the aforementioned percentage requirementrequirements shall not be applied.apply.
On 25 February 2020, Law No. 7222 Amending Banking Law and Certain Other Laws (“("Amendment Law”Law") was published in the Official Gazette and brought several amendments to the Capital Market Law including the one dealing with material transactions. WithThrough the Amendment Law, the definition of material transactionstransaction does not cover (i) changing company type and dissolution; (ii) transfer or leasing of total or substantial part of assets or establishing rights in rem thereon; (iii) alteration of the field of activity totally or substantially and (iv) de-listing from the stock exchange.
Under a new Communiqué which entered into force in June 2020 and introduces significant changes to the Communiqué numbered II-23.1, the following transactions of public companies will constitute significant transactions, and the CMB has the authority to consider other transactions as significant transactions, if such transactions are fundamental transactions that might affect investment decisions of investors by making foundational changes in company's main activities or substantially altering its ordinary business:
Furthermore, while under the previous Communiqué, the significance threshold for asset transactions was 50% of the reference values stated in the communiqué, under this new Communiqué this threshold is increased to 75%.
Moreover, a more flexible regulation was established for minority shareholders exercising their rights of separation in relation to material transactions. The right of separation may only be exercised by shareholders for
the shares they owned at the time of the public disclosure regarding the material transaction. The exit price will no longer be calculated based on the weighted average in the exchange within the preceding 30 days; instead, the exit price will use a fair value pursuant to the principles to be determined by the CMB. With the Amendment Law public companies may offer exiting shareholders’shareholders' shares to other shareholders and/or investors before they can acquire them.
CMB becomes authorized body to determine, depending on the nature of public companies, the principles on (i) materiality of transactions (ii) use of separation right, including exemptions.
e. e.Transfer of Shares
The current Articles of Association of Turkcell approved by the Ordinary General Assembly on October 21, 2020 provides for privileged shares and certain outcomes of share transfers pertaining to privileged shares. In case the entire Group A Shares cease to be held by a single shareholder, all privileges granted under the Articles of Association of the Company to the Group A Shares shall automatically terminate and, all Group A Shares shall automatically be converted into the Group B Shares with no privileges without any need for any further decision by the Board of Directors or the General Assembly of Turkcell.
Subject to the limitations described below, shares may be sold and transferred by endorsement and delivery.
In practice, shares in registered form traded on the BIST are represented by the share certificates endorsed in blank, enabling such shares to be transferred as if they were in bearer form. As per the amendment in the then in force Capital Markets Law and a communique issued by the CMB in this respect, our Company’sCompany's shares traded at the Borsa Istanbul were dematerialized as of November 2005.
Legal and actual dematerialization of the share certificates commenced on November 28, 2005. Beginning from November 28, 2005, it is prohibited for companies registered on the BIST to issue new share certificates, in consideration of rights issues or bonus issues. The new shares arising out of capital increases shall be transferred to the accounts of the rightful owners by registration.
A seven-year term given for the dematerialization of physical shares ended on December 31, 2012 and physical shares which were not delivered for dematerialization were supposed to become the property of the Company. However, according to the new Capital Markets Law which came into force on December 30, 2012, such undelivered physical shares are now transferred to the Investor Compensation Center (ICC) and sold three months following the transfer on the Investor Compensation Center’sCenter's accounts. However, the Turkish Constitutional Court in its decision published in the Official Gazette on November 12, 2015, nullified the provisions of the Capital Markets Law regarding the ownership transfer of such undelivered physical shares to the Investor Compensation Center on the ground that such language contradicted with Art. 13 (Restriction of fundamental rights and freedoms) and Art. 35 (Right to property) of the Constitution. As a result of this decision, the CMB regulated the process of payment to the investors whose share ownership has been transferred to the ICC. This regulation has been published in the Official Gazette dated September 7, 2016 numbered 29824.
Concerning registration of share transfers, the Company will take into account the Central Securities Depository of Turkey’sTurkey's data without requiring any application from the interested parties. Provisions regarding the nominal values of the share certificates of the Company are regulated in the temporary article of the Company’sCompany's Articles of Association and such article was approved at the Ordinary General Assembly Meeting on April 29, 2005. The temporary article reads as follows:
In connection with the Code numbered 5274 Regarding the Amendment of Turkish Commercial Code, in order to increase the nominal value of the shares to one New Turkish Liras, 1,000 units of shares, each having a nominal value of 1,000 Turkish Liras shall be merged and one unit of share having a nominal value of one New Turkish Liras shall be issued to represent such shares. Fraction receipt shall be issued for the shares that could not be complemented up to TRY 1. In relation to such change, the shareholders’shareholders' rights arising out of their shares are reserved. In connection with such transaction, the 1st, 2nd, 3rd and 4th series of share certificates which represent the existing share capital shall be merged in the 5th series. In connection with the transactions of share change and merger of series, the shareholders’shareholders' rights arising out of their shares are reserved. The transactions regarding the change in share certificates shall be commenced by the Board of Directors of the Company after the
dematerialization of Capital Markets instruments is put into practice and within the framework of related regulations.
Decree 32 on the Protection of the Value of the Turkish Currency issued in August 1989, as amended from time to time, provides that persons not resident in Turkey may purchase and sell our shares, provided that such purchase is affected through a bank or broker authorized pursuant to applicable Turkish capital markets legislation. Turkish capital markets legislation requires that shares of a company quoted on a Turkish securities exchange be traded exclusively on such exchange. The CMB has indicated that this requirement applies only to intermediary institutions licensed for trading on the stock exchange and to trade orders placed with them by investors. Accordingly, our shareholders that are not resident in Turkey may transfer such shares only on the BIST. This requirement does not apply to transfers of ADSs.
Under Turkish law, in the event that one of our shareholders transfers shares to any other shareholder or to any other third party investor, either foreign or local, the Ministry of Industry and Technology, Directorate General of Incentive Implementation and Foreign Direct Investment must be notified within one month of the transfer of shares.
Under Article 8 of the Electronic Communications Law, electronic communications services is rendered and/or electronic communications network or infrastructure is established and operated following the authorization made by the ICTA. Authorization is granted through the notification made in accordance with the principles and procedures determined by the ICTA, in case the resource allocation is not necessary, or given of usage right, in case the resource allocation, which means allocation of frequency, satellite position etc., is necessary. Furthermore, under the Authorization Regulation Regarding Telecommunication Services and Infrastructure Regulation, the ICTA must be notified in case of any share transfers within one month of the transfer of shares at the latest and in the event that the share transfer results in a change in control, such transfer of our shares by any of our shareholders should be realized with the written permission of the ICTA.
Under our Articles of Association, the Board of Directors is entitled to restrict the transfer of shares to foreigners in order to comply with Turkish shareholding requirements under Turkish law.
f.Disclosure of Beneficial Interests in the Shares
The Turkish Regulation on public disclosure of listed companies is regulated by the CMB Communique on Public Disclosure of Material Events (II-15.1). Insider information, which means any non-public information that may possibly affect the value of capital market instruments and investors’investors' decisions, is required to be disclosed immediately by listed companies. Shareholders’Shareholders' disclosure requirement would arise if they fall below or exceed the shareholding ratios established in the Communique II-15.1 (5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% and 95%). Following subsequent changes made to the Communique II.15.1 (which was published in the Official Gazette dated November 17, 2018 and No. 30598) in cases where the relevant shareholders’shareholders' share ratio reaches, exceeds or falls below the aforementioned thresholds only the Central Securities Depository of Turkey (“MKK”("MKK") will make the relevant disclosure However, this will not be applicable for persons reaching, exceeding or falling below such thresholds (i) by acting in concert, (ii) indirectly, or (iii) with voting rights (through voting agreements etc.). Therefore, in these cases, rather than the MKK, the relevant shareholder or the persons acting in concert with such shareholder will need to disclose the change in their shareholding. Disclosure of insider information may be delayed to protect the legitimate interests of the company without causing market manipulation. For those that have administrative responsibilities in Turkcell (including Board members and high-ranked executives), or are closely related persons and partners (whether natural or legal persons) of issuers that purchase and sell Turkcell’sTurkcell's capital market instruments (including, but not limited to, Turkcell shares), such transactions will need to be declared to the Borsa Istanbul; however, according to the Communique II-15.1, if the cumulative amount of the above-mentioned Turkcell transactions in a calendar year does not exceed TRY 353,868400,000 (TRY 400,000436,440 for 2020)2021), such declaration will not be needed. This upper limit represents the total amount of all transactions made by both Board members/high-ranked executives and their
closely related persons of the company and that of its subsidiaries which represent more than 10% of the total assets according to the latest annual financial statements of the company. “Closely"Closely related persons”persons" means: wives/husbands, children and individuals sharing the same residence at the time of transaction and corporations; legal entities run by, directly/indirectly controlled by or whose economic interests are similar with that of Board members; and high-ranked executives of the Company. The CMB by its decision dated June 27, 2014 issued new guidelines that is also amended on February 10, 2017 for the announcement of material events for public companies based on Article 27 of the Communique II-15.1, thus repealing the old guidance which was prepared in conformity with the Communique Serial VIII, No:54. The Company’sCompany's internal public disclosure rules and procedures has also been adopted by the Board in accordance with the Communique II-15.1 as amended on February 10, 2017.
In addition, the CMB adopted a “short-swing-profit rule”"short-swing-profit rule" for company executives. The CMB has published the Communique No. VI-103.1 Regarding Managers’Managers' Payment of Net Purchase and Sale Gains to the Issuers (published in the Official Gazette dated December 12, 2013, No. 28849). The Communique VI 103.1 relies on the Capital Markets Law Article 103/4 and indicates that (i) the board members and the committee members of an issuer, (ii) the persons with administrative responsibilities at the issuer and (iii) the persons that have the power to determine and control the issuer’sissuer's financial and operational policies, decisions or targets directly or indirectly, shall pay the net gains they have obtained through the purchases and sales within the same six-month period. It is indicated in the Communique VI 103.1 that the purpose of this regulation is to remove the inequality of opportunity between the persons who receive insider information about the issuers easier and faster due to their positions and the investors that reach the insider information after public disclosure.
The Communique on Tender Offer (II-26.1) which repeals the Communique Serial: IV No: 44 was published by the Capital Markets BoardCMB in the Official Gazette dated January 23, 2014, numbered 28891, which entered into force on the date of its publication. Through the Communique, the procedures and principles regarding mandatory and voluntary tender offers as a result of a change in management control have been regulated in compliance with the new Capital Markets Law No. 6362. Moreover, the definition of management
control has been regulated as the direct or indirect acquisition of more than 50% of the share capital or the voting rights individually or collectively. Holding more than fifty percent of the voting rights of a corporation directly or indirectly, alone or jointly with persons acting in concert, or regardless of such percentage, holding privileged shares enabling their holder to elect a simple majority of the total number of the members of the board of directors or to nominate for the said number of directors in the general assembly meeting, is considered and treated as an acquisition of control.
The Communique on Tender Offer (II-26.1) was modified on February 27, 2015 and the following situation has been added amid cases where a mandatory tender offer will not be triggered. Following the purchase by a third party of a portion of the shares of a controlling shareholder, on the condition that this third party has 50% or less of voting rights of the company, should such third party share equally or less than the management control of the company with this controlling shareholder by virtue of a written agreement, this situation is not considered a trigger for a mandatory tender offer for this third party.
The said Communique was again amended and the amendment entered into force immediately upon its publication in the Official Gazette dated January 2, 2019 No.30643. As per the amendment, the relevant shareholder can be exempted from the requirement to launch a mandatory tender offer if the change of management control occurs as a result of the existing shareholders acquiring shares through a capital increase where the pre-emptive rights have not been restricted. However, as this is a ground for exemption and not an exception, even if the said circumstances exist, the applicability of the exemption will be subject to CMB approval.
In parallel, the Capital Markets Law No. 6362 introduces a squeeze-out right: in the event the shareholding of a shareholder reaches a threshold, which shall be determined by secondary legislation of the CMB, such shareholder shall have the right to purchase the shares of the minority shareholders and the minority shall have the right to sell their shares. The CMB released the Communique on Squeeze-Out Rights and Statutory Put Option Rights (II-27.1) on January 2, 2014 in the Official Gazette numbered 28870, which became effective as of July 1, 2014. This Communique was replaced with Communique II-27.2 which entered into force upon its publication in the Official Gazette dated November 12, 2014 and numbered 29173 (the “new Communique”"new Communique"). According to the Communique II-27.1, if the controlling shareholder, directly or indirectly, holds at least 95% of the voting rights in a public company as a result of a mandatory tender offer or by any other means, the controlling shareholder has the right to squeeze out all other shareholders regardless of whether they hold privileged shares. As per the new Communique, in the event that a shareholder holds at least 98% of the voting rights in a public company either as a result of a mandatory tender offer or by any other means, or if the controlling shareholder already satisfying this threshold acquires an additional share, the controlling shareholder will be entitled to the right to squeeze-out all other shareholders. Once the squeeze-out right arises, the remaining minority shareholders will be entitled to the right to sell-out their shares. The new Communique also stipulates a transition period. Accordingly, the threshold of 95% shall continue to apply to squeeze-out rights that arose before December 31, 2014 and a new threshold of 97% shall apply to squeeze-out rights that will arise thereafter until December 31, 2017. The new Communique regulates the squeeze-out and the put option rights under the same provision. Accordingly, the controlling shareholder is obliged to make a public disclosure, if and when the controlling shareholders’shareholders' shareholding ratio reaches at least 98% of the voting rights or acquires additional shares to enhance its status. The remaining minority shareholders are entitled to exercise their sell-out rights within three months following the public disclosure. The three-month period is statutory and the sell-out rights of the minority shareholders shall expire at the end of such period. The minority shareholder willing to exercise its sell-out right shall notify the public company in writing of its request. The board of directors shall procure the preparation of a valuation report in order to determine the purchase price for the minority shares within one month upon the sell-out request. Upon application of the controlling shareholder for exercising the squeeze-out right, and approval of the board of directors about the fulfillment of the conditions for exercising the squeeze-out right, the company shall apply to the CMB for issuance of new shares to replace the cancelled ones. A delisting application to the relevant stock exchange is also required. All payment and settlement transactions shall be conducted via the Central Registration Agency. The controlling shareholder shall deposit the share purchase amount to the company’scompany's account, within three business days following the notification made by the company at the latest, and the company shall transfer such amount to the relevant minority shareholders’shareholders' account on the second succeeding business day to complete the share transfer transactions. As for the calculation of the purchase
price, the purchase price during exercising of the squeeze-out right shall be equivalent to the average of the weighted daily stock market price within the 30-day period prior to the disclosure stating that the controlling shareholder has reached at least 98% of the voting rights or acquired additional shares for traded shares. The Communique refers to a “fair price”"fair price" for the exercise of the sell-out right. Accordingly, (i) the price determined for the squeeze-out right; (ii) the price determined per each share group through a valuation report; (iii) the price of a mandatory tender offer within the year preceding the public disclosure of control, if any; and (iv) the average of the weighted average prices on the exchange pertaining to the previous six months, previous year and previous five years shall be compared. The highest value shall be determined as the purchase price when the sell-out right is exercised. The controlling shareholder is required to make a public disclosure if and when (i) the voting rights held by it exceed or fall below 98% of the total voting rights in the company; or (ii) it acquires additional shares when it already holds 98% or more of the voting rights. Additionally, the controlling shareholder is also obliged to make a public disclosure, if and when it decides to exercise the squeeze-out right. The company as well is obliged to disclose the (i) squeeze-out right requests, the procedure of squeeze-out and the results of the squeeze-out;
(ii) application of a sell-out right including the total number of shareholders making an application for exercising their sell-out rights, the percentages of their voting rights, and the total price to be paid for the exercised sell-out rights; (iii) the results of valuation reports for determining the share price and (iv) the results of exercising the sell-out right including information on the number of shareholders who have used such right and their voting right percentages and the voting right percentage of the controlling shareholder.
On 25 February 2020, Law No. 7222 "Amending the Banking Law and Certain Other Laws" limited the persons that can bid their shares in tender offers to existing shareholders by the tender offer's public disclosure date. Furthermore, the CMB published a new communique in January 2021 regulating the squeeze-out and sell-out rights, which complement the amendments made to the Turkish Capital Markets Law in February 2020. Namely, the CMB, among others, declared that the following cases do not trigger squeeze-out and sell-out rights:
The communiqué also introduces new rules on calculating squeeze-out/sell-out price, as well as procedural amendments in exercising squeeze-out/sell-out rights.
Capital Markets Law No. 6362 is amended on December 5, 2017 with the Omnibus Bill No. 7061 published on the Official Gazette and introduces a legal grounding for crowdfunding. The CMB was authorized therein to enact secondary legislation. As a consequence of this, the CMB has issued a draft Communique on Equity Crowdfunding and presented it to public’spublic's opinion on January 3, 2019 and the CMB enacted the Communique on Equity Crowdfunding (III-35/A.1). The Communique sets forth the procedures and principles regarding (i) equity crowdfunding only; (ii) authorization of crowdfunding platforms by the CMB; (iii) activities of such platforms; (iv) fund raising from public via equity crowdfunding; and (v) control and supervision of the usage of such funds. It is clearly pointed out that the Communique will only be applied to equity crowdfunding and the activities of fund raising from public via crowdfunding platforms in return of awards or donations shall not be governed by this regulation. On 25 February 2020, with Law No. 7222 Amending Banking Law and Certain Other Laws, Capital Markets Law was amended to pave the way for lending based crowdfunding in Turkey, authorizing the CMB to that end.
g. g.Free Float Definition Rules
48.95% 54% of our shares are listed on the stock exchange, and the number of our Company’sCompany's free floating shares as of March 20, 2020April 12, 2021 was 1.076.996.2781,186,996,405 according to the “Report"Report on Free Float Ratios”Ratios" released by the Central Securities Depository of Turkey in accordance with the Capital Markets Board’sCMB's decision 21/655 of July 23, 2010, as amended by its decision 24/729 of August 18, 2010, and its free float ratio was 48.95%53.95%. The difference between these rates may result from the exclusion of shares which are: i. held by a public entity, ii. held by the company’scompany's incorporators and its affiliates (companies subject to consolidation), iii. held by shareholders who may be a natural person or a corporate body and control at least 10% of the Company’sCompany's capital (following the amendment by the CMB’sCMB's decision 31/1059 of October 30th, 2014), iv. held by a) the members of the Company’sCompany's Board of Directors and the Board of Auditors, b) General Manager or executives who are equal to or superior to a general manager in terms of their powers and functions, c) senior executives who report to General Manager or executives who are equal to or superior to a general manager in terms of their powers and functions, v. owned by the savings funds or foundations of companies, vi. provided as equity capital pursuant to regulations applicable to the capital markets legislation or as a collateral in respect of a margin trading or as a collateral except the ones which are given as a collateral only for Central Depository Bank markets,
vii. which are legally restricted and cannot be subject to purchase and sale, viii. prohibited, ix. “seized”"seized" in the definition of free float ratio. The difference may result from one or more situations described in the decision and it is not possible for our Company to know it.
CMB's Administrative Fines: Change in Principle
On 25 February 2020, through the Law No. 7222 Amending Banking Law and Certain Other Laws, Capital Markets Law Article No.103 was amended so that administrative fines are indexed to a public company's financial perfomance instead of yearly updated fixed administrative fines so far. Accordingly, administrative fines are calculated up to a maximum of the greater of 1% of gross sales proceeds or 20% of earnings before tax.
h.Trading Rules
According to Within the scope of Borsa Istanbul A.S. Board of Directors’Directors' decision numbered 2019/182, and CMB’s decision numbered 52, both dated September 27, 2019, public10, 2020 and the CMB's decision dated September 14, 2020, the requirements for companies whosefor their shares areto be traded onin the category called BIST Stars Market are divided into two groups in accordance with their systemic significance. BIST Star Goup 1 include companies whose total as follows:
TRYgreater than 500 million whose TL;
Moreover, companies that have more than 750 million TL of market cap of the shares of the company in actual free float (calculated according to the criteria determined by the CMB) as the free floating shares at the end of a defined period times the averageand liquidity less than 2.5; will be traded in BIST Stars, regardless of the one-year adjusted closing prices, is above TRY 75 million, whose number of domestic individual investors is superior to 1000, and whose ratio of shares of the company in the actual free float (calculated according to the criteria determined by the CMB) to the company’s paid in capital is above 10% and whose liquidity is inferior to 3.other criteria.
According to the latest CMB decision, Turkcell is listed under BIST Stars, Group 1 companies.Stars.
i.Protection of Minority Shareholders
Under Turkish securities law, minority shareholders, defined as those who hold 5% or more of our share capital, have the right, among other things, to request our Board of Directors to:
According to the new Capital Markets Law, in the event a shareholder votes against a material transaction at a general assembly meeting, as briefly described above, such shareholder obtains a right to exit from the company by selling his/her shares. If the shareholder uses that right, the company is required to purchase the shareholder’sshareholder's shares.
j.Liquidation
In the event of liquidation, our shareholders are entitled to participate in any surplus in proportion to their shareholdings.
k.Changes in Capital Structure
Any increase in our Company’sCompany's registered capital ceiling requires an amendment to our Articles of Association and therefore shareholder approval through a general assembly. Such amendment is subject to the prior approval of the Ministry of Trade and the CMB. Our Board of Directors may also restrict the rights of existing shareholders and offer new shares to third parties. Changes in the voting and dividend rights of our shareholders require an amendment to our Articles of Association and approval by the general assembly. Such amendment is also subject to the prior approval of the Ministry of Trade and the CMB. Furthermore, under the Turkish Commercial Code, during the general assembly meetings held to amend the articles of association of a joint stock company, each share shall be entitled to only one vote, even if otherwise is provided under its articles of association.
Any decrease in our share capital requires an amendment to our Articles of Association. If we undertake to cancel our shares, we must notify any existing creditors, and within two months of notification, they may request payment or, if their receivables are not due and payable, we must create a security interest in their favor. Capital reduction is rarely applied in Turkey.
l.Share Buy-Backs
The new TCC contains several rules enabling Turkish companies to repurchase their own shares if they satisfy certain conditions. Accordingly, shares representing up to 10% of the total share capital of the company may be acquired by the company itself. We believe that this would allow both direct and indirect acquisitions. Before the entry into force of the new TCC, the CMB had taken an anticipatory step by enabling listed companies to buy back their own shares. The CMB announced this on August 11, 2011, in its Weekly Bulletin numbered 2011/32, and this announcement describes in detail the procedures and principles which apply to such buy-back transactions.
In accordance with the new Capital Markets Law dated December 30, 2012, the Communique on Share Buyback numbered II-22.1 was published in the Official Gazette on January 3, 2014. The Communique regulates the principles and procedures of share buybacks or the establishment of pledges over their own shares by public companies. Essentially, the Communique governs the principles regarding the (i) share buybacks of public companies or accepting their own shares as pledges; (ii) sell-out of repurchased shares or their amortization; (iii) public disclosure of such transactions; and (iv) safe harbor provisions where share buybacks will not be deemed insider trading or manipulation of the market.
On February 18, 2016 a buyback plan of up to TRY 200 million was announced to be submitted for the approval of the shareholders at the Ordinary General Assembly for 2015; however, the proposal made during the General Assembly held on March 29, 2016 was rejected.
Following the coup attempt, on July 21, 2016, the CMB under its Communique on Share Buy-backs decided to temporarily remove the limits that are applicable to public companies’companies' acquisition of their own shares (especially the limit restricting buy-backs up to 10% of the share capital) and
authorized Turkish public companies to initiate stock repurchases, even in the absence of shareholder approval.
Our Company’sCompany's Board of Directors has authorized the management to execute share buy-back transactions, within the scope of the announcements dated July 21, 2016 and July 25, 2016 made by the CMB. We believe that thisThis authorization couldcontinues to be extended to cover indirect share buybacks.in place.
m.General Assemblies
Right holders, who have a right to attend the general assembly meetings, can attend such meetings by electronic means pursuant to article 1527 of the new TCC. Pursuant to the Communique on Electronic General Assembly Meetings held in Joint Stock Companies, the Company shall invite the right holders to attend, to deliver an opinion and to vote by electronic means, either setting up the electronic general assembly system; or purchase related services from the system providers that are specifically found for such purposes.
According to the new TCC, the general assembly meeting procedures should be regulated under the Internal Guidelines to be approved by the general assembly and registered at the Trade Registry. Accordingly, general assembly meeting procedures shall be executed with the related provisions of the Turkish Commercial Code,TCC, Articles of Association and the Internal Guidelines.
The following matters are among those required by the TCC and our Articles of Association to be included on the agenda of ordinary general assembly meeting:
Shareholders representing at least 5% of our share capital may, by written notice, require any additional matters to be included on the agenda for discussion at any of our general assemblies.
Notices covering general assemblies (including postponements and rescheduling), which include the agenda of any such general assembly, must be published in the Trade Registry Gazette and Turkish local newspaper published where the headquarter of our Company is located, determined by us, at least two weeks before the date fixed for the meeting in accordance with the TCC and three weeks before the date fixed for the meeting in accordance with CMB regulation. The TCC requires us to send notice of any general assembly by registered mail to each person registered in our books as a holder of shares and to those shareholders who have deposited at least one share certificate representing shares with us and have indicated a notice address. Under the Capital Markets Law, such notice requirement does not apply to holders of registered shares, which are also traded in the stock market.
Any shareholder holding any of our shares (excluding ADRs) and wishing to attend general assembly meetings to vote must present his/her identification document to our Head Office before the start of the meeting
in order to obtain an entry permit for that meeting. Holders of the non-public registered shares in our share book of registered shares need not comply with such requirement to attend a general assembly. Any shareholder not wishing to attend any such general assembly in person may appoint another person as a proxy. Shareholders attending the general assembly meeting by electronic means should follow the procedures established by the related legislation.
Except as set out by the provisions of the TCC and our Articles of Association, the required quorum at any general assembly is shareholders representing at least one-quarter of the share capital.capital as per the TCC. If such quorum is not present when a general assembly is convened, the meeting shall be adjourned, in which event the meeting is reconvened within a month, with shareholders or their proxies present at such meeting. Resolutions of general assembly meetings must be passed by a majority of the shareholders or their proxies present at such meetings.
As per the new Capital Markets Law, unless a higher quorum is accepted in the articles of association of public companies, affirmative votes of two-thirds of shareholders representing the share capital present at the general assembly (and this, without requiring a quorum) is needed for the following decisions: restricting preemptive rights of shareholders, authorizing the Board to restrict such preemptive rights in a registered capital system and reduction of the share capital and material transactions of the company as defined by the law. Nevertheless, if shareholders representing at least half of the company share capital are present at the meeting, simple majority decides unless a higher quorum is accepted by the articles of association.
In addition, the new Capital Markets Law stipulates that the CMB may require including some topics in the general assembly agenda to be discussed by the general assembly or to inform the shareholders at the general assembly.
According At the ordinary general assembly meeting held on October 21, 2020, amendments were made to ourthe Articles of Association of our Company. While the meeting quorum requirement at general assemblies isremains unchanged as 51% of our share capital. Resolutionscapital, resolutions of our general assemblies must be passed by the shareholders (or their proxies) representing the majority of the votes of the shareholders present at that meeting, by observing the provisions of Article 7 of our Articles of Association where a voting privilege is granted to Group A shares of the Company, corresponding to 15% of the Company's share capital. In line with the voting privilege granted, Group A shares are given the privilege of voting as to give six voting rights to each Group A share for the appointment of five members of the Board of Directors, four of which are nominated in accordance with the nomination privilege, as well as the Chairman of the General Assembly.
In the event that the above quorums are not met or preserved at the first meeting, the General Assembly quorums shall be subject to provisions of TCC and capital markets legislation for the second meeting.
The quorum requirement at general assemblies convened to increase our share capital ceiling is 51% of our share capital. Resolutions of general assemblies relating to capital increases must be passed by a majority of our shareholders or their proxies present at such meeting.
The meeting quorum requirement at general assemblies convened to amend our Articles of Association (excluding capital ceiling increase) is two-thirds of our share capital. Resolutions of our general assemblies to amend our Articles of Association (excluding capital ceiling increase) shall be passed by the shareholders (or their proxies) representing at least 2/3 of the votes of the shareholders present at that meeting. The amendments to the Articles of Association violating the privileges established for Group A Shares will not apply without the approval of the Special Assembly of Privileged Shareholders in accordance with the Article 454 of TCC.
Changing our jurisdiction or increasing the obligations of the shareholders in relation to reimbursement of loss in the balance sheet requires unanimous shareholder approval.
We are not a party to any material contracts other than those entered into in the ordinary course of business, except with regard to the settlement of certain legal disputes. For information regarding these settlements, see “Item"Item 8.A. Consolidated Statements and Other Financial Information—Information" and
Note 37” (Guarantees38 (Commitments and purchase obligations)contingencies) to our Consolidated Financial Statements in this annual report on Form 20-F.
Banks in Turkey set their own foreign exchange rates independently of those announced by the CBRT. Pursuant to Decree No.32, most recently amended in 2018, the government eased and ultimately abolished restrictions on the convertibility of the Turkish Lira for current account and non-resident capital account transactions by facilitating exchange of the proceeds of transactions in Turkish securities by foreign investors, which enabled Turkish citizens to purchase securities on foreign exchanges. These changes also permitted residents and non-residents to buy foreign exchange without limitation, and to transfer such foreign exchange abroad without ministerial approval.
Turkish citizens are permitted to buy unlimited amounts of foreign currency from banks and to hold foreign exchange in commercial banks. Banks are obliged to inform authorities to be determined by the Ministry about Turkish Lira transfers abroad, excluding payments for exports, imports and invisible transactions that are above the equivalent of USD 50,000, within a 30 day period starting from the date of transfer. Any amendment to recent exchange controls provisions may affect our results of operations.
Capital Movements Circular and the Decree No. 32 have been amended and have taken effect since May 2, 2018, introducing new restrictions on Turkish corporates to utilize foreign currency loans from Turkey and outside of Turkey. While the new regime continues to maintain the existing prohibition on Turkish individuals utilizing foreign exchange loans and foreign exchange indexed loans, it introduces a strict prohibition on Turkish non-bank corporates (Corporate Borrower) from utilizing foreign currency indexed loans and also brings in new restrictions on corporate borrowers to utilize foreign currency loans (F/X Loan Restriction).
Accordingly, a corporate borrower shall be permitted to utilize foreign currency loans if (i) it generates foreign currency-denominated revenue, which is defined as “"the revenue derived from export, transit trade, sales and deliveries considered as export and foreign currency generating activities (F/X Revenue Exemption)”" in the new legislation; (ii) the purpose of the loan is to finance an activity that is exempt from the F/X Loan Restriction (Activity Exemption); (iii) if as of May 2, 2018, the unpaid outstanding balance of its total foreign currency loans and/or foreign currency indexed loans (Loan Balance) is more than USD 15 million, or (iv) if the F/X loan to be utilized by a corporate borrower falls within the scope of the exemptions determined by the Ministry of Treasury and Finance.
As far as the F/X Revenue Exemption is concerned, (i) if the loan balance of a corporate borrower is below USD 15 million, the sum of (i) the foreign currency loan to be utilized; and, (ii) the existing loan balance must not be more than the combined value of its foreign currency revenues as stated in its last three years’years' financials. Otherwise, the exceeding portion of the foreign currency loan must either be cancelled or converted into Turkish Lira.
With regard to the Activity Exemption, a legal entity must qualify as a public institution, banks and factoring, financial leasing and financing companies resident in Turkey in order to utilize foreign currency loans. In the case of corporate borrowers, the Activity Exemption must relate to an activity in the context of (i) a domestic tender with an international element awarded to such corporate borrower; (ii) defense industry projects approved by the Undersecretariat of Defence Industry; (iii) public private partnership projects; (iv) an export, transit trade, sales and related deliveries subject to the relevant corporate borrower certifying the scope of its relevant activity and its potential sources of foreign currency revenues and (iv) investment incentive certificate. Note that in order for a corporate borrower to benefit from the Activity Exemption summarized in item (iv), it must not have any foreign currency revenue within the last three financial years (which otherwise, would be subject to the F/X Revenue
Exemption) and the maximum amount of foreign currency loan such Corporate Borrower can utilize is limited to the amount stated in its certified sources of foreign revenue.
As of December 31, 2019,2020, exchange restrictions and state controls exist in certain jurisdictions in which Turkcell operates. The local currencies of Turkcell’sTurkcell's subsidiaries in both Ukraine and Belarus are not convertible outside of their respective countries. The foreign exchange regime of the Ukrainian Hryvnia is floating but there is no offshore forward market for the currency. For the Belarusian Ruble, a floating regime is managed with no access to forward markets or NDFs. Future movements of exchange rates will affect the carrying values of Turkcell’sTurkcell's assets and liabilities. The translation of underlying local currency amounts into TRY in Turkcell’sTurkcell's Consolidated Financial Statements should not be construed as a representation that such local currency amounts have been, could be or will in future be converted into TRY at the exchange rates shown, or at any other exchange rate.
The following discussion is a summary of the material Turkish and United States federal income tax considerations relating to the ownership and disposition of our shares or ADSs. The discussion is based on current law and is for general information only. The discussion does not address all possible tax consequences relating to the ownership and disposition of shares, or ADSs, and holders are urged to consult their tax advisors regarding the applicable tax consequences of holding and disposing of the shares or ADSs based on their particular circumstances.
The discussion is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change, possibly with retroactive effect. This summary is also based in part on representations of the Depositary and assumes that each obligation provided for in, or otherwise contemplated by, the Deposit Agreement or any related document will be performed in accordance with the terms of such agreement.
I. Republic of Turkey Taxation
The following summary of Turkish tax law as in force on the date of this annual report describes the principal tax consequences for Turkish residents and U.S. holders (as defined below in “Taxation—"Taxation—United States Federal Income Taxation”Taxation") of the ownership and disposition of shares and ADSs. It is not a complete description of all the possible tax consequences of such ownership and disposition. Shareholders should consult their own tax advisors concerning the Turkish and other tax consequences applicable in their particular situations.
a. a.Corporate Taxation
A corporation that has its legal and/or business center in Turkey (a “Resident Corporation”"Resident Corporation") is subject to a corporate tax, which is levied at 20% on such corporation’scorporation's taxable income. Resident Corporations are required to pay an “advance"advance corporation tax”tax", also at 20%, on a quarterly basis. This rate will bewas applied at 22% for the years 2018, 2019 and 2020. The corporate tax rate has been set at 25% for the fiscal year 2021 and 23% for the fiscal year 2022 in accordance with Law No. 7316 published in the Official Gazette dated April 22, 2021. The corporate tax rate shall be applied as 20% for the fiscal years starting 2023 assuming there will be no additional legislation.
b.Taxation of Dividends
In the event that a Resident Corporation distributes dividends to individual shareholders (resident or non-resident), or to non-resident corporations that do not have a permanent establishment (fixed place of business or permanent representative) in Turkey (and are not subject to rate-reducing provisions in applicable bilateral tax treaties), a 15% withholding tax is payable by the Resident Corporation on behalf of its shareholders. In the event that Resident Corporations distribute dividends
to resident legal entities or to non-resident legal entities that have a permanent establishment in Turkey, such distributions are not subject to withholding tax.
Cash dividends received by Resident Corporations from other Resident Corporations are not subject to corporate tax. Dividends in cash received by resident individuals from Resident Corporations are subject to a withholding tax at the rate of 15% (as discussed above) and must file an annual income tax declaration. The withholding tax amount shall be deducted from the annual income tax. 50% of the dividend income received by resident individuals from Resident Corporations is exempt from the annual income declaration. The remaining 50% must be declared if it exceeded TRY 53,000 in 2021, TRY 49,000 in 2020, TRY 40,000 in 2019 and TRY 34,000 in 2018 and TRY 30,000 in 2017 and 2016.2018.
Under the Income Tax Treaty between the United States of America and the Republic of Turkey, signed March 28, 1996 (the “Treaty”"Treaty"), the withholding tax rate is limited to 20% (including the surcharges on dividends paid by a Turkish Resident Corporation) of the gross amount of the dividends unless the beneficial owner of shares is a company which owns at least 10% of the voting stock of the company paying the dividends (in which case the rate would be limited to 15%). Because the current withholding tax rate applicable to publicly-traded corporations, such as Turkcell, is only 15%, the Treaty does not affect the current rate of Turkish withholding tax for U.S. holders. Cash dividends paid on ordinary shares or ADSs to a U.S. holder that does not have a permanent representative or place of business in Turkey will not be subject to taxation in Turkey, except in respect of the 15% income withholding tax discussed in the previous section. The distribution of dividends in kind (i.e., bonus shares) is not subject to a withholding tax, and such dividends in kind are not subject to an income declaration.
c.Taxation of Capital Gains
(i) Gains realized by Residents
For shares acquired on or after January 1, 2006:
Gains realized by resident individuals on the sale of shares traded on the Borsa Istanbul (such as Turkcell shares) or ADSs that represent shares traded on the Borsa Istanbul (such as Turkcell ADSs) to residents or non-residents are exempt from income tax, provided that the holding period of such shares or ADSs exceeds one year. Where this holding period has not been met, there is a withholding tax from the gains derived from capital. The current rate for such withholding tax is 0%.
Gains realized by Resident Corporations on the sale of shares traded on the Borsa Istanbul (such as Turkcell shares) or ADSs that represent shares traded on the Borsa Istanbul (such as Turkcell ADSs) to residents or non-residents shall benefit from the withholding exemption, if a one-year holding period is met. However, where this holding period has not been met, there is a withholding tax from the gains derived from capital gains. The current rate for such withholding tax is 0%.
Gains realized by Resident Corporations on the sale of shares or by residents or non-residents must be included in corporate income and are subject to the applicable corporate tax. Upon fulfillment of the stated conditions in Article 5 of the Corporate Tax Law, 75% of capital gains derived from the sale of the shares will be exempt from corporate income tax.
For shares acquired before January 1, 2006:
Capital gains derived from shares held by an investor (both individuals and corporations) for over three months are not subject to any withholding tax.
Gains realized by Resident Corporations on the sale of shares are subject to the applicable corporate tax. Upon fulfillment of the stated conditions in Article 5 of the Corporate Tax Law, 75% of capital gains deriving from the sale of the shares will be exempt from corporate income tax.
(ii) Gains realized by U.S. holders
U.S. holders that do not have a permanent establishment in Turkey are exempt from Turkish tax on capital gains generated from the sale of shares quoted on an exchange, such as Turkcell shares, under Article 13 of the Treaty. U.S. resident legal entities having a permanent establishment (fixed place of business or permanent representative) in Turkey generally are subject to tax in Turkey on capital gains arising from the sale of such shares and should consult their own Turkish tax advisors as to the rules applicable to them. As of July 7, 2006, the withholding tax rate applicable to non-resident holders of shares has been reduced to 0%.
U.S. holders who invest via ADSs will not have to comply with any procedures to avoid withholding tax, since gains derived from Turkcell ADSs are not generated in Turkey. However, U.S. holders who hold their shares directly in Turkey must comply with certain procedures to establish their exemption from Turkish capital gains withholding tax and are urged to consult their own tax advisors in this regard.
In addition, certain rules and procedures may need to be complied with in order to avoid Turkish withholding tax upon the conversion of ADSs to shares and from shares to ADSs in Turkey. U.S. holders are urged to consult their own tax advisors in this regard.
Pursuant to a Turkish Constitutional Court decision, which annulled the income tax provision regulating the 0% withholding application on capital gains for non-resident individuals and corporations, the withholding tax regime has once again become subject to regulation pursuant to a law numbered 6009, which came into force on August 1, 2010. Pursuant to this new regulation, a 10% withholding on capital gains is applied to individual investors and a 0% withholding is applied to corporate investors, irrespective of the residency status. Non-resident corporate deposit receipt holders (depositaries of our ADR facility) are included within the scope of corporate investors. Non-resident investors of Turkcell ADRs will be subject to 0% withholding, provided that the depositary of our ADR facility is a corporate body. The President of Republic of Turkey has the authority to raise the withholding levels to 5%.
d.Taxation of Investment and Mutual Funds
(i) Taxation on the Fund Level:
The gains realized from portfolio investment activities of resident Investment and Mutual Funds are exempt from corporate tax, but are subject to withholding tax for the gains of stocks held and bonds/bills issued before January 1, 2006. Withholding tax rates are as follows:
Gains from stocks purchased after January 1, 2006 and/or bonds and bills issued after January 1, 2006 are subject to withholding of 0%.
A non-resident Investment or Mutual Fund may also qualify for this taxation regime if it appoints a permanent representative in Turkey, registers with the Turkish tax office, maintains legal books and meets other tax requirements in Turkey.
(ii) Taxation at the Investor Level:
The gains realized by investors for participating within a “fund”"fund" are subject to taxation depending on the date of purchase of the “fund”"fund" by the individual investors.
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e. e.Stamp Taxes
According to the Turkish Stamp Tax Law (Law No. 488), all agreements and documents specified in the law with a monetary value indicated thereon are subject to a stamp tax with rates from 0.189% to 0.948%, which is calculated on the aggregate amount of such agreement or document.
II. United States Federal Income Taxation
The following discussion is a summary of the material U.S. federal income tax considerations applicable to the ownership and disposition of shares or ADSs by you, if you are a U.S. holder. In general you will be a “U.S. holder”"U.S. holder" if:
The Treaty benefits discussed generally are not available to holders who hold shares or ADSs in connection with the conduct of business through a permanent establishment, or the performance of personal services through a fixed base, in Turkey.
If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that holds shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of its shares or ADSs.
The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular holder, including tax considerations that arise from rules of general application or that are generally assumed to be known by U.S. holders. This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”"Code"), existing and proposed U.S. Treasury Regulations, rulings, administrative pronouncements, judicial decisions and the Treaty, all as of the date of this annual report. All of these authorities are subject to change, possibly with retroactive effect, and to differing interpretations. In addition, this summary does not discuss all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to U.S. holders who are subject to special treatment under U.S. federal income tax law, including insurance companies, U.S. expatriates, dealers in stocks or securities, banks or financial institutions, tax-exempt organizations, regulated investment companies, retirement plans, traders in securities who elect to apply a mark-to-market method of accounting, persons who acquired their shares pursuant to the exercise of employee stock options or otherwise as compensation, persons holding shares as part of a straddle, hedging or conversion transaction, persons subject to the alternative minimum tax, and persons having a functional currency other than the U.S. Dollar.
U.S. holders are urged to consult with their own tax advisors regarding the tax consequences of the ownership or disposition of shares or ADSs, including the effects of federal, state, local, foreign and other tax laws with respect to their particular circumstances.
a.Dividends
If we make distributions to you, you generally will be required to include in gross income as dividend income the amount of the distributions paid on the shares (including the amount of any Turkish taxes withheld in respect of such dividend as described above in “Taxation—"Taxation—Republic of Turkey Taxation”Taxation"). Dividends paid by us will not be eligible for the dividends-received deduction applicable in some cases to U.S. corporations.
Any dividend paid in Turkish Lira, including the amount of any Turkish taxes withheld therefrom, will be includible in your gross income in an amount equal to the U.S. Dollar value of the Turkish Lira calculated by reference to the spot rate of exchange in effect on the date the dividend is received by you, in the case of shares, or by the Depositary, in the case of ADSs, regardless of whether the Turkish Lira are converted into U.S. Dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible in your gross income to the date such payment is converted into U.S. Dollars generally will be treated as U.S.-source ordinary income or loss. Special rules govern, and elections are available to, accrual method taxpayers to determine the U.S. Dollar amount includible in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and elections applicable in this regard.
Any dividends paid by us to you with respect to shares or ADSs will be treated as foreign-source income and generally will be categorized as “passive"passive category income”income" or, in the case of certain U.S. holders, “general"general category income”income" for foreign tax credit purposes.
Subject to limitations, you may elect to claim a foreign tax credit against your U.S. federal income tax liability for Turkish income tax withheld from dividends received in respect of shares or ADSs. The rules relating to the determination of the foreign tax credit are complex. Accordingly, you should consult your own tax advisor to determine whether and to what extent you would be entitled to the credit. If you do not elect to claim a foreign tax credit, you may instead claim a deduction for Turkish income tax withheld, but only for a year in which you elect to do so with respect to all foreign income taxes. A deduction does not reduce tax on a dollar-for-dollar basis like a credit, but the deduction for foreign taxes is not subject to the same limitations applicable to foreign tax credits.
Certain non-corporate U.S. holders (including individuals) are eligible for reduced rates of U.S. federal income tax in respect of “qualified"qualified dividend income”income" received. For this purpose, qualified dividend income generally includes dividends paid by a non-U.S. corporation if, amongst other things, the U.S. holder meets certain minimum holding periods and the non-U.S. corporation satisfies certain requirements, including that
either (i) the shares (or ADSs) with respect to which the dividend income has been paid are readily tradable on an established securities market in the United States or (ii) the non-U.S. corporation is eligible for the benefits of a comprehensive U.S. income tax treaty (such as the Treaty) which provides for the exchange of information. We currently believe that dividends paid with respect to our shares and ADSs should constitute qualified dividend income for U.S. federal income tax purposes, and we anticipate that our dividends will be reported as qualified dividends on Forms 1099-DIV delivered to U.S. holders. In computing foreign tax credit limitations, non-corporate U.S. holders may take into account only a portion of a qualified dividend to reflect the reduced U.S. tax rate applicable to such dividend. Each U.S. holder of shares or ADSs is urged to consult its own tax advisor regarding the availability to it of the reduced dividend tax rate in light of its own particular situation and regarding the computations of its foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable.
The U.S. Treasury has expressed concerns that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits or reduced tax rates in respect of qualified dividends by U.S. holders of ADSs. Accordingly, the discussion above regarding the creditability of Turkish withholding tax on dividends or the availability of qualified dividend treatment could be affected by future actions that may be taken by the U.S. Treasury with respect to ADSs.
b.Sale, Exchange or other Disposition of Shares or ADSs
Upon the sale, exchange or other disposition of shares or ADSs, you generally will recognize capital gain or loss equal to the difference between the amount realized on the disposition and your adjusted tax basis in your shares or ADSs (as determined in U.S. Dollars). Gain or loss upon the disposition of shares or ADSs generally will be U.S.-source gain or loss, and will be treated as long-term capital gain or loss if, at the time of the disposition, your holding period for the shares or ADSs exceeds one year. If you are an individual, capital gains generally will be subject to U.S. federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.
The surrender of ADSs in exchange for shares pursuant to the Deposit Agreement governing the ADSs will not be a taxable event for U.S. federal income tax purposes. Accordingly, you will not recognize any gain or loss upon such surrender.
c. c.Net Investment Income Tax
Certain U.S. holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% tax on “net"net investment income”income", including, among other things, dividends on, and gains from the sale or other taxable disposition of, our shares or ADSs, subject to certain limitations and exceptions. You should consult your own tax advisor regarding the effect, if any, of such tax on your ownership and disposition of our shares or ADSs.
d.Passive Foreign Investment Company Status
We currently believe that we were not a passive foreign investment company (a “PFIC”"PFIC") for U.S. federal income tax purposes for the taxable year ending December 31, 2019.2020. However, this conclusion is a factual determination that must be made annually and thus may be subject to change. Therefore, it is possible that we could be classified as a PFIC in the future due to changes in our operations, the composition of our assets or income, as well as changes in market capitalization. In general, a non-U.S. corporation will be classified as a PFIC for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties or gains on the disposition of certain minority interests), or at least 50% of the average value of its assets consists of assets that produce, or are held for the production of, passive income. If we were characterized as a PFIC for any taxable year, you would suffer adverse tax consequences. These consequences may include having gains realized on the disposition of shares or ADSs treated as ordinary income rather than capital gains, being subject to punitive interest charges on certain dividends and on the proceeds of the sale or other disposition of the shares or ADSs, and form filing and reporting requirements. Furthermore, dividends paid by a PFIC would not be “qualified"qualified dividend income”income" (as discussed above) and would be taxed at the higher rates applicable to other items of ordinary income. You should consult your own tax advisor regarding the potential application of the PFIC rules to us and to your ownership of our shares or ADSs.
e.U.S. Information Reporting and Backup Withholding
Dividend payments with respect to shares or ADSs and proceeds from the sale, exchange, redemption or other taxable disposition of shares or ADSs may be subject to information reporting to the Internal Revenue
Service (the “IRS”"IRS") and possible U.S. backup withholding at a current rate of 24%. Certain exempt recipients (such as corporations) are not subject to these information reporting requirements. Backup withholding will not apply, however, to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. U.S. persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-U.S. holders generally will not be subject to U.S. information reporting or backup withholding. However, such holders may be required to provide certification of non-U.S. status (generally on IRS Form W-8BEN or W-8BEN-E, as applicable) in connection with payments received in the United States, or through certain U.S.-related financial intermediaries.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’sholder's U.S. federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by filing the appropriate claim for refund with the IRS and furnishing any required information.
In addition, U.S. holders should be aware of annual reporting requirements with respect to the holding of certain foreign financial assets, including our shares and ADSs that are not held in an account maintained by certain types of financial institutions, if the aggregate value of all of such assets exceeds $50,000 (or $100,000 for married couples filing a joint return). You should consult your own
tax advisor regarding the application of the information reporting and backup withholding rules to our shares and ADSs and the application of the annual reporting requirements to your particular situation.
10.F Dividends and Paying Agents
Not Applicable.
Not Applicable.
Reports and other information of Turkcell can also be inspected without charge and copied at prescribed rates at the public reference facility maintained by the SEC in Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Copies of these materials are also available by mail from the Public Reference Section of the SEC, at 100 F Street, N.E., Washington D.C. 20549, at prescribed rates.
Not Applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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I. Overview
We are exposed to foreign exchange rate risks because our income, expenses, assets and liabilities are denominated in a number of different currencies, primarily Turkish Lira, U.S. Dollars, Euros, Chinese Yuan, Ukrainian Hryvnia, and Belarusian Rubles. In particular, a substantial majority of our debt obligations and equipment expenses are currently, and are expected to continue to be, denominated in U.S. Dollars, Euros and Euros,Chinese Yuan, while the revenues generated by the corresponding activities are denominated in other currencies, in particular the Turkish Lira, Ukrainian Hryvnia and Belarusian Rubles. Similarly, we are subject to market risk deriving from changes in interest rates that may affect the cost of our financing and also liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. We provide a detailed analysis of our foreign exchange interest rate and liquidity risks in Note 36.36 (Financial Instruments) to our Consolidated Financial Statements in this annual report on Form 20-F.
a.Foreign Exchange Risk Management
Our functional currency is the TRY for operations conducted in Turkey, but certain revenues, purchases, operating costs and expenses and resulting receivables and payables are denominated in a number of different currencies. In particular, a substantial majority of our debt obligations and equipment expenses are currently, and are expected to continue to be, denominated in U.S. Dollars, Euros and Euros,Chinese Yuan while the revenues generated by the
corresponding activities are denominated in other currencies, in particular the Turkish Lira, Ukrainian Hryvnia and Belarusian Rubles. Transactions denominated in foreign currencies are recorded at the exchange rates prevailing at the dates of the transactions. Assets and liabilities denominated in foreign currencies are converted into functional currency at the exchange rates prevailing at the reporting date, with the resulting exchange differences recognized in the determination of net income. In 2015, net foreign exchange losses were mainly attributable to the foreign exchange losses in Belarusian Telecom operating in Belarus and in lifecell operating in Ukraine and amounted to TRY 1,197.7 million, resulting from transactions related to foreign exchange effects. Foreign exchange losses from Belarusian Telecom and lifecell exclude foreign exchange losses arising in the foreign operations’operations' individual financial statements which have been recognized directly in equity in the foreign currency translation differences in the consolidated financial statements in accordance with accounting policy for net investment in foreign operations.
Market risk-sensitive instruments consist of loans and borrowings mainly denominated in foreign currencies (substantially in U.S. Dollars and Euros) totaling TRY 20,305.7 million,18.7 billion, which represents the majority of total indebtedness as of December 31, 2019.2020.
To manage and hedge our foreign exchange risk more effectively, we have used cross currency swaps, contracts, participating cross currency swapswaps, future contracts and currency forward contracts, and we may enter into forward transactions and currency swap contracts and participating cross currency swap contracts in the future as well. In addition, in order to take advantage of market volatility in the foreign exchange markets and increase the yield on our free cash, we may enter into option transactions to buy or sell certain currencies, allowing us to mitigate our exposure to negative foreign exchange rate swings. See Note 36 (Financial Instruments) to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F for additional details.
All hedging transactions have been authorized and executed pursuant to clearly defined policies and procedures, which provide that the transaction is entered into to protect us from fluctuations in currency values. Analytical techniques are used to manage and monitor foreign exchange risk, which includes market valuation and sensitivity analysis. In addition, we keep a significant proportion of our monetary assets in U.S. Dollars/ Euros to reduce our currency exposure.
While we are currently able to hedge our principal TRY exposure to the U.S. Dollar, Euro and the EuroChinese Yuan on commercially reasonable terms, no assurance can be given that we will continue to be able to do so under all circumstances in the future, in particular taking into account the context created by the COVID-19 epidemic,pandemic, which has had, and is likely to continue to have, a material impact on the volatility of global markets which, in turn, may lead to a material increase in our financing costs.
b. b.Interest Rate Risk Management
We are exposed to variations in interest rates, primarily in Euros, U.S. Dollars, Chinese Yuan, Turkish Lira and TRY and UAHUkranian Hryvnia denominated debt and investments, which may affect the amounts of future interest income or expenses (reinvestment risk or cash flow risk) and also cause changes in the values of our interest-bearing assets, which have already been added to the statement of financial position. We manage interest rate risk by financing non-current assets with long-term debt with variable interest rates and equity. To hedge our interest rate risk, we utilize interest rate derivative structures considering the market levels. Turkcell started actively hedging its long term foreign exchange liabilities in 2016.
The following table sets forth the carrying amount and fair value of loans, maturities and average effective interest rates for bank loans.
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Effective interest rate | Total carrying amount | 2021 | 2022 | 2023 | 2024 thereafter | Fair Value | Effective interest rate | Total carrying amount | 2020 | 2021 | 2022 | 2023 thereafter | Fair Value | |||||||||||||||||||||||||||||
Variable rate instruments Unsecured bank loans | |||||||||||||||||||||||||||||||||||||||||||
USD floating rate loans | 3.2% | 2,644.0 | 546.9 | 519.4 | 445.2 | 1,132.5 | 2,644.0 | 4.4% | 4,478.5 | 2,132.1 | 296.0 | 282.1 | 1,768.3 | 4,478.5 | |||||||||||||||||||||||||||||
EUR floating rate loans | 2.2% | 5,660.7 | 975.7 | 1,335.5 | 855.1 | 2,494.4 | 5,660.7 | 2.2% | 5,638.7 | 1,688.6 | 698.8 | 898.6 | 2,352.7 | 5,638.7 |
December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Effective interest rate | Total carrying amount | 2020 | 2021 | 2022 | 2023 thereafter | Fair Value | Effective interest rate | Total carrying amount | 2019 | 2020 | 2021 | 2022 thereafter | Fair Value | |||||||||||||||||||||||||||||||||||||||||||
Variable rate instruments Unsecured bank loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
USD floating rate loans | 4.4 | % | 4,478.5 | 2,132.1 | 296.0 | 282.1 | 1,768.3 | 4,478.5 | 4.3 | % | 4,589.2 | 2,058.6 | 1,816.3 | 186.0 | 528.3 | 4,589.2 | ||||||||||||||||||||||||||||||||||||||||
EUR floating rate loans | 2.2 | % | 5,638.7 | 1,688.6 | 698.8 | 898.6 | 2,352.7 | 5,638.7 | 2.1 | % | 6,975.9 | 2,466.1 | 1,557.4 | 654.5 | 2,297.9 | 6,975.5 |
For contractual cash flows and nominal interest of bank loans, see Note 2829 and Note 3536 to our audited Consolidated Financial Statements included in “Item"Item 18. Financial Statements”Statements" of this annual report on Form 20-F.
As we understand from what we observe in the market, the Financial Conduct Authority (FCA) plans to phase out LIBOR by the end of 2021 and from then on, the Secured Overnight Funding Rate (SOFR) is expected to replace LIBOR. Furthermore, regulators are also discussing to replace EURIBOR yet it is expected to remain in force for another period of 5 years. As at March 20, 2020,April 12, 2021, we have neither discussed with nor approached by any financial institution to replace LIBOR and/or EURIBOR with a new reference rate in our existing loan or hedging agreements. We shall continue to monitor the developments on this matter and aim to take necessary actions if and when possible in conjunction with financial institutions that we are in continous contact with.
We use sensitivity analysis techniques to measure and assess our interest rate risk. The basis for the sensitivity analysis is an aggregate corporate-level interest rate exposure composed of interest-bearing investments and interest-bearing debts. When we assume a 1 percentage point increase in interest rates for all maturities from their levels as of December 31, 2019,2020, with all other variables held constant, our profit before income tax decreases by TRY 225.523.5 million.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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The Depositary may collect from (i) each person to whom ADSs are issued, including, without limitation, issuances against deposits of Shares, issuances in respect of Share Distributions, Rights and Other Distributions (as such terms are defined in the form of ADR certificate), issuances pursuant to a stock dividend or stock split declared by the Company, or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or the Deposited Securities and (ii) each person surrendering ADSs for withdrawal of Deposited Securities or whose ADSs are cancelled or reduced for any other reason, U.S. $5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, cancelled or surrendered (as the case may be). The Depositary may sell (by public or private sale) sufficient securities and property received in respect of Share Distributions, Rights and Other Distributions prior to such deposit to pay such charge. These terms are set forth in Paragraph 7 of the Form of ADR certificate.
On July 6, 2011, we signed an amended and restated Deposit Agreement (the “Deposit Agreement”"Deposit Agreement") with Citibank N.A. (“Citibank”("Citibank"), as depositary (the “Depositary”"Depositary"), Turkcell and holders of American Depositary Receipts, which transferred our ADR program from JPMorgan Chase Bank (“JPMorgan”("JPMorgan") to Citibank. On July 1, 2016 the term was extended by another 5 years, until July 6, 2021.
As provided for in the American Depositary Receipt included as Exhibit A to the Deposit Agreement, holders of American Depositary Shares may be charged, directly or indirectly, the following
amounts in relation to the ownership of depositary receipts held in the Company’sCompany's ADR Program, which are payable to the Depositary:
Service | Rate | By Whom Paid | ||||
---|---|---|---|---|---|---|
(1) | ||||||
| Up to U.S. $5.00 per 100 ADSs (or fraction thereof) issued. | Person depositing Shares or person receiving ADSs. | ||||
(2) | ||||||
| Up to U.S. $5.00 per 100 ADSs (or fraction thereof) surrendered. | Person surrendering ADSs for the purpose of withdrawal of Deposited Securities, or person to whom Deposited Securities are delivered. | ||||
(3) | ||||||
other cash distributions (i.e., sale of rights and other entitlements). | ||||||
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| Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom distribution is made. | ||||
(4) | Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom distribution is made. | |||
(5) | Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares). | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held. | Person to whom distribution is made. | |||
(6) | Depositary Services. | Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the Depositary. | Person holding ADSs on the applicable record date(s) established by the Depositary. |
I. Direct Payments made by Citibank to Turkcell
Citibank, as depositary, has agreed to reimburse certain reasonable expenses related to our ADR program and incurred by us in connection with such program. In 2019,2020, the Depositary, as part of its agreement, reimbursed Turkcell $ 2,366,055$1,129,933 directly on an accrual basis. The amounts the Depositary has reimbursed and will reimburse are not necessarily related to the fees collected by the depositary from ADR holders. The table below sets forth the type of expenses that Citibank has reimbursed.
Category of Expenses | Amount Reimbursed in 2020 | |||
---|---|---|---|---|
Investor Relations(1) | $ | 1,129,933 |
Category of Expenses | Amount Reimbursed in 2019 | |||
Investor Relations(1) | $ | 2.366.055 |
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II. Indirect Payments made by Citibank to Turkcell
As part of its service to Turkcell, Citibank has agreed to waive fees for the standard costs associated with the administration of our ADR program and associated operating expenses estimated to total $72,745.$126,316. The table below sets forth the fees that Citibank has agreed to waive and/or expenses that Citibank has agreed to pay in the year ended December 31, 2019.2020.
Category of Expenses | Amount Waived or Paid by Citibank for the period January 1, 2020 through December 31, 2020 | |||
---|---|---|---|---|
Third-party expenses paid directly | $ | 125,362 | ||
Fees waived | $ | 954 |
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
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Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
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Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
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(a)Disclosure Controls and ProceduresProcedures.. The Chief Executive Officer and the Chief Financial Officer, after evaluating the effectiveness of the Company’sCompany's disclosure controls and procedures (as defined in U.S. Exchange Act Rule 13a-15(e)) as of the end of the period covered by this annual report on Form 20-F, have concluded that, as of such date, the Company’sCompany's disclosure controls and procedures were effective at a reasonable assurance level.
(b)Management’sManagement's Annual Report on Internal Control over Financial ReportingReporting.. The management of Turkcell is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934), and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2019.2020. The Company’sCompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with applicable generally accepted accounting principles. The Company’sCompany's internal control over financial reporting includes those policies and procedures that:
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Internal control over financial reporting has inherent limitations. It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. In addition, it can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal controls over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design safeguards to reduce, though not eliminate, this risk.
Management assessed the effectiveness of the internal control over financial reporting as of December 31, 20192020 based on criteria established in the Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”("COSO"). Based on its assessment and those criteria, management has concluded that the Company’sCompany's internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2019.2020.
The effectiveness of our internal control over financial reporting as of December 31, 20192020 has been audited by PwC Bagimsiz Denetim ve Serbest Muhasebeci Mali Musavirlik A.S. (“PwC”("PwC"), our independent registered public accounting firm in Turkey, as stated in their attestation report, which appears below under Item 15(c), Report of the Independent Registered Audit Company.
(c)Attestation Report of the Independent Audit CompanyCompany.. PwC Bagimsiz Denetim ve Serbest Muhasebeci Mali Musavirlik A.S., the independent public accounting firm that audited the consolidated financial statements included in this annual report, has audited the effectiveness of internal control over financial reporting as of December 31, 2019.2020. Their attestation report on internal control over financial reporting is included at page F-1 herein.
(d)Changes in Internal Control over Financial ReportingReporting.. There were no changes in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15 in the Company’sCompany's internal control over financial reporting that occurred during the year ended December 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting. This conclusion has been made at a reasonable assurance level.
In addition to the existing controls, in order to strengthen the control environment, SOX Compliance Unit has been established, that reports directly to the Board of Directors and a central Internal Control and Continous Improvement department has been established that directly reports to the CEO. Furthermore, SOX Audit Team has been established in the Internal Audit organization to perform SOX audits in a focused manner.
Starting in March 2020, the significant majority of our employees have been working remotely due to COVID-19 pandemic. We have performed an evaluation on our internal control environment and procedures and concluded that effectiveness of our internal controls is unaffected by this change.
16.A Audit Committee Financial Expert
Currently no independent Audit Committee member is an “audit"audit committee financial expert”expert", as that term is defined by the SEC in its final rules implementing Section 407 of the Sarbanes-Oxley Act of 2002, because, after self-evaluation, our Audit Committee members did not consider themselves, individually, as an “audit"audit committee financial expert”expert". However, our Audit Committee members and our Board of Directors believe that our Audit Committee members are nonetheless qualified to carry out their duties on the Audit Committee given their experience and other qualifications in financial matters.
We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, and other executive officers and financial officers. An outlookoverview of our code of ethics is posted on our website, www.turkcell.com.tr.
16.C Principal Accountant Fees and Services
PwC served as our independent registered public accountant for financial years ended December 31, 2020, 2019, 2018 and 2017.2018. Our audited financial statements for the three year period ended December 31, 20192020 appear in this annual report on Form 20-F. At our general meeting of shareholders which occurred on, May 25, 2017, March 29, 2018, and September 12, 2019 and October 21 2020, PwC was appointed as our independent auditors for our 2017, 2018, 2019 and 20192020 fiscal years respectively. On March 24, Board of Directors decided to appoint PwC was appointed as the Company's independent auditor for the year 2020, which is subject to2021 at the approval of the shareholders during the next General Assembly Meeting.Meeting held on April 15, 2021.
The following table presents the aggregate fees for professional services and other services rendered by our auditors to us in 2020, 2019 and 2018.
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Million TRY) | |||||||||
Audit Fees(1) | 7.3 | 5.7 | 4.6 | |||||||
Audit-Related Fees(2) | — | 0.5 | 1.2 | |||||||
| | | | | | | | | | |
Total | 7.3 | 6.2 | 5.8 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
(Million TRY) | ||||||||||||
Audit Fees (1) | 5.7 | 4.6 | 4.3 | |||||||||
Audit-Related Fees(2) | 0.5 | 1.2 | — | |||||||||
Tax Fees | — | — | — | |||||||||
All Other Fees(3) | — | — | — | |||||||||
Total | 6.2 | 5.8 | 4.3 |
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a.Audit Committee Pre-approval Policies and Procedures
Our Audit Committee has pre-approved all work performed by our external auditors for the year 20192020 and it has not adopted blanket pre-approval policies and procedures.
16.D Exemptions from the Listing Standards for Audit Committees
Not applicable.
16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On July 27, 2016, the Company’sCompany's Board of Directors authorized the management to execute share buy-back transactions, within the scope of the announcements dated July 21, 2016 and July 25, 2016 made by the Capital Markets Board.CMB. The purpose is to protect Turkcell investors against potentially negative reflections on Turkey that may arise due to the instability perception in the short and medium term subsequent to the events on and after July 15, 2016, and/or due to potential global macroeconomic volatilities. In this context, it has been resolved that the maximum fund amount set aside for share buy-backs will be TRY 150 million, and the maximum share number to be bought back will be determined so as not to exceed this amount. This amount is also used for Eurobond buy-backs. On January 30, 2017, the Company’sCompany's Board of Directors increased the above-mentioned fund amount to TRY 300 million in
order to be utilized for share buy-backs, including ADRs being traded on the NYSE. On March 24, 2020 our Company’sCompany's Board of Directors increased the fund amount to TRY 450 million to protect our investors against market volatility originating mainly from the COVID-19 global outbreak.pandemic.
Between August 24, 2016 and December 30, 2016, our Company bought back 6,815,563 shares in total in a price range of TRY 8.92 and TRY 9.99 and our ratio of shares in the company capital reached 0.310%. In 2017, there were no buy-backs and we did not utilize this fund. In 2018, share buy-backs amounted to 8,434,204 shares in a price range of TRY 10.01 and TRY 12.33, and our ratio of shares in company capital reached 0.693%. On December 31, 2018, our Company bought back 827,750 shares in a price range of TRY 11.89 and TRY 12.24, which are included in outour 2019 financials as per IFRS standards, thereby bringing the total ratio of shares in company capital to 0.731%. In 2019, there were no buy-backs. In 2020, share buy-backs amounted to 816,290 shares in a price range of TRY 12.09 and TRY 12.35, and our ratio of shares in company capital reached 0.768%. As of March 20, 2020,April 12, 2021, our Company bought back 16,893,807 shares in total, bringing the total ratio of shares in company to 0.768% level.
Period Total Number of
Shares Purchased Average Price Paid
per Share (in TRY) Total Number of
Shares Purchased as
Part of Publicly
Announced Plan or
Program (Cumulative) TRY Value of Shares
that May Be
Purchased Under the
Plan or Program(1)December 2018 827,750 12.08 16,077,517 129,781,255 March 2020 816,290 12.24 16,893,807 119,787,217
Period | Total Number of Shares Purchased | Average Price Paid per Share (in TRY) | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (Cumulative) | TRY Value of Shares that May Be Purchased Under the Plan or Program(1) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
17 - 19 March 2020 | 816,290 | 12.24 | 16,893,807 | 269,787,217 |
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Therefore the “TRY"TRY Value of Shares that May Be Purchased Under the Plan or Program”Program" should be reduced by the purchased Eurobonds amount.
16.F Change in Registrant’sRegistrant's Certifying Accountant
Incorporated by reference to our annual report on Form 20-F filed on March 18, 2016.
I. Significant Differences in Corporate Governance Practices
Matters related to corporate governance in Turkey are regulated by the new Turkish Commercial Code (“TCC”("TCC"), which came into force on July 1, 2012, and the new law and regulations and communiques of the CMB, the regulatory and supervisory authority, all of which are binding upon publicly-held companies.
In addition, corporate governance practices in Turkey are also guided by the Corporate Governance Principles of the CMB (the “CMB Principles”"CMB Principles"), which took effect on a “comply"comply or explain”explain" basis on January 1, 2004. Since 2005, the CMB requires listed companies to incorporate in their annual reports a “Corporate"Corporate Governance Compliance Report”Report", which compares the CMB
Principles to the Corporate Governance principles under which the Company operates. This report is posted on our website, www.turkcell.com.tr. On January 10, 2019 the CMB introduced a new reporting format in compliance with corporate governance principles for publicly listed companies. As of this date, the reporting format previously announced by the CMB by the Communique on Corporate Governance Principles II-17.1 was abolished. Accordingly, we have proceeded with the new reporting format and made the respective reporting by means of the Corporate Governance Compliance Report (“CRF”("CRF") which is used for the purpose of reporting the status of compliance with voluntary principles and the Corporate Governance Information Form (“CGIF”("CGIF") which is prepared for the purposes of providing information on existing corporate governance practices. The reports are included in our annual report as well.
It is decided by the CMB that the companies must publish the same reports annually through the Public Disclosure Platform (“PDP”("PDP") within the financial statements announcement period and, in any case, at least three weeks prior to the date of the general assembly meeting. In the event of change with respect to the companies’companies' compliance with voluntary principles and any change in material information regarding the CGIF, the respective changes should be disclosed by revision of the templates under the PDP and these changes should also be included in the interim activity reports.
Effective in 2011, by way of various communiques, the CMB revised its corporate governance principles with a view to strengthening the governance practices of listed companies. As a result, the CMB left the “comply"comply or explain”explain" approach to a limited extent and required listed companies to comply with certain corporate governance principles on a compulsory basis by June 30, 2012. In a further Communique dated September 13, 2012, the CMB empowered itself, effective until December 31, 2012, to take legal action before the relevant first instance court with a view to assure compliance with its corporate governance rules. No legal action has been taken there against our Company to the best of our knowledge. The new Capital Markets Law came into force on December 30, 2012. The Capital Markets BoardCMB is entitled by Article 17/2 to make decisions and perform actions accordingly on its own initiative in case time-bound compliance requirements relating to its corporate governance principles are not met in due time.
In a further Communique dated April 6, 2013, the CMB amended the corporate governance principles. The following rules have been added to the Communique:
Registry.
The Corporate Governance Communique numbered II-17.1, which was published in the Official Gazette dated January 3, 2014 kept the above-mentioned second rule and removed the first one.
The following summarizes new mandatory CMB requirements that would apply to our Company.
The main mandatory rules relating to board membership and board structure include:
According to article 6/2 of the Corporate Governance Communique numbered II-17.1, the following exceptions may be granted upon approval by the CMB of companies whose main field of activity are performed under a license or a concession granted by public authorities or institutions either for a temporary or permanent term in order to render a public service or a defined category of publicly traded companies in which public authorities or institutions have privileged shares: i) the above mentioned mandatory rule regarding the election of the independent board members shall not be applied; ii) two of the independency criteria to determine the independncy of board members shall not apply. These criteria are (i) to not be a full time employee of public authorities and institutions after being elected, and (ii) to not have been a member of a board of directors for more than a term of six years in the last ten years.
Committees should consist of two members at least. It is mandatory that both (in case of two-member committees) or the majority of the members of the committees be non-executive board members. Expert people who are not board members may be elected as committee members except for the Audit Committee. All of the members of the Audit Committee and the chairmen of the other committees shall be elected among the independent board members. The chief executive officer/general manager should not hold a position on the committees. Terms of reference, working principles and members of the committees shall be determined and disclosed to the public by the board of directors.
Mandatory rules relating to enhanced shareholder information:
Internal Corporate Governance Mechanisms Revamped:
On January 28, 2016, our board has adopted new charters for the audit, corporate governance, candidate nomination, compensation and early detection of risks committees, along with Turkcell Group Anti-Bribery and Anti-Corruption Policy.Policy which is actually monitored by Corporate Governance & Capital Markets Compliance Directorate, as of the filing date the said Directorate operates autonomously and has direct access to the Board of Directors. The same day, our board also adopted Turkcell’sTurkcell's Internal Directive on the Operations of the Board of Directors.
In October 2020, the CMB amended the Corporate Governance Communiqué to ensure that public companies take concrete steps to ensure sustainability. Although adherence to such sustainability principles is voluntary, listed companies are required to disclose whether they comply with the sustainability principles in their yearly activity reports starting in 2020. If not, a detailed explanation including the effects of such non-compliance on environmental and social risk management is required. Notably, with regard to environmental principles, companies shall, inter alia, disclose their short and long-term goals in order to reduce their environmental impact, and disclose the total number of actions and projects and investments made in order to reduce their environmental impact and the environmental benefits and cost reductions these bring. With regard to social principles, companies will be expected to make a concrete effort to be included in the Borsa Istanbul Sustainability Index and other international sustainability indexes, and take all of the stakeholders' interests into account while acting for sustainability issues and disclose their social responsibility activities. Finally, the amendment states that companies will take sustainability and the environmental impact of their activities into account while setting their governance strategies, and consider the stakeholders' opinions when setting their sustainability strategies.
Turkcell has established Sustainability Committee and the Integrated Value Creation Committee in 2020. The Turkcell Sustainability Committee reports to the Board of Directors through the Integrated Value Creation Committee on all activities and outputs carried out within the scope of determining and effectively implementing short and long-term action plans in line with environmental, social and governance (ESG) policies, determining material sustainability issues, risks and opportunities. These committees evaluated Turkcell's ESG policies, and prepared Turkcell Human Rights Policy and Turkcell Environmental Policy, which were approved by Board of Directors on January 29, 2021. While developing globally competitive technologies, Turkcell attaches great importance to these technologies being people and environment oriented. To create a work environment worthy of human dignity and value, Turkcell implements Human Rights Policy. To maintain long-term environmental sustainability with the awareness of environmental impact across the value chain Turkcell implements Environmental Policy. Conveying its business model to its stakeholders with a sustainability perspective, Turkcell filed an Integrated Annual Report for 2020, prepared in accordance with Turkish Commercial Code and Capital Markets Board's "Communiqué on Principles Regarding Financial Reporting in the Capital Markets" No. II.14.1 and with the guidance of the International Integrated Reporting (IR) Framework of the International Integrated Reporting Council (IIRC). Going forward, Turkcell aims to present its economic, social, environmental, and corporate governance approach, strategy, business model, value creation process, performance, and sustainable business focus together on an annual basis reflecting the principles of transparency and accuracy.
Below is a summary of the significant differences between our corporate governance practices and those that would apply to U.S. companies under the NYSE corporate governance rules as of March 20, 2020:2021:
NYSE Corporate Governance Rule for U.S. Issuers | Our Practice as a Foreign Private Issuer | ||||
---|---|---|---|---|---|
Listed companies must have a majority of independent directors. | Our Board currently has three members who are deemed to meet the independence standards of both the SEC and CMB Principles. Under the CMB Principles, it is required to have a board comprised of at least one-third independent members (or, in any event, two members). | ||||
See | |||||
Mr. Nail Olpak, Mr. Afif Demirkiran and Mr. | |||||
The non-management directors of each company must meet at regularly scheduled executive sessions without management. | Turkish law does not make any distinction between management and non-management directors. However, there is a distinction between executive/nonexecutive board members. Our board members are all non-executive members. Members of the board who are not also members of management do not meet in regularly scheduled executive sessions. | ||||
Listed companies must have a nominating/corporate | On June 23, 2004, our Board of Directors established The charter substantially satisfies the minimum |
Listed companies must have a compensation committee composed entirely of independent directors, with a written charter that covers certain minimum specified duties. | On December 19, 2012, in conformity with the |
NYSE Corporate Governance Rule for U.S. Issuers | Our Practice as a Foreign Private Issuer | |
---|---|---|
Listed companies must have an audit committee that | Our Audit Committee currently has three members:
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guidance provided to analysts and ratings agencies; or the setting of clear hiring policies for employees or former employees of the independent auditors, although it does provide that the Audit Committee shall ensure that the independent auditors remain independent and avoid any conflicts of interest while performing their duties. |
NYSE Corporate Governance Rule for U.S. Issuers | Our Practice as a Foreign Private Issuer | |
---|---|---|
Listed companies must adopt and disclose corporate | We are not required specifically by the CMB We have further adopted an internal directive on the |
Not applicable.
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We have responded to Item 18 in lieu of responding to this item.
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Our audited Consolidated Financial Statements as of December 31, 2019,2020, and for each of the years in the three-year period ended December 31, 2019,2020, are filed as part of this annual report, on pages F-1 through F-111.F-127.
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EXHIBIT NUMBER | DESCRIPTION | ||
---|---|---|---|
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Articles of Association of Turkcell Iletisim Hizmetleri A.S. | |||
8.1 | |||
12.1 | |||
12.2 | |||
13.1 | |||
101.INS | XBRL Instance Document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.DEF | XBRL Taxonomy Definition Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
SIGNATURESTable of Contents
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TURKCELL ILETISIM HIZMETLERI A.S. | |||||
Date: April 26, 2021 | By: | /s/ MURAT ERKAN Murat Erkan Chief Executive Officer | |||
Date: April 26, 2021 | By: | /s/ OSMAN YILMAZ Osman Yilmaz Chief Financial Officer |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
Note | 31 December 2019 | 31 December 2018 | ||||||||||
Assets | ||||||||||||
Property, plant and equipment | 11 | 12,458,491 | 11,116,316 | |||||||||
Right-of-use assets | 15 | 1,783,096 | 1,649,602 | |||||||||
Intangible assets | 12 | 11,308,062 | 10,050,172 | |||||||||
Investment properties | 14 | 16,283 | 15,425 | |||||||||
Trade receivables | 19 | 148,159 | 115,001 | |||||||||
Receivables from financial services | 20 | 123,136 | 884,686 | |||||||||
Contract assets | 21 | 10,291 | 3,513 | |||||||||
Deferred tax assets | 18 | 189,342 | 152,732 | |||||||||
Investments in equity accounted investees | 41,701 | 19,413 | ||||||||||
Othernon-current assets | 17 | 304,270 | 421,306 | |||||||||
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Totalnon-current assets | 26,382,831 | 24,428,166 | ||||||||||
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Inventories | 22 | 178,399 | 180,434 | |||||||||
Trade receivables | 19 | 3,133,975 | 2,473,978 | |||||||||
Due from related parties | 39 | 4,477 | 13,533 | |||||||||
Receivables from financial services | 20 | 2,319,122 | 3,318,255 | |||||||||
Contract assets | 21 | 933,969 | 711,928 | |||||||||
Derivative financial instruments | 35 | 845,513 | 1,356,062 | |||||||||
Financial asset at amortized cost | 5,368 | 9,409 | ||||||||||
Financial asset at fair value through other comprehensive income | 25 | 345,602 | 42,454 | |||||||||
Cash and cash equivalents | 24 | 10,238,715 | 7,419,239 | |||||||||
Other current assets | 23 | 1,327,004 | 1,091,512 | |||||||||
|
|
|
| |||||||||
Subtotal | 19,332,144 | 16,616,804 | ||||||||||
|
|
|
| |||||||||
Assets classified as held for sale | 16 | — | 1,720,305 | |||||||||
|
|
|
| |||||||||
Total current assets | 19,332,144 | 18,337,109 | ||||||||||
|
|
|
| |||||||||
Total assets | 45,714,975 | 42,765,275 | ||||||||||
|
|
|
| |||||||||
Equity | ||||||||||||
Share capital | 26 | 2,200,000 | 2,200,000 | |||||||||
Share premium | 269 | 269 | ||||||||||
Treasury shares | 26 | (144,152 | ) | (141,534 | ) | |||||||
Additional paid-in capital | 35,026 | 35,026 | ||||||||||
Reserves | 2,816,359 | 2,503,537 | ||||||||||
Remeasurements of employee termination benefit | (63,539 | ) | (34,871 | ) | ||||||||
Retained earnings | 13,202,526 | 11,359,317 | ||||||||||
|
|
|
| |||||||||
Total equity attributable to equity holders of Turkcell Iletisim Hizmetleri AS (“the Company”) | 18,046,489 | 15,921,744 | ||||||||||
|
|
|
| |||||||||
Non-controlling interests | 36,455 | 131,810 | ||||||||||
|
|
|
| |||||||||
Total equity | 18,082,944 | 16,053,554 | ||||||||||
|
|
|
|
| Note | 31 December 2020 | 31 December 2019 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||
Property, plant and equipment | 11 | 13,902,730 | 12,458,491 | |||||||
Right-of-use assets | 15 | 2,380,174 | 1,783,096 | |||||||
Intangible assets | 12 | 12,367,784 | 11,308,062 | |||||||
Investment properties | 14 | 13,675 | 16,283 | |||||||
Trade receivables | 19 | 222,451 | 148,159 | |||||||
Receivables from financial services | 20 | 75,717 | 123,136 | |||||||
Contract assets | 21 | 128,114 | 10,291 | |||||||
Deferred tax assets | 18 | 836,608 | 189,342 | |||||||
Investments in equity accounted investees | 103,926 | 41,701 | ||||||||
Other non-current assets | 17 | 883,842 | 304,270 | |||||||
| | | | | | | | | | |
Total non-current assets | 30,915,021 | 26,382,831 | ||||||||
| | | | | | | | | | |
Inventories | 22 | 203,715 | 178,399 | |||||||
Trade receivables | 19 | 3,465,797 | 3,133,975 | |||||||
Due from related parties | 16,476 | 4,477 | ||||||||
Receivables from financial services | 20 | 1,886,381 | 2,319,122 | |||||||
Contract assets | 21 | 972,052 | 933,969 | |||||||
Derivative financial instruments | 35 | 917,437 | 845,513 | |||||||
Financial assets at amortized cost | 172,363 | 5,368 | ||||||||
Financial assets at fair value through other comprehensive income | 25 | 529,610 | 345,602 | |||||||
Cash and cash equivalents | 24 | 11,860,555 | 10,238,715 | |||||||
Other current assets | 23 | 558,986 | 1,327,004 | |||||||
| | | | | | | | | | |
Total current assets | 20,583,372 | 19,332,144 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total assets | 51,498,393 | 45,714,975 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Equity | ||||||||||
Share capital | 26 | 2,200,000 | 2,200,000 | |||||||
Share premium | 269 | 269 | ||||||||
Treasury shares | 26 | (147,914 | ) | (144,152 | ) | |||||
Additional paid-in capital | 35,026 | 35,026 | ||||||||
Reserves | 2,400,000 | 2,816,359 | ||||||||
Remeasurements of employee termination benefit | (94,684 | ) | (63,539 | ) | ||||||
Retained earnings | 16,392,070 | 13,202,526 | ||||||||
| | | | | | | | | | |
Total equity attributable to equity holders of Turkcell Iletisim Hizmetleri AS ("the Company") | 20,784,767 | 18,046,489 | ||||||||
| | | | | | | | | | |
Non-controlling interests | 171 | 36,455 | ||||||||
| | | | | | | | | | |
Total equity | 20,784,938 | 18,082,944 | ||||||||
| | | | | | | | | | |
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Continued)
As at 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
| Note | 31 December 2020 | 31 December 2019 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Liabilities | ||||||||||
Borrowings | 29 | 16,353,685 | 12,677,394 | |||||||
Employee benefit obligations | 30 | 381,923 | 294,331 | |||||||
Provisions | 33 | 411,931 | 337,404 | |||||||
Deferred tax liabilities | 18 | 1,337,831 | 1,165,630 | |||||||
Contract liabilities | 32 | 164,764 | 141,890 | |||||||
Other non-current liabilities | 28 | 498,059 | 359,857 | |||||||
| | | | | | | | | | |
Total non-current liabilities | 19,148,193 | 14,976,506 | ||||||||
| | | | | | | | | | |
Borrowings | 29 | 5,232,737 | 7,628,333 | |||||||
Current tax liabilities | 134,175 | 121,258 | ||||||||
Trade and other payables | 34 | 4,976,605 | 4,117,471 | |||||||
Due to related parties | 40,355 | 12,082 | ||||||||
Deferred revenue | 31 | 116,921 | 56,544 | |||||||
Provisions | 33 | 630,288 | 342,812 | |||||||
Contract liabilities | 32 | 315,070 | 290,408 | |||||||
Derivative financial instruments | 35 | 119,111 | 86,617 | |||||||
| | | | | | | | | | |
Total current liabilities | 11,565,262 | 12,655,525 | ||||||||
| | | | | | | | | | |
Total liabilities | 30,713,455 | 27,632,031 | ||||||||
| | | | | | | | | | |
Total equity and liabilities | 51,498,393 | 45,714,975 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Note | 31 December 2019 | 31 December 2018 | ||||||||||
Liabilities | ||||||||||||
Borrowings | 29 | 12,677,394 | 13,119,636 | |||||||||
Employee benefit obligations | 30 | 294,331 | 224,747 | |||||||||
Provisions | 33 | 337,404 | 268,722 | |||||||||
Deferred tax liabilities | 18 | 1,165,630 | 862,360 | |||||||||
Contract liabilities | 32 | 141,890 | 131,598 | |||||||||
Othernon-current liabilities | 28 | 359,857 | 364,610 | |||||||||
|
|
|
| |||||||||
Totalnon-current liabilities | 14,976,506 | 14,971,673 | ||||||||||
|
|
|
| |||||||||
Borrowings | 29 | 7,628,333 | 7,035,909 | |||||||||
Current tax liabilities | 121,258 | 133,597 | ||||||||||
Trade and other payables | 34 | 4,117,471 | 3,788,174 | |||||||||
Due to related parties | 39 | 12,082 | 45,331 | |||||||||
Deferred revenue | 31 | 56,544 | 8,948 | |||||||||
Provisions | 33 | 342,812 | 307,068 | |||||||||
Contract liabilities | 32 | 290,408 | 255,756 | |||||||||
Derivative financial instruments | 35 | 86,617 | 165,265 | |||||||||
|
|
|
| |||||||||
Total current liabilities | 12,655,525 | 11,740,048 | ||||||||||
|
|
|
| |||||||||
Total liabilities | 27,632,031 | 26,711,721 | ||||||||||
|
|
|
| |||||||||
Total equity and liabilities | 45,714,975 | 42,765,275 | ||||||||||
|
|
|
|
The above consolidated statement of financial position should be read in conjunction with the accompanying notes.
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
| Note | 2020 | 2019 | 2018 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue | 5 | 28,272,751 | 23,996,262 | 20,173,354 | ||||||||
Revenue from financial services | 5 | 830,987 | 1,140,873 | 1,119,121 | ||||||||
| | | | | | | | | | | | |
Total revenue | 29,103,738 | 25,137,135 | 21,292,475 | |||||||||
| | | | | | | | | | | | |
Cost of revenue | 10 | (20,161,096 | ) | (16,816,705 | ) | (13,751,195 | ) | |||||
Cost of revenue from financial services | 10 | (174,963 | ) | (266,775 | ) | (394,798 | ) | |||||
| | | | | | | | | | | | |
Total cost of revenue | (20,336,059 | ) | (17,083,480 | ) | (14,145,993 | ) | ||||||
| | | | | | | | | | | | |
Gross profit | 8,111,655 | 7,179,557 | 6,422,159 | |||||||||
Gross profit from financial services | 656,024 | 874,098 | 724,323 | |||||||||
| | | | | | | | | | | | |
Total gross profit | 8,767,679 | 8,053,655 | 7,146,482 | |||||||||
| | | | | | | | | | | | |
Other income | 6 | 96,585 | 140,705 | 241,435 | ||||||||
Selling and marketing expenses | 10 | (1,372,953 | ) | (1,555,189 | ) | (1,626,714 | ) | |||||
Administrative expenses | 10 | (749,612 | ) | (779,755 | ) | (673,370 | ) | |||||
Net impairment losses on financial and contract assets | 10 | (349,595 | ) | (338,857 | ) | (346,390 | ) | |||||
Other expenses | 6 | (619,835 | ) | (487,295 | ) | (381,582 | ) | |||||
| | | | | | | | | | | | |
Operating profit | 5,772,269 | 5,033,264 | 4,359,861 | |||||||||
| | | | | | | | | | | | |
Finance income | 8 | 2,119,483 | 297,450 | 1,677,114 | ||||||||
Finance costs | 8 | (3,251,164 | ) | (2,025,118 | ) | (3,364,072 | ) | |||||
| | | | | | | | | | | | |
Net finance costs | (1,131,681 | ) | (1,727,668 | ) | (1,686,958 | ) | ||||||
| | | | | | | | | | | | |
Share of loss of equity accounted investees | (13,775 | ) | (15,712 | ) | (87 | ) | ||||||
| | | | | | | | | | | | |
Profit before income tax | 4,626,813 | 3,289,884 | 2,672,816 | |||||||||
| | | | | | | | | | | | |
Income tax expense | 9 | (387,193 | ) | (785,630 | ) | (495,481 | ) | |||||
| | | | | | | | | | | | |
Profit from continuing operations | 4,239,620 | 2,504,254 | 2,177,335 | |||||||||
| | | | | | | | | | | | |
Gain from discontinued operations (attributable to owners of the Company) | — | 772,436 | — | |||||||||
| | | | | | | | | | | | |
Profit for the year | 4,239,620 | 3,276,690 | 2,177,335 | |||||||||
| | | | | | | | | | | | |
Profit for the year is attributable to: | ||||||||||||
Owners of the Company | 4,237,086 | 3,246,487 | 2,021,065 | |||||||||
Non-controlling interests | 2,534 | 30,203 | 156,270 | |||||||||
| | | | | | | | | | | | |
Total | 4,239,620 | 3,276,690 | 2,177,335 | |||||||||
| | | | | | | | | | | | |
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL) | 27 | 1.94 | 1.49 | 0.93 | ||||||||
Basic and diluted earnings per share for profit from continuing operations attributable to owners of the Company (in full TL) | 27 | 1.94 | 1.14 | 0.93 | ||||||||
Basic and diluted earnings per share for profit from discontinued operations attributable to owners of the Company (in full TL) | 27 | — | 0.35 | — |
Note | 2019 | 2018 | 2017 | |||||||||||
Revenue | 5 | 23,996,262 | 20,173,354 | 16,917,064 | ||||||||||
Revenue from financial services | 5 | 1,140,873 | 1,119,121 | 715,000 | ||||||||||
|
|
|
|
|
| |||||||||
Total revenue | 25,137,135 | 21,292,475 | 17,632,064 | |||||||||||
|
|
|
|
|
| |||||||||
Cost of revenue | 10 | (16,816,705 | ) | (13,751,195 | ) | (11,058,346 | ) | |||||||
Cost of revenue from financial services | 10 | (266,775 | ) | (394,798 | ) | (291,828 | ) | |||||||
|
|
|
|
|
| |||||||||
Total cost of revenue | (17,083,480 | ) | (14,145,993 | ) | (11,350,174 | ) | ||||||||
|
|
|
|
|
| |||||||||
Gross profit | 7,179,557 | 6,422,159 | 5,858,718 | |||||||||||
Gross profit from financial services | 874,098 | 724,323 | 423,172 | |||||||||||
|
|
|
|
|
| |||||||||
Total gross profit | 8,053,655 | 7,146,482 | 6,281,890 | |||||||||||
|
|
|
|
|
| |||||||||
Other income | 6 | 140,705 | 241,435 | 74,438 | ||||||||||
Selling and marketing expenses | 10 | (1,555,189 | ) | (1,626,714 | ) | (2,005,420 | ) | |||||||
Administrative expenses | 10 | (779,755 | ) | (673,370 | ) | (645,196 | ) | |||||||
Net impairment losses on financial and contract assets | 10 | (338,857 | ) | (346,390 | ) | — | ||||||||
Other expenses | 6 | (487,295 | ) | (381,582 | ) | (773,329 | ) | |||||||
|
|
|
|
|
| |||||||||
Operating profit | 5,033,264 | 4,359,861 | 2,932,383 | |||||||||||
|
|
|
|
|
| |||||||||
Finance income | 8 | 297,450 | 1,677,114 | 597,246 | ||||||||||
Finance costs | 8 | (2,025,118 | ) | (3,364,072 | ) | (920,112 | ) | |||||||
|
|
|
|
|
| |||||||||
Net finance costs | (1,727,668 | ) | (1,686,958 | ) | (322,866 | ) | ||||||||
|
|
|
|
|
| |||||||||
Share of loss of equity accounted investees | (15,712 | ) | (87 | ) | — | |||||||||
|
|
|
|
|
| |||||||||
Profit before income tax | 3,289,884 | 2,672,816 | 2,609,517 | |||||||||||
|
|
|
|
|
| |||||||||
Income tax expense | 9 | (785,630 | ) | (495,481 | ) | (571,758 | ) | |||||||
|
|
|
|
|
| |||||||||
Profit from continuing operations | 2,504,254 | 2,177,335 | 2,037,759 | |||||||||||
|
|
|
|
|
| |||||||||
Gain from discontinued operations (attributable to owners of the Company) | 772,436 | — | — | |||||||||||
|
|
|
|
|
| |||||||||
Profit for the year | 3,276,690 | 2,177,335 | 2,037,759 | |||||||||||
|
|
|
|
|
| |||||||||
Profit for the year is attributable to: | ||||||||||||||
Owners of the Company | 3,246,487 | 2,021,065 | 1,979,129 | |||||||||||
Non-controlling interests | 30,203 | 156,270 | 58,630 | |||||||||||
|
|
|
|
|
| |||||||||
Total | 3,276,690 | 2,177,335 | 2,037,759 | |||||||||||
|
|
|
|
|
| |||||||||
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL) | 27 | 1.49 | 0.93 | 0.90 | ||||||||||
Basic and diluted earnings per share for profit from continuing operations attributable to owners of the Company (in full TL) | 27 | 1.14 | 0.93 | 0.90 | ||||||||||
Basic and diluted earnings per share for profit from discontinued operations attributable to owners of the Company (in full TL) | 27 | 0.35 | — | — |
The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
For the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
Note | 2019 | 2018 | 2017 | |||||||||||||
Profit for the year | 3,276,690 | 2,177,335 | 2,037,759 | |||||||||||||
Other comprehensive income/(expense): | ||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||
Remeasurements of employee termination benefits | 30 | (36,385 | ) | 12,699 | (3,738 | ) | ||||||||||
Income tax relating to remeasurements of employee termination benefits | 8,005 | (2,794 | ) | 748 | ||||||||||||
|
|
|
|
|
| |||||||||||
(28,380 | ) | 9,905 | (2,990 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||
Items that may be reclassified to profit or loss: | ||||||||||||||||
Exchange differences on translation of foreign operations | 431,810 | 424,817 | 27,959 | |||||||||||||
Exchange differences arising from discontinued operations | 104,986 | 425,371 | 72,190 | |||||||||||||
Fair value reserve | 4,451 | — | — | |||||||||||||
Cash flow hedges – effective portion of changes in fair value | 221,488 | 630,191 | — | |||||||||||||
Cash flow hedges – reclassified to profit or loss | 35 | (439,365 | ) | (611,035 | ) | — | ||||||||||
Cost of hedging reserve – changes in fair value | 97,373 | (390,267 | ) | — | ||||||||||||
Cost of hedging reserve – reclassified to profit or loss | (21,768 | ) | 42,665 | — | ||||||||||||
Loss on hedges of net investments in foreign operations | (55,389 | ) | — | — | ||||||||||||
Income tax relating to these items | 9 | (56,728 | ) | (154,409 | ) | (107,299 | ) | |||||||||
-Income tax relating to exchange differences | �� | (99,234 | ) | (226,667 | ) | (107,299 | ) | |||||||||
-Income tax relating to fair value reserve | (979 | ) | — | — | ||||||||||||
-Income tax relating to hedges of net investments | 12,186 | — | — | |||||||||||||
-Income tax relating to cost of hedging reserve | (16,634 | ) | 76,472 | — | ||||||||||||
-Income tax relating to cash flow hedges | 35 | 47,933 | (4,214 | ) | — | |||||||||||
|
|
|
|
|
| |||||||||||
286,858 | 367,333 | (7,150 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||
Other comprehensive income/(loss) for the year, net of income tax | 258,478 | 377,238 | (10,140 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income for the year | 3,535,168 | 2,554,573 | 2,027,619 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income for the year is attributable to: | ||||||||||||||||
Owners of the Company | 3,505,496 | 2,398,930 | 1,968,102 | |||||||||||||
Non-controlling interests | 29,672 | 155,643 | 59,517 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total | 3,535,168 | 2,554,573 | 2,027,619 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total comprehensive income for the year attributable to owners of the Company arises from: | ||||||||||||||||
Continuing operations | 2,628,074 | 1,957,396 | 1,903,109 | |||||||||||||
Discontinued operations | 877,422 | 441,534 | 64,993 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total | 3,505,496 | 2,398,930 | 1,968,102 | |||||||||||||
|
|
|
|
|
|
| Note | 2020 | 2019 | 2018 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Profit for the year | 4,239,620 | 3,276,690 | 2,177,335 | ||||||||||
Other comprehensive income/(expense): | |||||||||||||
Items that will not be reclassified to profit or loss: | |||||||||||||
Remeasurements of employee termination benefits | 30 | (37,230 | ) | (36,385 | ) | 12,699 | |||||||
Income tax relating to remeasurements of employee termination benefits | 6,085 | 8,005 | (2,794 | ) | |||||||||
| | | | | | | | | | | | | |
(31,145 | ) | (28,380 | ) | 9,905 | |||||||||
| | | | | | | | | | | | | |
Items that may be reclassified to profit or loss: | |||||||||||||
Exchange differences on translation of foreign operations | 29,352 | 431,810 | 424,817 | ||||||||||
Exchange differences arising from discontinued operations | — | 104,986 | 425,371 | ||||||||||
Fair value reserve | (1,970 | ) | 4,451 | — | |||||||||
Cash flow hedges—effective portion of changes in fair value | 1,523,123 | 221,488 | 630,191 | ||||||||||
Cash flow hedges—reclassified to profit or loss | 35 | (1,513,209 | ) | (439,365 | ) | (611,035 | ) | ||||||
Cost of hedging reserve—changes in fair value | (589,856 | ) | 97,373 | (390,267 | ) | ||||||||
Cost of hedging reserve—reclassified to profit or loss | 102,212 | (21,768 | ) | 42,665 | |||||||||
Loss on hedges of net investments in foreign operations | (368,959 | ) | (55,389 | ) | — | ||||||||
Income tax relating to these items | 9 | 167,028 | (56,728 | ) | (154,409 | ) | |||||||
—Income tax relating to exchange differences | 7,729 | (99,234 | ) | (226,667 | ) | ||||||||
—Income tax relating to fair value reserve | 483 | (979 | ) | — | |||||||||
—Income tax relating to hedges of net investments | 72,684 | 12,186 | — | ||||||||||
—Income tax relating to cost of hedging reserve | 92,089 | (16,634 | ) | 76,472 | |||||||||
—Income tax relating to cash flow hedges | 35 | (5,957 | ) | 47,933 | (4,214 | ) | |||||||
| | | | | | | | | | | | | |
(652,279 | ) | 286,858 | 367,333 | ||||||||||
| | | | | | | | | | | | | |
Other comprehensive income/(loss) for the year, net of income tax | (683,424 | ) | 258,478 | 377,238 | |||||||||
| | | | | | | | | | | | | |
Total comprehensive income for the year | 3,556,196 | 3,535,168 | 2,554,573 | ||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total comprehensive income for the year is attributable to: | |||||||||||||
Owners of the Company | 3,553,662 | 3,505,496 | 2,398,930 | ||||||||||
Non-controlling interests | 2,534 | 29,672 | 155,643 | ||||||||||
| | | | | | | | | | | | | |
Total | 3,556,196 | 3,535,168 | 2,554,573 | ||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total comprehensive income for the year attributable to owners of the Company arises from: | |||||||||||||
Continuing operations | 3,553,662 | 2,628,074 | 1,957,396 | ||||||||||
Discontinued operations | — | 877,422 | 441,534 | ||||||||||
| | | | | | | | | | | | | |
Total | 3,553,662 | 3,505,496 | 2,398,930 | ||||||||||
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The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
Share capital | Treasury shares | Additional paid-in capital | Share premium | Legal Reserve (*) | Fair value Reserve (*) | Net investment Hedge (*) | Hedging reserve (*) | Cost of hedging reserve (*) | Reserve for non-controlling interest put option (*) | Remeasurements of employee termination benefit | Foreign currency translation reserve (*) | Retained earnings | Total | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 1 January 2017 | 2,200,000 | (65,607 | ) | 35,026 | 269 | 1,195,204 | — | — | — | — | (494,197 | ) | (41,786 | ) | 401,889 | 12,780,967 | 16,011,765 | 56,632 | 16,068,397 | |||||||||||||||||||||||||||||||||||||||||||||
Profit for the period | — | — | — | — | — | — | — | — | — | — | — | — | 1,979,129 | 1,979,129 | 58,630 | 2,037,759 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | — | — | — | — | (45,848 | ) | (2,990 | ) | 37,811 | — | (11,027 | ) | 887 | (10,140 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Total comprehensive income/(loss) | — | — | — | — | — | — | — | — | — | (45,848 | ) | (2,990 | ) | 37,811 | 1,979,129 | 1,968,102 | 59,517 | 2,027,619 | ||||||||||||||||||||||||||||||||||||||||||||||
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Transfer to legal reserve | — | — | — | — | 447,820 | — | — | — | — | — | — | — | (447,820 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid | — | 9,294 | — | — | — | — | — | — | — | — | — | — | (3,000,000 | ) | (2,990,706 | ) | (60,222 | ) | (3,050,928 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Balance at 31 December 2017 | 2,200,000 | (56,313 | ) | 35,026 | 269 | 1,643,024 | — | — | — | — | (540,045 | ) | (44,776 | ) | 439,700 | 11,312,276 | 14,989,161 | 55,927 | 15,045,088 | |||||||||||||||||||||||||||||||||||||||||||||
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Balance at 1 January 2018 | 2,200,000 | (56,313 | ) | 35,026 | 269 | 1,643,024 | — | — | — | — | (540,045 | ) | (44,776 | ) | 439,700 | 11,312,276 | 14,989,161 | 55,927 | 15,045,088 | |||||||||||||||||||||||||||||||||||||||||||||
Changes in accounting policy | — | — | — | — | — | — | — | — | — | — | — | — | 518,874 | 518,874 | — | 518,874 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Restated total equity at 1 January 2018 | 2,200,000 | (56,313 | ) | 35,026 | 269 | 1,643,024 | — | — | — | — | (540,045 | ) | (44,776 | ) | 439,700 | 11,831,150 | 15,508,035 | 55,927 | 15,563,962 | |||||||||||||||||||||||||||||||||||||||||||||
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Profit for the period | — | — | — | — | — | — | — | — | — | — | — | — | 2,021,065 | 2,021,065 | 156,270 | 2,177,335 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | — | — | 14,942 | (271,130 | ) | (270,147 | ) | 9,905 | 894,295 | — | 377,865 | (627 | ) | 377,238 | |||||||||||||||||||||||||||||||||||||||||||||
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Total comprehensive income | — | — | — | — | — | — | — | 14,942 | (271,130 | ) | (270,147 | ) | 9,905 | 894,295 | 2,021,065 | 2,398,930 | 155,643 | 2,554,573 | ||||||||||||||||||||||||||||||||||||||||||||||
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Transfer to legal reserves | — | — | — | — | 592,898 | — | — | — | — | — | — | — | (592,898 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury shares (-) | — | (94,620 | ) | — | — | — | — | — | — | — | — | — | — | — | (94,620 | ) | — | (94,620 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Disposal of subsidiaries | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (20,982 | ) | (20,982 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid (Note 26) | — | 9,399 | — | — | — | — | — | — | — | — | — | — | (1,900,000 | ) | (1,890,601 | ) | (58,778 | ) | (1,949,379 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Balance at 31 December 2018 | 2,200,000 | (141,534 | ) | 35,026 | 269 | 2,235,922 | — | — | 14,942 | (271,130 | ) | (810,192 | ) | (34,871 | ) | 1,333,995 | 11,359,317 | 15,921,744 | 131,810 | 16,053,554 | ||||||||||||||||||||||||||||||||||||||||||||
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TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2019
(All amounts disclosed
| Share capital | Treasury shares | Additional paid-in capital | Share premium | Legal Reserve(*) | Fair value Reserve(*) | Net investment Hedge(*) | Hedging reserve(*) | Cost of hedging reserve(*) | Reserve for non-controlling interest put option(*) | Remeasurements of employee termination benefit | Foreign currency translation reserve(*) | Retained earnings | Total | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at 1 January 2018 | 2,200,000 | (56,313 | ) | 35,026 | 269 | 1,643,024 | — | — | — | — | (540,045 | ) | (44,776 | ) | 439,700 | 11,312,276 | 14,989,161 | 55,927 | 15,045,088 | ||||||||||||||||||||||||||||||
Changes in accounting policy | — | — | — | — | — | — | — | — | — | — | — | — | 518,874 | 518,874 | — | 518,874 | |||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Restated total equity at 1 January 2018 | 2,200,000 | (56,313 | ) | 35,026 | 269 | 1,643,024 | — | — | — | — | (540,045 | ) | (44,776 | ) | 439,700 | 11,831,150 | 15,508,035 | 55,927 | 15,563,962 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Profit for the period | — | — | — | — | — | — | — | — | — | — | — | — | 2,021,065 | 2,021,065 | 156,270 | 2,177,335 | |||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | — | — | 14,942 | (271,130 | ) | (270,147 | ) | 9,905 | 894,295 | — | 377,865 | (627 | ) | 377,238 | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | — | — | — | — | — | — | — | 14,942 | (271,130 | ) | (270,147 | ) | 9,905 | 894,295 | 2,021,065 | 2,398,930 | 155,643 | 2,554,573 | |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Transfer to legal reserves | — | — | — | — | 592,898 | — | — | — | — | — | — | — | (592,898 | ) | — | — | — | ||||||||||||||||||||||||||||||||
Acquisition of treasury shares (-) | — | (94,620 | ) | — | — | — | — | — | — | — | — | — | — | — | (94,620 | ) | — | (94,620 | ) | ||||||||||||||||||||||||||||||
Disposal of subsidiaries | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (20,982 | ) | (20,982 | ) | |||||||||||||||||||||||||||||||
Dividends paid (Note 26) | — | 9,399 | — | — | — | — | — | — | — | — | — | — | (1,900,000 | ) | (1,890,601 | ) | (58,778 | ) | (1,949,379 | ) | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at 31 December 2018 | 2,200,000 | (141,534 | ) | 35,026 | 269 | 2,235,922 | — | — | 14,942 | (271,130 | ) | (810,192 | ) | (34,871 | ) | 1,333,995 | 11,359,317 | 15,921,744 | 131,810 | 16,053,554 | |||||||||||||||||||||||||||||
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Balance at 1 January 2019 | 2,200,000 | (141,534 | ) | 35,026 | 269 | 2,235,922 | — | — | 14,942 | (271,130 | ) | (810,192 | ) | (34,871 | ) | 1,333,995 | 11,359,317 | 15,921,744 | 131,810 | 16,053,554 | |||||||||||||||||||||||||||||
Profit for the period | — | — | — | — | — | — | — | — | — | — | — | — | 3,246,487 | 3,246,487 | 30,203 | 3,276,690 | |||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 3,472 | (43,203 | ) | (169,944 | ) | 58,971 | (66,675 | ) | (28,668 | ) | 505,056 | — | 259,009 | (531 | ) | 258,478 | ||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income/(loss) | — | — | — | — | — | 3,472 | (43,203 | ) | (169,944 | ) | 58,971 | (66,675 | ) | (28,668 | ) | 505,056 | 3,246,487 | 3,505,496 | 29,672 | 3,535,168 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of treasury shares (-) | — | (9,998 | ) | — | — | — | — | — | — | — | — | — | — | — | (9,998 | ) | — | (9,998 | ) | ||||||||||||||||||||||||||||||
Transfer to legal reserve | — | — | — | — | 537,183 | — | — | — | — | — | — | — | (537,183 | ) | — | — | — | ||||||||||||||||||||||||||||||||
Dividends paid (Note 26) | — | 7,380 | — | — | — | — | — | — | — | — | — | — | (1,010,000 | ) | (1,002,620 | ) | (125,027 | ) | (1,127,647 | ) | |||||||||||||||||||||||||||||
Sale of associate (Note 16) | — | — | — | — | — | — | — | — | — | 876,867 | — | (1,388,905 | ) | 143,905 | (368,133 | ) | — | (368,133 | ) | ||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at 31 December 2019 | 2,200,000 | (144,152 | ) | 35,026 | 269 | 2,773,105 | 3,472 | (43,203 | ) | (155,002 | ) | (212,159 | ) | — | (63,539 | ) | 450,146 | 13,202,526 | 18,046,489 | 36,455 | 18,082,944 | ||||||||||||||||||||||||||||
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Balance at 1 January 2020 | 2,200,000 | (144,152 | ) | 35,026 | 269 | 2,773,105 | 3,472 | (43,203 | ) | (155,002 | ) | (212,159 | ) | — | (63,539 | ) | 450,146 | 13,202,526 | 18,046,489 | 36,455 | 18,082,944 | ||||||||||||||||||||||||||||
Profit for the period | — | — | — | — | — | — | — | — | — | — | — | — | 4,237,086 | 4,237,086 | 2,534 | 4,239,620 | |||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | (1,487 | ) | (296,275 | ) | 3,957 | (395,555 | ) | — | (31,145 | ) | 37,081 | — | (683,424 | ) | — | (683,424 | ) | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income/(loss) | — | — | — | — | — | (1,487 | ) | (296,275 | ) | 3,957 | (395,555 | ) | — | (31,145 | ) | 37,081 | 4,237,086 | 3,553,662 | 2,534 | 3,556,196 | |||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of treasury shares (-) | — | (9,994 | ) | — | — | — | — | — | — | — | — | — | — | — | (9,994 | ) | — | (9,994 | ) | ||||||||||||||||||||||||||||||
Transfer to legal reserve | — | — | — | — | 235,920 | — | — | — | — | — | — | — | (235,920 | ) | — | — | — | ||||||||||||||||||||||||||||||||
Dividends paid (Note 26) | — | 6,232 | — | — | — | — | — | — | — | — | — | — | (811,622 | ) | (805,390 | ) | (32,856 | ) | (838,246 | ) | |||||||||||||||||||||||||||||
Sale of associate (Note 16) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (5,962 | ) | (5,962 | ) | |||||||||||||||||||||||||||||||
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Balance at 31 December 2020 | 2,200,000 | (147,914 | ) | 35,026 | 269 | 3,009,025 | 1,985 | (339,478 | ) | (151,045 | ) | (607,714 | ) | — | (94,684 | ) | 487,227 | 16,392,070 | 20,784,767 | 171 | 20,784,938 | ||||||||||||||||||||||||||||
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Share capital | Treasury shares | Additional paid-in capital | Share premium | Legal Reserve (*) | Fair value Reserve (*) | Net investment Hedge (*) | Hedging reserve (*) | Cost of hedging reserve (*) | Reserve for non-controlling interest put option (*) | Remeasurements of employee termination benefit | Foreign currency translation reserve (*) | Retained earnings | Total | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at 1 January 2019 | 2,200,000 | (141,534 | ) | 35,026 | 269 | 2,235,922 | — | — | 14,942 | (271,130 | ) | (810,192 | ) | (34,871 | ) | 1,333,995 | 11,359,317 | 15,921,744 | 131,810 | 16,053,554 | ||||||||||||||||||||||||||||||||||||||||||||
Profit for the period | — | — | — | — | — | — | — | — | — | — | — | — | 3,246,487 | 3,246,487 | 30,203 | 3,276,690 | ||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 3,472 | (43,203 | ) | (169,944 | ) | 58,971 | (66,675 | ) | (28,668 | ) | 505,056 | — | 259,009 | (531 | ) | 258,478 | |||||||||||||||||||||||||||||||||||||||||||
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Total comprehensive income/(loss) | — | — | — | — | — | 3,472 | (43,203 | ) | (169,944 | ) | 58,971 | (66,675 | ) | (28,668 | ) | 505,056 | 3,246,487 | 3,505,496 | 29,672 | 3,535,168 | ||||||||||||||||||||||||||||||||||||||||||||
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Acquisition of treasury shares (-) | — | (9,998 | ) | — | — | — | — | — | — | — | — | — | — | — | (9,998 | ) | — | (9,998 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Transfer to legal reserve | — | — | — | — | 537,183 | — | — | — | — | — | — | — | (537,183 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid (Note 26) | — | 7,380 | — | — | — | — | — | — | — | — | — | — | (1,010,000 | ) | (1,002,620 | ) | (125,027 | ) | (1,127,647 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Sale of associate (Note 16) | — | — | — | — | — | — | — | — | — | 876,867 | — | (1,388,905 | ) | 143,905 | (368,133 | ) | — | (368,133 | ) | |||||||||||||||||||||||||||||||||||||||||||||
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Balance at 31 December 2019 | 2,200,000 | (144,152 | ) | 35,026 | 269 | 2,773,105 | 3,472 | (43,203 | ) | (155,002 | ) | (212,159 | ) | — | (63,539 | ) | 450,146 | 13,202,526 | 18,046,489 | 36,455 | 18,082,944 | |||||||||||||||||||||||||||||||||||||||||||
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The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
| Note | 2020 | 2019 | 2018 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | |||||||||||||
Profit for the year from | |||||||||||||
Continuing operations | 4,239,620 | 2,504,254 | 2,177,335 | ||||||||||
Discontinued operations | — | 772,436 | — | ||||||||||
| | | | | | | | | | | | | |
Profit for the year including discontinued operations | 4,239,620 | 3,276,690 | 2,177,335 | ||||||||||
Adjustments for: |
| ||||||||||||
Depreciation and impairment of property, plant and equipment and investment properties | 11-14 | 2,426,263 | 2,199,830 | 1,894,445 | |||||||||
Amortization of intangible assets and right of use assets | 12-15 | 3,548,516 | 2,846,735 | 2,393,529 | |||||||||
Net finance expense | 901,530 | 1,442,773 | 983,881 | ||||||||||
Fair value adjustments to derivatives | (2,016,859 | ) | (570,204 | ) | (1,719,610 | ) | |||||||
Income tax expense | 9 | 387,193 | 785,630 | 495,481 | |||||||||
(Gain) on sale of property, plant and equipment | (23,950 | ) | (47,169 | ) | (43,727 | ) | |||||||
Unrealized foreign exchange losses on operating assets | 4,384,197 | 1,832,636 | 2,954,304 | ||||||||||
Provisions | 1,230,295 | 920,924 | 796,520 | ||||||||||
Share of equity accounted investees | 13,775 | 15,712 | 87 | ||||||||||
Loss/(gain) on sale of subsidiary | 1,387 | — | (110,308 | ) | |||||||||
Adjustments to (earnings) due to disposal of assets held for sale | — | (772,436 | ) | — | |||||||||
Non-cash other adjustments | (13,840 | ) | (15,557 | ) | — | ||||||||
| | | | | | | | | | | | | |
15,078,127 | 11,915,564 | 9,821,937 | |||||||||||
Change in operating assets/liabilities |
| ||||||||||||
Change in trade receivables | 19 | (618,545 | ) | (881,333 | ) | 273,110 | |||||||
Change in due from related parties | 39 | (11,208 | ) | 10,025 | (5,870 | ) | |||||||
Change in receivables from financial services | 20 | 429,950 | 1,651,180 | (69,991 | ) | ||||||||
Change in inventories | 22 | (25,316 | ) | 2,035 | (76,883 | ) | |||||||
Change in other current assets | 23 | 547,475 | (299,790 | ) | 53,957 | ||||||||
Change in other non-current assets | 17 | (71,752 | ) | (38,112 | ) | 142,133 | |||||||
Change in due to related parties | 39 | 27,484 | (33,135 | ) | 40,072 | ||||||||
Change in trade and other payables | 34 | 614,418 | 92,427 | (501,980 | ) | ||||||||
Change in other non-current liabilities | 28 | 739 | (8,122 | ) | (242,384 | ) | |||||||
Change in employee benefit obligations | 30 | (20,850 | ) | (36,231 | ) | (32,764 | ) | ||||||
Change in short term contract asset | 21 | (38,636 | ) | (223,146 | ) | (711,928 | ) | ||||||
Change in long term contract asset | 21 | (117,823 | ) | (6,778 | ) | (3,513 | ) | ||||||
Change in deferred revenue | 82,254 | 45,402 | 54,391 | ||||||||||
Change in short term contract liability | 32 | 24,662 | 34,652 | 255,756 | |||||||||
Change in long term contract liability | 32 | 22,874 | 10,292 | 131,598 | |||||||||
Changes in other working capital | (543,289 | ) | (506,303 | ) | (981,764 | ) | |||||||
| | | | | | | | | | | | | |
Cash generated from operations | 15,380,564 | 11,728,627 | 8,145,877 | ||||||||||
Interest paid | (1,653,675 | ) | (2,090,718 | ) | (1,658,308 | ) | |||||||
Income tax paid | (634,094 | ) | (611,354 | ) | (657,715 | ) | |||||||
| | | | | | | | | | | | | |
Net cash inflow from operating activities | 13,092,795 | 9,026,555 | 5,829,854 | ||||||||||
| | | | | | | | | | | | | |
Note | 2019 | 2018 | 2017 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Profit for the year from | ||||||||||||||||
Continuing operations | 2,504,254 | 2,177,335 | 2,037,759 | |||||||||||||
Discontinued operations | 772,436 | — | — | |||||||||||||
|
|
|
|
|
| |||||||||||
Profit for the year including discontinued operations | 3,276,690 | 2,177,335 | 2,037,759 | |||||||||||||
Adjustments for: | ||||||||||||||||
Depreciation and impairment of property, plant and equipment and investment properties | 11-14 | 2,199,830 | 1,894,445 | 1,501,579 | ||||||||||||
Amortization of intangible assets | 12-15 | 2,846,735 | 2,393,529 | 1,095,401 | ||||||||||||
Net finance expense | 1,442,773 | 983,881 | 165,387 | |||||||||||||
Fair value adjustments to derivatives | (570,204 | ) | (1,719,610 | ) | (562,562 | ) | ||||||||||
Income tax expense | 9 | 785,630 | 495,481 | 571,758 | ||||||||||||
(Gain) on sale of property, plant and equipment | (47,169 | ) | (43,727 | ) | (33,837 | ) | ||||||||||
Unrealized foreign exchange losses on operating assets | 1,832,636 | 2,954,304 | 966,340 | |||||||||||||
Provisions | 920,924 | 796,520 | 980,040 | |||||||||||||
Share of equity accounted investees | 15,712 | 87 | — | |||||||||||||
Adjustments to (earnings) due to disposal of assets held for sale | (772,436 | ) | — | — | ||||||||||||
(Gain) on sale of subsidiary | — | (110,308 | ) | — | ||||||||||||
Non-cash other adjustments | (15,557 | ) | — | — | ||||||||||||
|
|
|
|
|
| |||||||||||
11,915,564 | 9,821,937 | 6,721,865 | ||||||||||||||
Change in operating assets/liabilities | ||||||||||||||||
Change in trade receivables | 19 | (881,333 | ) | 273,110 | 613,404 | |||||||||||
Change in due from related parties | 39 | 10,025 | (5,870 | ) | 1,107 | |||||||||||
Change in receivables from financial services | 20 | 1,651,180 | (69,991 | ) | (1,931,538 | ) | ||||||||||
Change in inventories | 22 | 2,035 | (76,883 | ) | 27,871 | |||||||||||
Change in other current assets | 23 | (299,790 | ) | 53,957 | (198,268 | ) | ||||||||||
Change in othernon-current assets | 17 | (38,112 | ) | 142,133 | 15,012 | |||||||||||
Change in due to related parties | 39 | (33,135 | ) | 40,072 | (4,099 | ) | ||||||||||
Change in trade and other payables | 34 | 92,427 | (501,980 | ) | (507,043 | ) | ||||||||||
Change in othernon-current liabilities | 28 | (8,122 | ) | (242,384 | ) | (82,018 | ) | |||||||||
Change in employee benefit obligations | 30 | (36,231 | ) | (32,764 | ) | (18,627 | ) | |||||||||
Change in short term contract asset | 21 | (223,146 | ) | (711,928 | ) | — | ||||||||||
Change in long term contract asset | 21 | (6,778 | ) | (3,513 | ) | — | ||||||||||
Change in deferred revenue | 45,402 | 54,391 | 131,486 | |||||||||||||
Change in short term contract liability | 32 | 34,652 | 255,756 | — | ||||||||||||
Change in long term contract liability | 32 | 10,292 | 131,598 | — | ||||||||||||
Changes in other working capital | (506,303 | ) | (981,764 | ) | (265,518 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Cash generated from operations | 11,728,627 | 8,145,877 | 4,503,634 | |||||||||||||
Interest paid | (2,090,718 | ) | (1,658,308 | ) | (909,881 | ) | ||||||||||
Income tax paid | (611,354 | ) | (657,715 | ) | (492,487 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net cash inflow from operating activities | 9,026,555 | 5,829,854 | 3,101,266 | |||||||||||||
|
|
|
|
|
| |||||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisition of property, plant and equipment | 11 | (3,195,069 | ) | (2,960,648 | ) | (2,937,195 | ) | |||||||||
Acquisition of intangible assets | 12 | (2,821,111 | ) | (2,264,912 | ) | (1,172,847 | ) | |||||||||
Proceeds from sale of property, plant and equipment | 81,192 | 103,864 | 58,740 | |||||||||||||
Proceeds from/(payments for) advances given for acquisition of property, plant and equipment | 156,936 | (204,817 | ) | 205,580 | ||||||||||||
Contribution of increase of share capital in joint ventures/associates | (38,000 | ) | (19,500 | ) | — | |||||||||||
Proceeds from sale of subsidiary | 2,219,644 | 118,528 | — | |||||||||||||
Payments for held to maturity investment | — | — | (11,992 | ) | ||||||||||||
Cash inflows from financial asset at fair value through other comprehensive income | 84,655 | — | — | |||||||||||||
Cash outflows from financial asset at fair value through other comprehensive income | (369,591 | ) | (39,877 | ) | — | |||||||||||
Interest received | 854,018 | 731,793 | 553,066 | |||||||||||||
|
|
|
|
|
| |||||||||||
Net cash outflow from investing activities | (3,027,326 | ) | (4,535,569 | ) | (3,304,648 | ) | ||||||||||
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
| Note | 2020 | 2019 | 2018 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash flows from investing activities: |
| ||||||||||||
Acquisition of property, plant and equipment | 11 | (3,904,443 | ) | (3,195,069 | ) | (2,960,648 | ) | ||||||
Acquisition of intangible assets | 12 | (3,375,915 | ) | (2,821,111 | ) | (2,264,912 | ) | ||||||
Proceeds from sale of property, plant and equipment | 99,843 | 81,192 | 103,864 | ||||||||||
(Payments for)/proceeds from advances given for acquisition of property, plant and equipment | (501,339 | ) | 156,936 | (204,817 | ) | ||||||||
Contribution of increase of share capital in joint ventures/associates | (76,000 | ) | (38,000 | ) | (19,500 | ) | |||||||
Proceeds from sale of subsidiary | 1,229 | 2,219,644 | 118,528 | ||||||||||
Cash inflows from financial asset at fair value through other comprehensive income | 976,576 | 84,655 | — | ||||||||||
Cash outflows from financial asset at fair value through other comprehensive income | (972,188 | ) | (369,591 | ) | (39,877 | ) | |||||||
Payments for financial assets at amortized cost | (23,298 | ) | — | — | |||||||||
Interest received | 994,899 | 854,018 | 731,793 | ||||||||||
| | | | | | | | | | | | | |
Net cash outflow from investing activities | (6,780,636 | ) | (3,027,326 | ) | (4,535,569 | ) | |||||||
| | | | | | | | | | | | | |
Cash flows from financing activities: |
| ||||||||||||
Dividends received for treasury share | 6,232 | 7,380 | 9,399 | ||||||||||
Proceeds from derivative instruments | 2,085,585 | 1,924,363 | 1,054,345 | ||||||||||
Repayments of derivative instruments | (866,650 | ) | (1,101,876 | ) | (710,522 | ) | |||||||
Proceeds from issues of loans and borrowings | 22,983,201 | 29,060,490 | 44,341,070 | ||||||||||
Proceeds from issues of bonds | 494,987 | 311,649 | 2,188,313 | ||||||||||
Repayment of borrowings | (26,354,532 | ) | (31,297,901 | ) | (43,987,127 | ) | |||||||
Repayment of bonds | (455,878 | ) | (225,794 | ) | (191,312 | ) | |||||||
Dividends paid to shareholders | (811,622 | ) | (1,010,000 | ) | (1,900,000 | ) | |||||||
Dividends paid to non-controlling interest in subsidiaries | (32,856 | ) | (125,027 | ) | (58,778 | ) | |||||||
Acquisition of treasury shares | (9,994 | ) | (9,998 | ) | (94,620 | ) | |||||||
Payments of lease liabilities | (1,302,335 | ) | (1,215,320 | ) | (1,164,879 | ) | |||||||
Other cash (outflows)/inflows from financing activities | (3,951 | ) | 204,077 | (20,272 | ) | ||||||||
| | | | | | | | | | | | | |
Net cash outflow from financing activities | (4,267,813 | ) | (3,477,957 | ) | (534,383 | ) | |||||||
| | | | | | | | | | | | | |
Net increase in cash and cash equivalents | 2,044,346 | 2,521,272 | 759,902 | ||||||||||
Cash and cash equivalents at 1 January | 10,238,715 | 7,419,239 | 4,712,333 | ||||||||||
Effects of exchange rate changes on cash and cash equivalents | (422,506 | ) | 298,204 | 1,947,004 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents at 31 December | 24 | 11,860,555 | 10,238,715 | 7,419,239 | |||||||||
| | | | | | | | | | | | | |
| | | | | | ��� | | | | | | | |
| | | | | | | | | | | | | |
Note | 2019 | 2018 | 2017 | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Dividends received for treasury share | 7,380 | 9,399 | — | |||||||||||||
Proceeds from derivative instruments | 1,924,363 | 1,054,345 | — | |||||||||||||
Repayments of derivative instruments | (1,101,876 | ) | (710,522 | ) | — | |||||||||||
Proceeds from issues of loans and borrowings | 29,060,490 | 44,341,070 | 24,102,643 | |||||||||||||
Proceeds from issues of bonds | 311,649 | 2,188,313 | 209,808 | |||||||||||||
Repayment of borrowings | (31,297,901 | ) | (43,987,127 | ) | (22,265,088 | ) | ||||||||||
Repayment of bonds | (225,794 | ) | (191,312 | ) | (379,660 | ) | ||||||||||
Dividends paid to shareholders | (1,010,000 | ) | (1,900,000 | ) | (2,990,706 | ) | ||||||||||
Dividends paid tonon-controlling interest in subsidiaries | (125,027 | ) | (58,778 | ) | (60,222 | ) | ||||||||||
Acquisition of treasury shares | (9,998 | ) | (94,620 | ) | — | |||||||||||
(Increase)/decrease in cash collateral related to loans | 204,077 | (20,272 | ) | (183,518 | ) | |||||||||||
Payments of lease liabilities | (1,215,320 | ) | (1,164,879 | ) | — | |||||||||||
|
|
|
|
|
| |||||||||||
Net cash outflow from financing activities | (3,477,957 | ) | (534,383 | ) | (1,566,743 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Net increase/(decrease) in cash and cash equivalents | 2,521,272 | 759,902 | (1,770,125 | ) | ||||||||||||
Cash and cash equivalents at 1 January | 7,419,239 | 4,712,333 | 6,052,352 | |||||||||||||
Effects of exchange rate changes on cash and cash equivalents | 298,204 | 1,947,004 | 430,106 | |||||||||||||
|
|
|
|
|
| |||||||||||
Cash and cash equivalents at 31 December | 24 | 10,238,715 | 7,419,239 | 4,712,333 | ||||||||||||
|
|
|
|
|
|
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
Notes to the consolidated financial statements
Notes to the consolidated financial statements | Page | ||||||||
---|---|---|---|---|---|---|---|---|---|
Reporting entity | F-15 | ||||||||
Basis of preparation and summary of significant accounting policies | F-17 | ||||||||
| F-50 | ||||||||
Segment information | F-52 | ||||||||
Revenue | F-56 | ||||||||
6. | Other income and expenses | F-59 | |||||||
Employee benefit expenses | F-59 | ||||||||
Finance income and costs | F-60 | ||||||||
| F-60 | ||||||||
Expenses by nature | F-65 | ||||||||
11. | Property, plant and equipment | F-67 | |||||||
F-69 | |||||||||
Impairment of assets | F-72 | ||||||||
Investment property | F-72 | ||||||||
15. | Right of use assets | F-74 | |||||||
F-74 | |||||||||
Other non-current assets | F-75 | ||||||||
18. | Deferred tax assets and liabilities | F-76 | |||||||
Trade receivables and accrued revenue | F-77 | ||||||||
Receivables from financial services | F-78 | ||||||||
| F-78 | ||||||||
Inventory | F-79 | ||||||||
Other current assets | F-79 | ||||||||
24. | Cash and cash equivalents | F-79 | |||||||
| F-80 | ||||||||
F-81 | |||||||||
| F-83 | ||||||||
F-84 | |||||||||
Loans and borrowings | F-84 | ||||||||
Employee benefits | F-87 | ||||||||
31. | Deferred revenue | F-88 | |||||||
32. | Contract liabilities | F-88 | |||||||
33. | Provisions | F-89 | |||||||
34. | Trade and other payables | F-91 | |||||||
F-91 | |||||||||
Financial instruments | F-106 | ||||||||
37. | Guarantees and purchase obligations | F-115 | |||||||
| F-115 | ||||||||
| F-120 | ||||||||
Subsidiaries | F-124 | ||||||||
41. | Cash flow information | F-127 | |||||||
42. | Subsequent events | F-127 |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
1. Reporting entity
|
Turkcell Iletisim Hizmetleri Anonim Sirketi (the “Company”"Company" or "Turkcell") was incorporated in Turkey on5on 5 October 1993 and commenced its operations in 1994. The address of the Company’sCompany's registered office is Maltepe Aydinevler Mahallesi Inonu Caddesi No: 20, Kucukyali Ofispark/Istanbul. It is engaged in establishing and operating a Global System for Mobile Communications (“GSM”("GSM") network in Turkey and regional states.
In April 1998, the Company signed a license agreement (the “2G License”"2G License") with the Ministry of Transport and Infrastructure of Turkey (the “Turkish Ministry”"Turkish Ministry"), under which it was granted a 25-year GSM license in exchange for a license fee of USD 500,000. The License permits the Company to operate as a stand-alone GSM operator and releases it from some of the operating constraints in the Revenue Sharing Agreement, which was in effect prior to the 2G License. Under 2G license, the Company pays in cash the Undersecretariat of the Treasury (the “Turkish Treasury”"Turkish Treasury") a monthly tax levy, namely a ‘treasury share’'treasury share' equal to 15% of the Company’sCompany's gross revenue from Turkish GSM operations. The Company continues to build and operate its GSM network and is authorized to, among other things, set its own tariffs within certain limits, charge peak andoff-peak rates, offer a variety of service and pricing packages, issue invoices directly to subscribers, collect payments and deal directly with subscribers. Following the 3G tender held by the Information Technologies and Communications Authority (“ICTA”("ICTA") regarding the authorization for providingIMT-2000/UMTS services and infrastructure, the Company has been granted theA-Type license (the “3G License”"3G License") providing the widest frequency band, at a consideration of EUR 358,000 (excluding Value Added Tax (“VAT”("VAT")). Payment of the 3G license was made in cash, following the necessary approvals, on 30 April 2009.
On 26 August 2015, “Authorization"Authorization Tender on IMT Services and Infrastructure”Infrastructure" publicly known as 4.5G license"4.5G license" tender, was held by the ICTA and the Company was awarded with a total frequency band of172.4of 172.4 MHz for 13 years. The tender price is EUR 1,623,460 (excluding VAT of 18%). IMT authorization period expires on 30 April 2029 and operators were able to commence service delivery for 4.5G starting from1from 1 April 2016. 2x1.4 MHz frequency band in 900MHz spectrum and 2 units of 2x5 MHz frequency bands in 2100 MHz spectrum were commenced on 1 December 2015, while remaining packages were commenced on 1 April 2016. For details please refer to Note 12.
The Company is obliged to pay the ICTA a monthly treasury share equal to 90% of 15% of gross revenue and 10% is paid for a universal service fund. In addition, the Company pays annual contributions in an amount equal to 0.35% of net revenue to the ICTA’sICTA's expenses and 5% of net revenue to ICTA as a frequency fee (TRx).
On 21 October 2020, the following main amendments to the articles of association have been approved by the Ordinary General Assembly:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
1. Reporting entity (Continued)
from the Turkcell Holding A.S. (“("Turkcell Holding”Holding"), which holds 51% / TVF BTIH merger, have been re-classified as a separate class of Group A Shares (the "Group A Shares");
The completion of the transactions announced on 17 June 2020 between the Company's direct and indirect shareholders and certain of its related parties, Turkiye Varlik Fonu ("TVF"), through Turkiye Varlik Fonu Yonetimi A.S., TVF BTIH, T.C. Ziraat Bankasi A.S. ("Ziraat Bankasi") took place on 22 October 2020, at the completion date among other things, (i) Telia Finland Oy ("Telia"), the holder of 47.09% shares of Turkcell Holding (indirectly 24.02% in Turkcell) divested of all of its interest in Turkcell's shareholding structure by selling its shares to TVF BTIH; (ii) Cukurova Telecom Holdings Limited, the holder of 52.91% shares of Turkcell Holding according to public announcements (indirectly 26.98% in Turkcell) divested all of its interest in shareholding structure by selling its shares to TVF BTIH; (iii) following the merger of Turkcell Holding with TVF BTIH, IMTIS Holdings S.a r l. ("IMTIS Holdings") acquired 24.8% of the issued shares of Turkcell, from TVF BTIH.
As announced on 13 November 2020, IMTIS Holdings, the direct shareholder of the Company, holding 545,600,000 Group B ordinary and tradable shares corresponding to 24.8% of the issued shares, agreed to sell 110,000,000 of Turkcell shares corresponding to 5% of the issued shares to institutional investors. The transaction is completed on 12 November 2020. Following completion of the transactions, capital shares and voting rights of TVF BTIH and IMTIS Holdings in the Company have
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
1. Reporting entity (Continued)
become 26.2% and 19.8%, respectively. Proportion of the Company's shares that are traded in domestic and foreign stock exchanges increased from 48.95% to 53.95% (Note 26).
The Group's immediate and ultimate parents are TVF BTIH and TVF as of 31 December 2019. The main shareholders of Turkcell Holding are Telia Finland Oy (“Telia”), Cukurova Group2020, respectively. TVF has been established with the Law No. 6741 and Alfa Telecom Turkey Limited (“Alfa”) according topublished in the information obtained from public sources.Official Gazette dated 26 August 2016.
In order to ensure compliance with corporate governance principles of the Capital Markets Board (“CMB”("CMB"), three independent board members were appointed in 2013. Additionally, two board members were appointed at the General Assembly dated 29 April 2013 as per the resolution of CMB. Also in 2013, two members were chosen from the independent nominees list submitted by Telia to CMB. On 29 March 2018, in accordance with the shareholder proposal at the Ordinary General Assembly, three new members were elected to serve for 3three years instead of three members who are not among independent members appointed by the CMB. Two new board members were appointed on 7 and 8 March 2019 in lieu of board members who had resigned at various dates in 2019. These two board members were reappointed for 3three years in the Ordinary General Assembly Meeting which was held on 12 September 2019. One of the board members resigned on 27 November 2019, and on 13 December 2019 a new board member was appointed for the vacant seat. Three new independent board members were appointed in lieu of existing three independent board members in board of directors with the CMB decision dated 5 March 2020.
On 21 October 2020, amendment on articles of association regarding increasing number of board of directors from seven to nine was approved at the Ordinary General Assembly Meeting. On 22 October 2020, two board members resigned. The Company’s BoardCompany's board of Directorsdirectors consists of a total of sevenfive non-executive members including three independent members as of 31 December 2019.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)2020.
|
The consolidated financial statements of the Company as at and for the year ended 31 December 20192020 comprise the Company and its subsidiaries (together referred to as the “Group”"Group") and the Group’sGroup's interest in associates and a joint venture. Subsidiaries of the Company, their locations and their nature of operations are disclosed in Note 40. The Company’sCompany's and each of its subsidiaries’subsidiaries' and associate’sassociate's financial statements are prepared as at and for the year ended 31 December 2019.2020.
2. Basis of preparation and summary of significant accounting policies
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This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes below. These policies have been consistently applied to all the years presented, unless otherwise stated. The consolidated financial statements are for the Group consisting of the Company and its subsidiaries and the Group’sGroup's interest in associatesan associate and a joint venture.
(a) Compliance with IFRS
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The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”("IFRS") and interpretations issued by the IFRS
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
Interpretations Committee (“("IFRS IC”IC") applicable to companies reporting under IFRS. The financial statements comply with IFRS as issued by the International Accounting Standards Board (“IASB”("IASB").
The accounting policies, presentation and methods of computation are consistent with those of the previous financial year and corresponding reporting period, unless otherwise stated.
The Group adopted IFRS 9, “Financial Instruments”"Financial Instruments" and IFRS 15, “Revenue"Revenue from Contracts with Customers”Customers" for the first time for the year commencing 1 January 2018. The Group also elected to early adopt IFRS 16, “Leases”"Leases" for the first time for the year commencing 1 January 2018.
The General Assembly has the power to amend and reissue the financial statements. The consolidated financial statements as at and for the year ended 31 December 20182019 were authorized for issue by the Board of Directors on 20 February 2019.2020.
The consolidated financial statements as at and for the year ended 31 December 20192020 were authorized for issue by the Board of Directors on 2019 February 20202021 and updated to reflect subsequent events after the original date of authorization for inclusion in its annual report on Form 20-F.
20-F.(b) Historical cost convention
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The accompanying consolidated financial statements are based on the statutory records, with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS as issued by the IASB. The financial statements have been prepared on a historical cost basis, except for the following measured at fair value:
(c) Functional and presentation currency
(i) Transactions and balances
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Transactions denominated in foreign currencies are translated into the functional currency using the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency using the exchange rates at that date.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences onnon-monetary assets and liabilities such as equitiesassets held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss and translation differences onnon-monetary assets such as equities classified as at fair value through other comprehensive income are recognized in other comprehensive income.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
Foreign exchange gains and losses are recognized in profit or loss, except:
Foreign exchange differences are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Foreign exchange gains and losses are presented in the statement of profit or loss on a net basis within finance income or finance costs.
(ii) Foreign operations
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The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
On consolidation, exchange differences arising from the translation of borrowings and other financial instruments designated as hedges of any net investment in foreign entities are recognized in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
(d) Use of estimates and judgments
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The preparation of the consolidated financial statements requires the use of accounting estimates. Management also needs to exercise judgment in applying the Group’sGroup's accounting policies. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Alterations to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
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Information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are described below:
Allowance for doubtful receivables
The Group maintains an allowance for doubtful receivables for estimated losses resulting from the inability of the Group’sGroup's subscribers and customers to make required payments. The Group bases the allowance on the likelihood of recoverability of trade receivables, receivables from financial services and other receivables; when there wasis objective evidence of impairment as a result of one or more events that occurred after the initial recognition of asset a loss event and that loss event hadevents have an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. The allowance is periodically reviewed. The allowance charged to expenses is determined in respect of receivable balances, calculated as a specified percentage of the outstanding balance in each aging group, with the percentage of the allowance increasing as the aging of the receivable progresses.
Capitalization and useful lives of assets
The useful lives and residual values of the Group’sGroup's assets are estimated by management at the time the asset is acquired and regularly reviewed for appropriateness. The Group defines useful lifelives of its assets in terms of the assets’assets' expected utility to the Group. This judgment is based on the experience of the Group with similar assets. In determining the useful life of an asset, the Group also follows technical and/or commercial obsolescence arising on changes or improvements from a change in the market. The useful lives of the telecommunication licenses are based on the duration of the license agreements.
Gross versus net presentation of revenue
When the Group acts as principal in sale of goods or rendering of services, revenue from customers and costs with suppliers are reported on a gross basis. When the Group acts as agent in sale of goods or rendering of services, revenue from customers and costs related to suppliers are reported on a net basis, representing the net margin earned. Whether the Group is acting as principal or agent depends on management’smanagement's analysis of both legal form and substance of the agreement between the Group and its business partners; such judgments impact the amount of reported revenue and costs but do not impact reported assets, liabilities or cash flows.
Contracted handset sales
The Company, the distributors and dealers offer joint campaigns to the subscribers which may include the sale of device by the dealer and/or distributor and a communication service to be provided by the Company. The Company does not recognize any revenue for the device in these transactions by considering the factors below:
The
The Company does not have control over the sale pricesTable of handsets,
The Company has no inventory risk,
The Company has no responsibility on technical compatibility of equipment delivered to customers
The responsibility after sale belongs to the distributor and
The Company does not make any modification on the equipment.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
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Multiple performance obligations and price allocation
In arrangements which include multiple performance obligationselements where the Group acts as principal, the Group considers that these bundled elements involve consideration in the form of a fixed fee or a fixed fee coupled with a continuing payment stream. A good or service is distinct if both of the following criteria are met:
The arrangement consideration is allocated to each performance obligation identified in the contract based on a relative stand-alone selling prices. If an element of a transaction is not distinct, then it is accounted for as an integral part of the remaining elements of the transaction.
Income taxes
The calculation of income taxes involves a degree of estimation and judgment in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through formal legal process.
As part of the process of preparing the consolidated financial statements, the Group is required to estimate the income taxes in each of the jurisdictions and countries in which it operates. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue and reserves for tax and accounting purposes.
The recognition of deferred tax assets is based upon whether it is probable that future taxable incomeprofits will be available against which theunrecognized tax losses and temporary differences can be utilized to the extent the recovery from future taxable income is not considered probable the deferred asset is adjusted accordingly.utilized. Recognition, therefore, involves judgment regarding the future financial performance of the particular legal entity in which the deferred tax asset has been recognized.
Provisions, contingent liabilities and contingent assets
As detailed and disclosed in Note 38, the Group is involved in a number of investigations and legal proceedings (both as a plaintiff and as a defendant) during the year arising in the ordinary course of business. All of these investigations and litigations are evaluated by the Group Management in accordance withIAS 37“Provisions, Contingent Liabilities and Contingent Assets”and disclosed (unless information concerning provisions are very sensitive, and full disclosure could prejudice the outcome of cases) or accounted for in the consolidated financial statements. Future results or outcome of these investigations and litigations might differ from these Group Management’sManagement's expectations. As at the reporting date, the Group Management believes that appropriate recognition criteria and measurement basis are applied to provisions, contingent liabilities and contingent assets and that sufficient
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
information is disclosed in the notes to enable users to understand their nature, timing and amount by considering current conditions and circumstances.
The Group recognizes liabilities in the consolidated financial statements for the resolution of pending litigation when management determines that a loss is probable and the amount of the loss can be reasonably estimated. No liability for an estimated loss is accrued in the consolidated financial statements for unfavorable outcomes when, after assessing the information available, (i) management concludes that it is not probable that a loss has been incurred in any of the pending litigation; or (ii) management is unable to estimate the loss or range of loss for any of the pending matters. The Group also discloses the contingency in circumstances where management concludes no loss is probable or reasonably estimable but it is reasonably possible that a loss may be incurred.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Annual impairment review
The Company tests annually whether goodwill and intangible asset not yet availableGroup's non-current are tested for use have suffered any impairment whenever events or changes in accordance with IAS 36“Impairment of Assets”. Additionally,circumstances indicate that the carrying amounts of Company’s nonfinancial assets are reviewed at each reporting date to determine whether thereamount may not be recoverable. An impairment loss is an indication of impairment. If any indication existsrecognized for the assetsamount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is estimated based onthe higher of an asset's fair value less costcosts of disposal calculations.and value in use.
Fair value measurements and valuation processesprocess
Some of the Company’sCompany's assets and liabilities are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or liability, the Company uses market-observable data to the extent it is available. Where Level 1 and 2 inputs are not available, the Company can engage third party qualified experts to perform the valuation, if necessary. The management works closely with the qualified external experts to establish the appropriate valuation techniques and inputs to the model. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities is disclosed in Note 36.
(e) Changes in accounting policies
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Other than the adoption of the new and revised standards as explained in Note 2(ab)2(z), the Group did not make any significant changes to its accounting policies during the current year.
As at 31 December 2019, interest income and expense on financial assets measured at amortized cost are shown netted of on consolidated statement of profit or loss (Note 8). The Company has presented financials of 31 December 2018 and 2017 accordingly which amount is TL 255,019 and TL 221,190.
As at 31 December 2018 revenue and cost of revenue from Turkcell Odeme Hizmetleri A.S. (“Turkcell Odeme”) has been classified under financial services which amounted to TL 177,203 (2017: TL 109,337) and TL (34,253) (2017: TL (15,119)) respectively, and trade receivables from Turkcell Odeme has been classified under receivables from financial services which amounted to TL 32,012 (Note 19). This classification has no impact on operating profit, profit for the year and cash flow statement.(f) Changes in accounting estimates
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If the application of changes in the accounting estimates affects the financial results of a specific period, the changes in the accounting estimates are applied in that specific period, if they affect the financial results of current and following periods; the accounting estimate is applied prospectively in the period in which such change is made. A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate.
The Company does not have significant changes in accounting estimates during the year.
(g) Comparative information and revision of prior period financial statements
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The consolidated financial statements of the Group have been prepared consistent with prior periods.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(h) Principles of consolidation and equity accounting
(i) Business combinations
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Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination comprises:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.
Goodwill is measured as the excess of the consideration transferred, amount of anynon-controlling interest in the acquired entity, and acquisition-date fair value of any previously held equity interest in the acquired entity over the fair value of the net identifiable assets acquired. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in profit or loss as a bargain purchase. The Group recognizes anynon-controlling interest in the acquired entity on anacquisition-by-acquisition basis either at fair value or at thenon-controlling interest’s interest's proportionate share of the acquired entity’sentity's net identifiable assets.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’sentity's incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss. Contingent consideration classified as equity is not subject to remeasurement. Instead, any gain or loss at settlement is recorded as an adjustment to equity through other comprehensive income.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’sacquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognized in profit or loss.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(ii) Subsidiaries
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Subsidiaries comprise all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of financial position, respectively.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Non-controlling interest has not been attributed to Belarus Telekom on the grounds that net assets of Belarus Telekom is negative, Belarus Telekom is financed solely by the Company and management’smanagement's assessment of relevant articles of the share purchase agreement with thenon-controlling shareholder.
Turkcell Finansman A.Ş. (“Turkcell Finansman”) The Group sold six financial loans amounting to TL 87,589 on14 April439,364 between 2017 and 2019 to Aktif Yatırım Bankası A.Ş.Yatirim Bankasi A.S. Turkcell Varlık FinansmanıVarlik Finansmani Fund (the “Fund”"Fund") founded by Aktif Yatırım Bankası A.Ş.Yatirim Bankasi A.S. in order to create funds for the issuance of Asset Backed Securities (“ABS”("ABS") which will bewere issued by the Fund in a structure where Turkcell Finansman will actA.S. ("Turkcell Finansman") acted as the source organization. Turkcell Finansman similarly sold second financial loans amounting to TL 89,607 on 22 August 2017, third financial loans amounting to TL 90,272 on 16 February 2018, fourth financial loans amounting to TL 56,716 on 20 December 2018, fifth financial loans amounting to TL 45,983 on 24 July 2019,These aforementioned funds are all expired and sixth financial loans amounting to TL 69,183 on 30 December 2019. The first four-ABS programs where Turkcell Finansman acted as the source organization, were completedthere are no issued ABS as of 31 December 2019.2020. Turkcell Finansman transferred its contractual rights to receive cash flows from the financial loans that have been sold to the Fund resulting inde-recognition of the related assets from its financial statements. Moreover, the CompanyGroup did not consolidate the Fund since the activities of the Fund are not controlled by the CompanyGroup and the Fund has been defined as a structured entity.
(iii) Changes in ownership interests
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The Group treats transactions withnon-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling andnon-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to thenon-controlling and any consideration paid or received is recognized in a separate reserve within equity attributable to owners of the Company.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognized in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate.
(iv) Business combinations under common control
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Business combinations between entities or businesses under common control are excluded from the scope of IFRS 3. In a business combination under common control, assets and liabilities of the acquired entity are stated at predecessor carrying values. Any difference between the consideration given and the aggregate book value of the assets and liabilities of the acquired entity at the date of the transaction is recognized in equity. The acquired entity’sentity's results and financial position are incorporated as if both entities (acquirer and acquiree) had always been combined, or using the results from the date when either entity joined the Group, where such a date is later.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off(v) Put option over shares relating to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)non-controlling interests
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Where a put option is written by the Group on shares in an existing subsidiary held bynon-controlling interests, the Group recognizes a financial liability at the present value of the redemption amount to reflect the put option. If the ownership risks and rewards of the shares relating to the put option is attributable to Group, thenon-controlling interest is derecognized. The difference between the put option liability and thenon-controlling interests derecognized is recognized in equity. For business combinations after 1 January 2009, subsequent changes in the fair value of the put option liability are recognized in profit or loss.
Reserve for put option over shares relating tonon-controlling interests included in equity arises from the difference between the fair value of the put option written by Fintur Holdings B.V. (“Fintur”("Fintur") onnon-controlling shares in one of its subsidiaries and the derecognizednon-controlling interests relating to that put option.
(vi) Investments in associates and joint ventures
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An associate is an entity over which the Group has significant influence, but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting after initially being recognized at cost.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of accounting.
Under the equity method of accounting, an investment in an associate is initially recognized at cost and adjusted thereafter to recognize the Group’sGroup's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’sGroup's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates are recognized as a reduction in the carrying amount of the investment.
When the Group’sGroup's share of losses in an equity-accounted investment equals or exceeds its interest in that entity, including any other unsecured long-term receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the other entity.
Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’sGroup's interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.
On acquisition of an associate, any excess of the cost of the investment over the Group’sGroup's share of the net fair values of the associate’sassociate's identifiable assets and liabilities is recognized as goodwill, which is included in the carrying amount of the investment. Any excess of the Group’sGroup's share of the net fair value of the associate’sassociate's identifiable assets and liabilities over the cost of the investment is included as part of the Group’sGroup's share of the associate profit or loss in the period in which the investment is acquired.
The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in (Note 16).impairment. The Group measures an associate that is classified as held for sale at the lower of its carrying amount at the date of classification as held for sale and fair value less costs of disposal. Equity accounting ceases once an associate is classified as held for sale.
(i) Financial instruments
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)Classification
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Classification
From 1 January 2018, the Group classifies its financial assets in the following measurement categories:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
The classification depends on the Group’sGroup's business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).
The Group reclassifies debt investments when and only when its business model for managing those assets changes.
Recognition and derecognition
Regular way purchases and sales of financial assets are recognized on trade date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.
(i) Debt instruments
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Subsequent measurement of debt instruments depends on the Group’sGroup's business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
gain or loss previously recognized in OCI is reclassified from equity to profit or loss. Interest income from these financial assets is included in finance income using the effective interest rate method.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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(ii) Equity instruments
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The Group subsequently measures all equity investments at fair value. Where the Group’sGroup's management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognized in profit or loss as other income when the Group’sGroup's right to receive payments is established.
Changes in the fair value of financial assets at FVPL are recognized in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value.
Impairment
From 1 January 2018, the Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
Loss allowances are measured on either of the following bases.
The Group applies lifetime ECL measurement for all group companies except Turkcell Finansman which applies both 12 month and lifetime ECL (general approach).
Offsetting financial assets and financial liabilities
Financial assets and liabilities are offset and the net amount presented in the statement of financial position where the Group has a legally enforceable right to offset the recognized amounts, and there is an intention to settle on a net basis or to realize the asset and settle the liability simultaneously. This policy had also been applied before 1 January 2018.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Trade receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. If collection of the amounts is expected in one year or less they are classified as current assets. If not, they are presented asnon-current assets.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Trade receivables (continued)
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. See Note 36 for a description of the Group’sGroup's impairment policies.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period. They are recognized initially at their fair value and subsequently measured at amortized cost using the effective interest method.
BorrowingsRelated parties
A related party is a person or entity that is related to the Group.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
Borrowings
Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates.
Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including anynon-cash assets transferred or liabilities assumed, is recognized in profit or loss.
Derivatives and hedging activities
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period.
Forward Fair values of foreign exchange forwards, interest rate and foreign exchange swaps (IRS, Cross Currency Swaps etc.) and option transaction fair valuesoptions are calculated with market levels of interest rates and Central Bank of Republic of Turkey (CBRT)("CBRT") exchange rates via Bloomberg financial terminal. If market levels are not available for valuation date, fair value for forward contracts will be the value of the discounted future value of the difference between contract price level and forward value of CBRT exchange rate with risk feefree rates for the period. Interest rate and currency swaps will be valued with the difference of the discounted cash flows of each leg of the swaps using risk free rates and CBRT exchange rates. Option transactions will be valued with option pricing models using risk free rates and CBRT exchange rates.
The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of a particular risk associated with the cash flows of recognized assets and liabilities and highly probable forecast transactions (cash flow hedges).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
At inception of the hedge relationship, the Group documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Group documents its risk management objective and strategy for undertaking its hedge transactions.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and(i) Cash flow hedges that qualify for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)hedge accounting
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The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the cash flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss.
Gains or losses relating to the effective portion of the change in intrinsic value of the options are recognized in the cash flow hedge reserve within equity. The changes in the time value of the options that relate to the hedged item (“("aligned time value”value") are recognized within OCI in the costs of hedging reserve within equity.
Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss, as follows:
When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs, resulting in the recognition of anon-financial asset. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognized immediately in profit or loss.
The Group has started to apply hedge accounting as of 1 July 2018 for existing participating cross currency swap and cross currency swap transactions in accordance with IFRS 9 hedge accounting requirement. IFRS 9 includes new hedge accounting rules aiming alignment with risk management activities.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
The Group enters into participating cross currency swap and cross currency swap transactions in order to hedge the changes in cash flows of foreign exchange denominated fixed and floating rate financial instruments. While applying cash flow hedge accounting, the effective portion of the changes in the fair value of the hedging instrument is accounted for under “other"other comprehensive income/expense items to be reclassified to profit or loss”loss" as a “hedging reserve”"hedging reserve" in equity, and the ineffective portion is recognized in profit or loss. The changes recognized in equity is reclassified and included in profit or loss in the same period when the hedged cash flows effect the profit or loss. In addition, time value of options included in participating cross currency swaps are accounted for cost of hedging and recognized under other comprehensive income.
The new effectiveness test model may be qualitative depending on the complexity of hedging relationship provided that it is prospective only. The80-125% range in IAS 39 is replaced by an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship.
Under IFRS 9, a hedging relationship is discontinued in its entirety when as a whole it ceases to meet the qualifying criteria after considering the rebalancing of the hedging relationship. Voluntary discontinuation when the qualifying criteria are met is prohibited. Hedge accounting is discontinued when the risk management objective for the hedging relationship has changed, the hedging instrument expires or is sold,
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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terminated or exercised, there is no longer an economic relationship between the hedged item and hedging instrument or when the effect of credit risk starts dominating the value changes that result from the economic relationship.
When the Group discontinues hedge accounting for a cash flow hedge it shall account for the amount that has been accumulated in the cash flow hedge reserve in accordance as follows;
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The Company designates its foreign currency bank loans to hedge its net investment in a foreign operation. Foreign exchange gains or losses on the hedging instrument relating to the effective portion of the foreign currency hedge of net investments in foreign operations are recognized in other comprehensive income while any gains or losses relating to the ineffective portion is recognized in the income statement. Tax effects of foreign exchange gains or losses on the hedging instrument relating to
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
the effective portion of the foreign currency hedge of net investments in foreign operations is recognized under other comprehensive income as well.
On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the income statement (Note 16).
Financial instruments – Accounting policies applied until 31 December 2017(j) Property, plant and equipment
The Group has applied IFRS 9 retrospectively, but has elected not to restate comparative information for prior periods. As a result, the comparative information provided continues to be accounted for in accordance with the Group’s previous accounting policy. Accounting policies that changed on adoption of IFRS 9 are as follows. The Group’s new accounting policies are explained above.
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Until 31 December 2017, the Group classified its financial assets in the following categories:
Financial assets at fair value through profit or loss,
Loans and receivables,
Held-to-maturity investments, and
Available-for-sale financial assets.
The classification depended on the purpose for which the investments were acquired. Management determined the classification of its investments at initial recognition and, in the case of assets classified asheld-to-maturity,re-evaluated this designation at the end of each reporting period.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Financial instruments – Accounting policies applied until 31 December 2017 (continued)
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The Group could choose to reclassify anon-derivative trading financial asset out of the held for trading category if the financial asset was no longer held for the purpose of selling it in the near term. Financial assets other than loans and receivables were permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that was unusual and highly unlikely to recur in the near term. In addition, the Group could choose to reclassify financial assets that would meet the definition of loans and receivables out of the held for trading oravailable-for-sale categories if the Group had the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.
Reclassifications were made at fair value as of the reclassification date. Fair value became the new cost or amortized cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date were subsequently made. Effective interest rates for financial assets reclassified to loans and receivables andheld-to-maturity categories were determined at the reclassification date. Further increases in estimates of cash flows adjusted effective interest rates prospectively.
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The measurement at initial recognition did not change on adoption of IFRS 9.
Subsequent to initial recognition, loans and receivables andheld-to-maturity investments were carried at amortized cost using the effective interest method.
Available-for-sale financial assets and financial assets at fair value through profit or loss were subsequently carried at fair value. Gains or losses arising from changes in the fair value were recognized as follows:
For ‘financial assets at fair value through profit or loss’- in profit or loss
Foravailable-for-sale financial assets that are monetary securities denominated in a foreign currency- translation differences related to changes in the amortized cost of the security were recognized in profit or loss and other changes in the carrying amount were recognized in other comprehensive income
For other monetary andnon-monetary securities classified asavailable-for-sale- in other comprehensive income
Details on how the fair value of financial instruments is determined are disclosed in Note 36.
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The Group assessed at the end of each reporting period whether there was objective evidence that a financial asset or group of financial assets was impaired. A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated. In the case of equity investments classified asavailable-for-sale, a significant or prolonged decline in the fair value of the security below its cost was considered an indicator that the assets were impaired.
For loans and receivables, the amount of the loss was measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Financial instruments – Accounting policies applied until 31 December 2017 (continued)
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amount of the asset was reduced and the amount of the loss was recognized in profit or loss. If a loan orheld-to-maturity investment had a variable interest rate, the discount rate for measuring any impairment loss was the current effective interest rate determined under the contract. As a practical expedient, the Group could measure impairment on the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreased and the decrease could be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss was recognized in profit or loss.
Impairment testing of trade receivables is described in Note 36.
If there was objective evidence of impairment foravailable-for-sale financial assets, the cumulativeloss- measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss- was removed from equity and recognized in profit or loss.
Impairment losses on equity instruments that were recognized in profit or loss were not reversed through profit or loss in a subsequent period.
If the fair value of a debt instrument classified asavailable-for-sale increased in a subsequent period and the increase could be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss was reversed through profit or loss.
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Items of property, plant and equipment are stated at historical cost less depreciation and impairment losses. Property, plant and equipment related to the Company and its subsidiaries operating in Turkey are adjusted for the effects of inflation during the hyperinflationary period ended on 31 December 2005. Since the inflation accounting commenced on 1 January 2011, property, plant and equipment related to the subsidiaries operating in Belarus are adjusted for the effects of inflation. However, the decrease in inflation rate in subsequent years led the three-year cumulative rate as of the end of 2014 to decrease to 65%. Accordingly, the economy of Belarus was considered as transitioning out of hyperinflationary status and in 2015 it was determined to be appropriate to cease applying IAS 29. Therefore, subsidiaries operating in Belarus ceased applying IAS 29 in 2015.
Historical cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located, if any.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are recognized included in profit or loss.
Changes in the obligation to dismantle, remove assets on sites and to restore sites on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the assets in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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of the carrying amount on the date of change, and any excess balance is recognized immediately in profit or loss. An asset’sasset's carrying amount is written down immediately to its recoverable amount if the asset’sasset's carrying amount is greater than its estimated recoverable amount.
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Subsequent costs are included in the asset’sasset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognized when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
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Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives.
Land is not depreciated.
The estimated useful lives are as follows:
Buildings | 21 – 25 years | |||
Mobile network infrastructure | 4 – 20 years | |||
Fixed network infrastructure | 3 – 25 years | |||
Call center equipment | 4 – 8 years | |||
Equipment, fixtures and fittings | 2 – 10 years | |||
Motor vehicles | 4 – 6 years | |||
Leasehold improvements | 3 – 5 years |
Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period.
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General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
Other borrowing costs are expensed in the period in which they are incurred.
(k) Intangible assets
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Separately acquired telecommunication licenses are stated at historical cost adjusted for the effects of inflation during the hyperinflationary period, where applicable, less amortization and impairment losses.
Amortization
Amortization is recognized in the statement of profit or loss on a straight-line basis by reference to the license period. The useful lives for telecommunication licenses are as follows:
Telecommunications licenses | 3 – 25 years |
The Company has been granted the 2G, 3G and 4.5G licenses on 27 April 1998, 30 July 2009 and 26 August 2015, respectively. The licenses are effective for 25, 20 and 13 years, respectively.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
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Acquired computer software licenses are capitalized based on the basis of the costs incurred to acquire and bring to use the specific software.
Costs associated with maintaining computer software programs are recognized as an expense as incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:
Directly attributable costs that are capitalized as part of the software include employee costs and an appropriate portion of relevant overheads.
Research expenditure and development expenditure that do not meet the criteria above are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.
Capitalized development costs are recorded as intangible assets and amortized from the point at which the asset is ready for use.
Amortization
Amortization is recognized in the statement of profit or loss on a straight-line basis over the estimated useful lives. The useful lives for computer software are as follows:
Computer software | 3 – 8 years |
Amortization methods, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period.
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Other intangible assets that are acquired by the Group which have finite useful lives are stated at historical cost adjusted for the effects of inflation during the hyperinflationary period, where applicable,
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
less amortization and impairment losses. Indefeasible Rights of Use (“IRU”("IRU") are rights to use a portion of an asset’sasset's capacity granted for a fixed period of time. IRUs are recognized as intangible asset when the Group has specific indefeasible rights to use an identified portion of an underlying asset and the duration of the right is for the major part of the underlying asset’sasset's useful economic life. IRUs are amortized over the shorter of the underlying asset’sasset's useful economic life and the contract term.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Amortization
Amortization is recognized in the statement of profit or loss on a straight-line basis over the estimated useful lives. The useful lives for computer software are as follows:
Transmission line software | 5 – 10 years | |||
Central betting system operating right | 7 – 10 years | |||
Customer base | 2 – 15 years | |||
Brand name | 9 – 10 years | |||
Indefeasible right of use | 15 years |
Amortization methods, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period.
Goodwill
Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortized but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being the operating segments.
(l) Investment properties
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Recognition and measurement
Investment properties are properties held for rental yields and/or for capital appreciation (including property under construction for such purposes). Investment properties are stated at historical cost less depreciation and impairment losses.
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized.
Depreciation
Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over their estimated useful lives. The estimated useful lives are as follows:
Investment Property | 25 – 45 years |
Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)(m) Inventories
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Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale. Cost of inventory is determined using the weighted average method and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Costs of purchased inventory are determined after deducting rebates and discounts. At 31 December 20192020 and 2018,2019, inventories mainly consisted of mainly mobile phones, modem,phone and its accessories, tablet,sim-cards, and tower construction materials.
(n) Impairment of assets
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Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’sasset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’sasset's fair value less costs of disposal and its value in use. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. For the purposes of assessing impairment, assets are grouped at the lowest levels (cash-generating units) for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets.Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(o) Employee benefits
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Liabilities for salaries includingnon-monetary benefits that are expected to be settled wholly within12within 12 months after the end of the period in which the employees render the related service are recognized in respect of employees’employees' services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as trade and other payablesemployee benefit obligations in the statement of financial position.
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In accordance with the labor law in Turkey, the Company and its subsidiaries in Turkey are required to makelump-sum payments to employees who have completed one year of service and whose employment is terminated without cause or who retire, are called up for military service or die. Such paymentsarepayments are calculated based on the basis of 30 days’days' pay up to a of maximum full TL 6,3807,117 as at 31 December 20192020 (31 December 2018:2019: TL 5,434)6,380), per year of employment at the rate of pay applicable at the date of retirement or termination. Termination benefits paid to key executive officers are presented as other expenses. Reserve for employee termination benefits is computed and reflected in the consolidated financial statements on a current basis. Discount rate used for calculating employee termination benefit as of 31 December 20192020 is 3.60%3.01% (31 December 2018: 4.41%2019: 3.60%). The reserve is calculated by estimating the present value of future probable obligation of the Company and its subsidiaries in Turkey arising from retirement of employees. Reserve for employee termination benefits is calculated annually by independent actuaries using the projected unit credit method.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
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The Group provides a cash-settled share-based payment plan for selected employees in return for their services. For cash-settled share-based payment transactions, the Group measures services acquiredreceived and the liability incurred at the fair value of the liability. Liabilities for cash-settled share-based payment plan are recognized as employee benefit expense over the relevant service period. The fair value of the liability isre-measured at each reporting date and at the settlement date. Any changes in fair value are recognized in profit or loss for the period.
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Provision for bonus is provided when the bonus is a legal obligation, or past practice would make the bonus a constructive obligation and the Group is able to make a reliable estimate of the obligation.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(p) Provisions
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A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of resources will be required to settle the obligation.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of management’smanagement's best estimate of the outflow required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is apre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognized as interest expense.
Onerous contracts
Present obligation arising under an onerous contract is recognized and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
Dismantling, removal and restoring sites obligation
The Group is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. The dismantling costs are calculated according to best estimate of future expected payments discounted at apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)(q) Revenue
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Revenue is recognized at the amount of the transaction price that is allocated to the performance obligation. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. Revenue is recognized when control is transferred to the customer.
Revenue from telecommunication services includes postpaid and prepaid revenue from voice, data, messaging and value addedvalue-added services, interconnect revenue, monthly fixed fees, SIM card sales and roaming revenue. An entityThe Company transfers control of a servicethese services over time and, therefore, satisfies athe performance obligationobligations and recognizes revenue from telecommunication services over time.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
With respect to prepaid revenue, the Group generally collects cash in advance by selling prepaid top up to distributors. In such cases, the Group does not recognize revenue until subscribers use the telecommunication services.
Services may be bundled with other products and services and these bundled elements involve consideration in the form of a fixed fee or a fixed fee coupled with a continuing payment stream. A good or service is distinct if both of the following criteria are met:
The arrangement consideration is allocated to each performance obligation identified in the contract on a relative stand-alone selling price. If an element of a transaction is not a distinct, then it is accounted for as an integral part of the remaining elements of the transaction.
Revenue from device sales is recognized when control of the device has transferred, being the time when delivered to the end customer. For device sales made to intermediaries, revenue is recognized at the time when control of the device has been transferred, being when the products are delivered to the intermediary and the intermediary has no general right to return the device to receive a refund. If control is not transferred, revenue is deferred until sale of the device to an end customer by the intermediary or expiry of any right of return.
The Group, the distributors and dealers offer joint campaigns to the subscribers which may include the sale of device by the dealer and/or the distributor and the sale of communication service by the Group. In certain campaigns, dealers make the handset sale to the subscribers, the instalments of which will be collected by the Group based on the letters of undertaking signed by the subscribers. With the letter of undertaking, the dealer assigns its receivables from handset sales to the distributor and the distributor assigns its receivables to the Group.
The Group pays the distributor the net present value of the instalments to be collected from the subscribers and recognizes contracted receivables in its statement of financial position. The undue portion of assigned receivables from the distributors which were paid upfront by the Group is classified as “undue"undue assigned contracted receivables”receivables" in trade receivables (Note 19). When monthly installment is invoiced to the subscriber, related portion is presented as “receivables"receivables from subscribers”subscribers". The Group collects the contracted receivables in installments during the contract period and does not recognize any revenue for the handset in these transactions aswhen the Group does not act as principal for the sale of handset.
Starting from 2014, subscribers have the option to buy handsets using bank loans, the instalments of which are collected by the Group on behalf of the bank. The Group does not bear any credit risk in these transactions. Since the Group collects receivables during the contract period and acts as agent for the sale of handset, the Group does not recognize any revenue for the handset in these transactions.
Starting from 2016 the Group and distributors started to offer the option to buy a device through consumer financing loan, which will be collected by Turkcell Finansman. The Group carries a risk of collection in
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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these transactions. Turkcell Finansman collects the purchased credit from the subscriber during the contract period and does not record revenue related to the device sincewhen it isdoes not act as principal for the main contractor in the device sale.sale of device. Revenue from financial services comprise of interest income generated
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
from consumer financing activities. Interest income is recognized as it accrues, using the effective interest method.
Monthly fixed fees represent a fixed amount charged to postpaid subscribers on a monthly basis without regard to the level of usage. Fixed fees are recognized on a monthly basis when billed. Monthly fixed fees are included in telecommunication services revenues.
Revenues from the betting business comprise of mainly the net takings earned to a maximum of 1.4% of gross takings as the head agent of fixed odds betting games and mobile agent revenues of 7.25% of mobile agency turnover after deducting VAT and gaming tax as the head agent. Revenues from the betting business are recognized at the time all services related to the games are fully rendered. Under the agreement signed with Spor Toto Teşkilat Müdürlüğü A.Ş. (“Teskilat Mudurlugu A.S. ("Spor Toto”Toto"), Inteltek Internet Teknoloji YatırımYatirim ve Danışmanlık A.Ş. (“Inteltek”Danismanlik A.S. ("Inteltek") is obliged to undertake any excess payout, which is presented on a net basis.
Azerinteltek QSC (“Azerinteltek”("Azerinteltek") received authorization from Azeridmanservis Limited Liability Company set under the Ministry of Youth and Sport of the Republic of Azerbaijan to organize, operate, manage and develop the fixed odds and paramutual sports betting business. Since Azerinteltek acts as principal, total consideration received from the player less payout (distribution to players) and amounts collected from players on behalf of Ministry of Sports is recognized at the time all services related to the games are fully rendered.
Azerinteltek has been authorized for Lottery games by Azerlotereya. Azerinteltek has been generating commission revenue over Lottery games turnover through its own agencies by applying 15% commission rate according to the agreement between Azerinteltek and Azerlotereya. Commission revenues are recognized at the time all services related to the games are fully rendered.
Call center revenues are recognized at the time services are rendered during the contractual period.
When the Group sells goods or services as a principal, revenue and operating costs are recorded on a gross basis. When the Group sells goods or services as an agent, revenue and operating costs are recorded on a net basis, representing the net margin earned. Whether the Group is considered to be acting as principal or agent in the transaction depends on management’smanagement's analysis described below and such judgments impact the amount of reported revenue and operating costs but do not impact reported assets, liabilities or cash flows:
Indicators that an entity is a principal:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
The Company and the Ministry of Transport and Infrastructure of Turkey, Directorate General of Communications mutually agreed to extend the contract, to establish and operate mobile communication infrastructure and operation in uncovered areas, until 30 June 20202021 and to add mobile broadband services to the existing infrastructure providing GSM services under Universal Service Law and to operate the new and existing networks together. As of 31 December 2019,2020, the Company has recognized TL 191,235223,965 (31 December 2018:2019: TL 376,765)191,235) revenue from its operations related to this contract. Since the Company acts as principal, revenue and operating costs are reported on a gross basis in thesethe consolidated financial statements.
The revenue recognition policy for other revenues is to recognize revenue as services are provided.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Contract costs eligible for capitalization as incremental costs of obtaining a contract comprise commission on sale relating to prepaid and postpaid contracts with acquired or retained subscribers. Contract costs are capitalized in the month of service activation if the Group expects to recover those costs. Contract costs comprise sales commissions to dealers and to own salesforce which can be directly attributed to an acquired or retained contract. Contract costs are classified as intangible assets in the consolidated financial statements. The asset is amortized on a straight-line basis over the customer lifetime, it relates to consistent with the pattern of recognition of the associated revenue.
Revenue – Accounting policies applied until 31 December 2017
The Group adopted the new standard on the required effective date using the modified retrospective method which requires the recognition of the cumulative effect of initially applying IFRS 15, as at 1 January 2018, to retained earnings and not restate prior years. As a result, the comparative information provided continues to be accounted for in accordance with the Group’s previous accounting policy. Accounting policies that changed on adoption of IFRS 15 are as follows. The Group’s new accounting policies are explained above.
Contract cost
Contract costs were capitalized under prepaid expenses and amortized on a straight line basis over the contact term.(r) Income taxes
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The income tax expense or credit for the period is the tax payable on the current period’speriod's taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.
Income tax expense is recognized in the statement of profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated based on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the Company’sCompany's subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate based on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and tax losses.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
Deferred tax liabilities and assets are not recognized for temporary differences between the carrying amount and tax bases of investments in foreign operations where the Company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure (e.g., the Research and Development Tax Incentive regime in Turkey or other investment allowances). The Group accounts for such allowances as tax credits, which means that the allowance reduces income tax payable and current tax expense. A deferred tax asset is recognized for unclaimed tax credits that are carried forward as deferred tax assets.
(s) Earnings per share
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The Group does not have any potential ordinary shares in issue, therefore basic and diluted earnings per share (“EPS”("EPS") are equal. Since basic and diluted EPS are equal, the Group presents both basic and diluted EPS on one line described as “Basic"Basic and diluted EPS”EPS".
Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted-average number of ordinary shares outstanding during the financial year, excluding treasury shares. In Turkey, entities can increase their share capital by distributing “Bonus share”"Bonus share" to shareholders from retained earnings. In computing earnings per share, such “Bonus share”"Bonus share" distributions are treated as issued shares. Accordingly, the retrospective effect for such share distributions is taken into consideration when determining the weighted-average number of shares outstanding.
(t) Government grants
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Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received, and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognized in profit or loss over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to property, plant and equipment are included innon-current liabilities as deferred government grants, and are credited to profit or loss on a straight-line basis over the expected useful lives of the related assets.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(u) Non-current assets held for sale and discontinued operations
Non-current |
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use, and a sale is considered highly probable. They are measured at the lower of their carrying amount and fair value less costs of disposal.
An impairment loss is recognized for any initial or subsequent write-down of the asset to fair value less costs of disposal. A gain is recognized for any subsequent increases in fair value less costs of disposal of an asset, but not in excess of any cumulative impairment loss previously recognized. A gain or loss not previously recognized by the date of the sale of thenon-current asset is recognized at the date of derecognition.
An associate must meet the conditions to be classified as held for sale. It is first measured in accordance with applicable standards. Such standard is IAS 28, whereby the share of profits and remeasurement of carrying amounts are done in accordance with normal associate rules up to the point of classification as held for sale.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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The associate or joint venture is then measured in accordance with IFRS 5. It is measured at the lower of carrying amount and fair value less costs of disposal. Equity accounting is ceased from the date the held for sale criteria are met.
Non-current assets classified as held for sale are presented separately from the other assets in the statement of financial position.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of profit or loss.
(v) Equity
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Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.
Where any Group company purchases the Company’sCompany's equity instruments, for example as the result of a sharebuy-back plan, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the owners of the Company as treasury shares until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the owners of the Company.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(w) Dividends
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Provision is made for the amount of any dividend declared, being appropriately authorized and no longer at the discretion of the Company, on or before the end of the reporting period but not distributed at the end of the reporting period.
(x) Subsequent events
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Events after the reporting date; includes all events between the reporting date and the date on which the financial statements are authorized for issue, even if any announcement of profit or other selected financial information has been made publicly disclosed.
In case of events requiring correction after the reporting date, the Group corrects this new situation accordingly. Events that are not required to be adjusted subsequent to the reporting date are disclosed in the notes to the financial statements in the consolidated financial statements.
(y) Leases
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At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, The Group assesses whether:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
Right of use asset
The Group recognizes aright-of use asset and a lease liability at the lease commencement date.
The right of use asset is initially recognized at cost comprising of:
Theright-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end date of the useful life of theright-of-use asset or the end date of the lease term. The estimated useful lives ofright-of-use assets are determined on the same basis as those property and equipment. In addition, theright-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability (Note 29).
Lease Liability
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’sGroup's incremental borrowing rate. The Group uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Lease Liability (continued)
After initial recognition, the lease liability is measured (a) increasing the carrying amount to reflect interest on lease liability; (b) reducing the carrying amount to reflect the lease payments made, and
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revisedin-substance fixed lease payments.
Where, (a) there is a change in the lease term as a result of reassessment of certainty to exercise an extension option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, or the its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in the future lease payments resulting from a change in an index or a rate used to determine those payments, including change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group uses the revised discount rate that reflects changes in the interest rate.
The Group recognizes the amount of the remeasurement of lease liability as an adjustment to the right of use asset. Where the carrying amount of the right of use asset is reduced zero and there is further reduction in the measurement of the lease liability, the Group recognizes any remaining amount of the remeasurement in profit or loss.
The Group accounts for a lease modification as a separate lease if both:
The Group as a Lessor
When the Group acts an intermediate lessor, it accounts for its interests in the head lease and thesub-lease separately. It assesses the lease classification of asub-lease with reference to theright-of-use-asset arising from the head lease, not with reference to the underlying asset.
If an arrangement contains lease andnon-lease components, the Group applies IFRS 15 to allocate the consideration in the contract.
Leases – Accounting policies applied until 31 December 2017Table of Contents
The Group adopted IFRS 16 using modified retrospective approach – option 2 application under which the cumulative effect of initially applying the Standard recognized at the date of initial application at1 January 2018. As a result, the comparative information provided continues to be accounted for in accordance with the Group’s previous accounting policy. Accounting policies that changed on adoption of IFRS 16 are as follows. The Group’s new accounting policies are explained above.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
(z) New standards and interpretations
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Leases – Accounting policies applied until
Leases of property, plant and equipment where the Group, as lessee, had substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were capitalized at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, were included in other short-term and2020
Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Group as lessee were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.
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The Group has elected to early adopt the ‘Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform’ issued in September 2019. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of the reporting period or were designated thereafter.
The amendments provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by IBOR reform. The reliefs have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness should continue to be recorded in the income statement. Furthermore, the amendments set out triggers for when the reliefs will end, which include the uncertainty arising from interest rate benchmark reform no longer being present.
In summary, the reliefs provided by the amendments that apply to the Group are:
When considering the ‘highly probable’ requirement, the Group has assumed that the USD LIBOR interest rate on which our hedged debts are based does not change as a result of IBOR reform.
In assessing whether the hedge is expected to be highly effective on a forward-looking basis the Group has assumed that the USD LIBOR interest rate on which the cash flows of the hedged debt and the interest rate swap that hedges it are based is not altered by IBOR reform.
The Group has not recycled the cash flow hedge reserve relating to the period after the reforms are expected to take effect.
Note 3 provides the required disclosures of the uncertainty arising from IBOR reform for hedging relationships for which the Group applied the reliefs.
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Amendment to IFRS 9, “Financial instruments”;effective from annual periods beginning on or after 1 January 2019. This amendment confirmed two points: (1) that reasonable compensation for prepayments can be both negative or positive cash flows when considering whether a financial asset
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Amendment to IAS 28, “Investments in associates and joint venture”;effective from annual periods beginning on or after 1 January 2019. These amendments clarify that companies account for long-term interests in associate or joint venture to which the equity method is not applied using IFRS 9.
IFRIC 23, “Uncertainty over income tax treatments”;effective from annual periods beginning on or after 1 January 2019. This IFRIC clarifies how the recognition and measurement requirements ofIAS 12 ‘Income taxes’, are applied where there is uncertainty over income tax treatments. The IFRS IC had clarified previously that IAS 12, not IAS 37 “Provisions, contingent liabilities and contingent assets”, applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates:
Annual improvements 2015-2017;effective from annual periods beginning on or after1 January 2019. These amendments include minor changes to:
IFRS 3, “Business combinations”, – a company remeasures its previously held interest in a joint operation when it obtains control of the business.
IFRS 11, “Joint arrangements”, – a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business.
IAS 12, “Income taxes” – a company accounts for all income tax consequences of dividend payments in the same way.
IAS 23, “Borrowing costs” – a company treats as part of general borrowings any borrowing originally made to develop an asset when the asset is ready for its intended use or sale.
Amendments to IAS 19, “Employee benefits” on plan amendment, curtailment or settlement; effective from annual periods beginning on or after 1 January 2019. These amendments require an entity to:
Use updated assumptions to determine current service cost and net interest for the reminder of the period after a plan amendment, curtailment or settlement; and
Recognize in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognized because of the impact of the asset ceiling.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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Amendments to IAS 1 and IAS 8 on the definition of material;effective from Annual periods beginning on or after 1 January 2020. These amendments to IAS 1, “Presentation"Presentation of financial statements”statements", and IAS 8, “Accounting"Accounting policies, changes in accounting estimates and errors”errors", and consequential amendments to other IFRSs:
i)
ii)
iii)
This amendment has no material effect on the Group’s financial statements.
information. 3 – 3—definition of a business;This
same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concession as variable lease payments in the period(s) in which the event or condition that triggers the reduced payment occurs.“Insurance contracts”"Insurance contracts";after1after 1 January 2021.2023. This standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
2. Basis of preparation and summary of significant accounting policies (Continued)
entities that issue insurance contracts and investment contracts with discretionary participation features. This amendment has no material effect
Annual improvements make minor amendments to IFRS 1, 'First-time Adoption of IFRS', IFRS 9, 'Financial instruments', IAS 41, 'Agriculture' and the Illustrative Examples accompanying IFRS 16, 'Leases'.
The Group has elected to early adopt the interest rate benchmark reform—Phase 2 as issued in August 2020 which will be effective as of 1 January 2021 and the new rates will be used as of 1 January 2022.
The Group does not expect material impact of new standards and interpretations on the Group's accounting policies.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements.statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
3. Financial risk management
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This note explains the Group’sGroup's exposure to financial risks and how these risks could affect the Group’sGroup's future financial performance. Current year profit and loss information has been included where relevant to add further context.
The Group’sGroup's risk management policies are set to determine and analyze the risks faced, to establish the appropriate risk limits and to observe the commitment to those limits. These policies are constantly reviewed to make sure they reflect the Group’sGroup's operations and the changes in market conditions.
Credit risk
At the reporting date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents, financial asset at fair value through other comprehensive income, financial asset at amortize cost, derivative financial instruments, contract assets, trade receivables, receivables from financial services, due from related parties and other current and non-current assets (Note 36).
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The Group may require collateral in respect of financial assets. Also, the Group may demand letters of guarantee from third parties related to certain projects or contracts. The Group may also demand certain pledges from counterparties if necessary, in return for the credit support it gives related to certain financings (Note 19).
In monitoring customer credit risk, customers are grouped according to whether they are subscribers, financial services customers, other corporate customers and aging profile, maturity and existence of previous financial difficulties. Trade receivables and accrued incomecontract assets are mainly related to the Group’sGroup's subscribers. The Group’sGroup's exposure to credit risk on trade receivables and contract assets is influenced mainly by the individual
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Credit risk (continued)
payment characteristics of postpaid subscribers. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables and other receivables.contract assets. This allowance comprises the general provision which is determined based on a loss event.
Investments are preferred to be in liquid securities. The counterparty limits are set monthly depending on their ratings from the most credible rating agencies and the amount of theirpaid-in capital and/or shareholders equity. Policies are in place to review thepaid-in capital and rating of counterparties periodically to ensure credit worthiness.
The Group signs local and international derivate agreements in order to be able to execute financial derivative transactions with financial institutions that are believed to have sufficient credit ratings.
The Group’sGroup's policy is to provide financial guarantees only to subsidiaries and distributors. At 31 December 2019,2020, guarantees of TL 3,323,3182,171,281 were outstanding (31 December 2018:2019: TL 4,988,580)3,323,318).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
3. Financial risk management (Continued)
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. At the end of the reporting period the Group held demand deposits at call of TL 632,022975,753 (31 December 2018:2019: TL 587,007)632,022) that are expected to readily generate cash inflows for managing liquidity risk. Due to the dynamic nature of the underlying businesses, the Group Treasury maintains flexibility in funding by maintaining availability under committed credit lines.
Management monitors rolling forecasts of the Group’sGroup's liquidity reserve (Note 36) and cash and cash equivalents (Note 24) on the basis of expected cash flows. In addition, the Group’sGroup's liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices affect the Group’sGroup's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.
The Group uses derivatives in order to manage market risks. All such transactions are carried at within the guidelines set by the Group Treasury.
|
The Group operates internationally and is exposed to foreign exchange risk arising from foreign currency transactions, primarily with respect to the USD, EUR and RMB. Foreign exchange risk arises from recognized assets and liabilities denominated in a currency that is not the functional currency of the relevant Group entity. The Group holds a significant portion of its cash and cash equivalent in foreign currencies in order to manage foreign exchange risk. In addition, derivative financial instruments are used to manage exposure to fluctuations in foreign exchange rates and as ofsince 1 July 2018 the Company applies hedge accounting.
Details of the Company’sCompany's foreign exchange risk is disclosed in Note 36.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Market risk (continued)
|
The Group’sGroup's exposure to interest rate risk is related to its financial assets and liabilities. The Group manage its financial liabilities by providing an appropriate distribution between fixed and floating rate loans. Floating rate exposures can be changed to fixed rate exposures based on short term and long term market expectations via financial derivatives. The use of financial derivatives is governed by the Group Treasury’sTreasury's policies approved by the Audit Committee, which provide written principles on the use of derivatives.
The Group’sGroup's borrowings and receivables are carried at amortized cost. The borrowings are periodically contractually repriced (Note 36) and to that extent are also exposed to the risk of future changes in market interest rates.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
3. Financial risk management (Continued)
Effect of IBOR reform
Following the financial crisis, the reform and replacement of benchmark interest rates such as USD LIBOR and other interbank offered rates (‘IBORs’('IBORs') has become a priority for global regulators. There is currently uncertainty around the timing and precise nature ofare ongoing studies for these changes. The Group’sGroup's risk exposure that is directly affected by the interest rate benchmark reform is its USD 65,3387-year367,787 floating-rate debt. The Group has hedged this debt with participating cross currency, swap,cross currency and interest swaps, and it has designated theat participating cross currency swap in a cash flow hedge of the variability in cash flows of the debt, due to changes in 6 month6-month USD LIBOR that is the current benchmark interest rate.rate after the publication of Phase-2 in August 2020. The nominal amount of the hedgingthese derivative instruments in those hedging relationships is USD 65,338.431,359 and the nominal amount of the hedged part of these instruments is USD 276,069.
The Group treasury department oversees The Group’sthe Group's USD LIBOR transition plan. This transition project will include changes to systems, processes, risk and valuation models, as well as managing related tax and accounting implications. The Group currently anticipates that the areas of greatest change will be amendments to the contractual terms of the USD LIBOR-referenced floating-rate debt and the participating cross currency swap and updating hedge designations.
Effect of IBOR reform – reform—significant assumptions
In calculating the change in fair value attributable to the hedged risk of the floating-rate debt, the Group has made the following assumptions that reflect its current expectations:
4. Segment information
|
The Group has two reportable segments in accordance with its integrated communication and technology services strategy—Turkcell Turkey and Turkcell International. While some of these strategic segments offer the same types of services, they are managed separately because they operate in different geographical locations and are affected by different economic conditions.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker function is carried out by the Board of Directors, however Board of Directors may transfer the authorities, other than recognized by the law, to the General ManagerCEO and other directors.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
4. Segment information (Continued)
|
Turkcell Turkey reportable segment includes the operations of the Company,Turkcell, Turkcell Superonline Iletisim Hizmetleri A.S. (“("Turkcell Superonline”Superonline"), Turkcell Satis ve Dijital Is Servisleri Hizmetleri A.S. (“("Turkcell Satis”Satis"), group call center operations of Global Bilgi Pazarlama DanismanlıkDanismanlik ve Cagri Servisi Hizmetleri A.S. (“("Turkcell Global Bilgi”Bilgi"), Turktell Bilisim Servisleri A.S. (“Turktell”("Turktell"), Turkcell Teknoloji Arastirma ve Gelistirme A.S. (“("Turkcell Teknoloji”Teknoloji"), Kule Hizmet ve Isletmecilik A.S. (“("Global Tower”Tower"), Rehberlik Hizmetleri Servisi A.S. (“Rehberlik”("Rehberlik") and, Turkcell Gayrimenkul Hizmetleri A.S. (“("Turkcell Gayrimenkul”Gayrimenkul"), Lifecell Dijital Servisler ve Cozumler A.S. ("Lifecell Dijital Servisler"), Lifecell Bulut Cozumleri A.S. ("Lifecell Bulut"), Lifecell TV Yayin ve Icerik Hizmetleri A.S. ("Lifecell TV"), Lifecell Muzik Yayin ve Iletim A.S. ("Lifecell Muzik") and BiP Iletisim Teknolojileri ve Dijital Servisler Anonim Sirketi ("BiP Iletisim"). Turkcell International reportable segment includes the operations of Kibris Mobile Telekomunikasyon Limited Sirketi (“("Kibris Telekom”Telekom"), East Asian Consortium B.V. (“Eastasia”("Eastasia"), Lifecell LLC (“lifecell”("lifecell"), Lifecell Ventures CoöperatiefCooperatief U.A (“("Lifecell Ventures”Ventures"), Beltel Telekomunikasyon Hizmetleri A.S. (“Beltel”("Beltel"), CJSC Belarusian Telecommunications Network (“("Belarusian Telecom”Telecom"), LLC UkrTower (“UkrTower”("UkrTower"), LLC Global Bilgi (“("Global LLC”LLC"), Turkcell Europe GmbH (“("Turkcell Europe”Europe"), Lifetech LLC (“Lifetech”("Lifetech"), Beltower LLC (“Beltower”("Beltower") and, Lifecell Digital Limited (“("Lifecell Digital”Digital"), Yaani Digital BV ("Yaani") and BiP Digital Communication Technologies B.V ("BiP Digital"). The operations of these legal entities aggregated into one reportable segment as the nature of services are similar and most of them share similar economic characteristics. The otherOther reportable segment mainly comprises the information and entertainment services in Turkey and Azerbaijan,non-group call center operations of Turkcell Global Bilgi and the operations of Turkcell Finansman, Turkcell Özel Finansman A.Ş. (“TÖFAŞ”Odeme Hizmetleri A.S. ("Turkcell Odeme"), Turkcell Enerji Cozumleri ve Elektrik SatısSatis Ticaret A.S (“("Turkcell Enerji”Enerji"), Paycell LLC Turkcell Odeme,and Turkcell Sigorta AracılıkAracilik Hizmetleri A.Ş (“A.S ("Turkcell Sigorta”), Türkiye’nin Otomobili Girişim Grubu Sanayi ve Ticaret A.Ş.(“Türkiye’nin Otomobili”) and Sofra Kurumsal ve Ödüllendirme Hizmetleri A.Ş.(“Sofra”Sigorta").
The Board primarily uses adjusted EBITDA to assess the performance of the operating segments. Adjusted EBITDA definition includes revenue, cost of revenue excluding depreciation and amortization, selling and marketing expenses and administrative expenses.
Adjusted EBITDA is not a financial measure defined by IFRS as a measurement of financial performance and may not be comparable to other similarly titled indicators used by other companies. Reconciliation of Adjusted EBITDA to the consolidated profit for the year is included in the accompanying notes.
According to the resolution of the General Assembly dated 6 July 2020, the trade name of Turkcell Ozel Finansman A.S. ("TOFAS") was changed to Lifecell Iletisim Teknolojileri ve Dijital Servisler A.S. ("Lifecell Iletisim") and its business activity is determined and announced as providing digital services and products as of 21 July 2020. The trade name of Lifecell Iletisim was changed to BiP Iletisim on 14 December 2020. BiP Iletisim has started its operations relating to providing digital services and products as of October 2020, and its operations are reported in Turkcell Turkey reportable segment.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
4. Segment information (Continued)
| Turkcell Turkey | Turkcell International | All other segments | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
Total segment revenue | 25,160,240 | 21,487,156 | 2,542,410 | 2,002,789 | 2,073,626 | 2,217,979 | (672,538 | ) | (570,789 | ) | 29,103,738 | 25,137,135 | |||||||||||||||||||
Inter-segment revenue | (98,110 | ) | (79,318 | ) | (87,955 | ) | (94,703 | ) | (486,473 | ) | (396,768 | ) | 672,538 | 570,789 | — | — | |||||||||||||||
Revenues from external customers | 25,062,130 | 21,407,838 | 2,454,455 | 1,908,086 | 1,587,153 | 1,821,211 | — | — | 29,103,738 | 25,137,135 | |||||||||||||||||||||
Adjusted EBITDA | 10,585,039 | 8,789,179 | 1,169,488 | 903,896 | 541,694 | 765,798 | (25,923 | ) | (32,454 | ) | 12,270,298 | 10,426,419 | |||||||||||||||||||
Net impairment losses on financial and contract assets | (295,978 | ) | (223,879 | ) | (2,845 | ) | (5,109 | ) | (50,772 | ) | (109,869 | ) | — | — | (349,595 | ) | (338,857 | ) |
| Turkcell Turkey | Turkcell International | All other segments | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
Total segment revenue | 21,487,156 | 18,092,586 | 2,002,789 | 1,456,980 | 2,217,979 | 2,113,681 | (570,789 | ) | (370,772 | ) | 25,137,135 | 21,292,475 | |||||||||||||||||||
Inter-segment revenue | (79,318 | ) | (46,355 | ) | (94,703 | ) | (69,657 | ) | (396,768 | ) | (254,760 | ) | 570,789 | 370,772 | — | — | |||||||||||||||
Revenues from external customers | 21,407,838 | 18,046,231 | 1,908,086 | 1,387,323 | 1,821,211 | 1,858,921 | — | — | 25,137,135 | 21,292,475 | |||||||||||||||||||||
Adjusted EBITDA | 8,789,179 | 7,403,822 | 903,896 | 612,697 | 765,798 | 801,687 | (32,454 | ) | (30,224 | ) | 10,426,419 | 8,787,982 | |||||||||||||||||||
Net impairment losses on financial and contract assets | (223,879 | ) | (248,171 | ) | (5,109 | ) | (4,088 | ) | (109,869 | ) | (94,131 | ) | — | — | (338,857 | ) | (346,390 | ) |
|
Turkcell Turkey | Turkcell International | All other segments | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||
Total segment revenue | 21,487,156 | 18,092,586 | 2,002,789 | 1,456,980 | 2,217,979 | 2,113,681 | (570,789 | ) | (370,772 | ) | 25,137,135 | 21,292,475 | ||||||||||||||||||||||||||||
Inter-segment revenue | (79,318 | ) | (46,355 | ) | (94,703 | ) | (69,657 | ) | (396,768 | ) | (254,760 | ) | 570,789 | 370,772 | — | — | ||||||||||||||||||||||||
Revenues from external customers | 21,407,838 | 18,046,231 | 1,908,086 | 1,387,323 | 1,821,211 | 1,858,921 | — | — | 25,137,135 | 21,292,475 | ||||||||||||||||||||||||||||||
Adjusted EBITDA | 8,789,179 | 7,403,822 | 903,896 | 612,697 | 765,798 | 801,687 | (32,454 | ) | (30,224 | ) | 10,426,419 | 8,787,982 | ||||||||||||||||||||||||||||
Net impairment losses on financial and contract assets | (223,879 | ) | (248,171 | ) | (5,109 | ) | (4,088 | ) | (109,869 | ) | (94,131 | ) | — | — | (338,857 | ) | (346,390 | ) | ||||||||||||||||||||||
Turkcell Turkey | Turkcell International | All other segments | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||
Total segment revenue | 18,092,586 | 15,340,866 | 1,456,980 | 1,067,078 | 2,113,681 | 1,297,545 | (370,772 | ) | (73,425 | ) | 21,292,475 | 17,632,064 | ||||||||||||||||||||||||||||
Inter-segment revenue | (46,355 | ) | (31,757 | ) | (69,657 | ) | (40,897 | ) | (254,760 | ) | (771 | ) | 370,772 | 73,425 | — | — | ||||||||||||||||||||||||
Revenues from external customers | 18,046,231 | 15,309,109 | 1,387,323 | 1,026,181 | 1,858,921 | 1,296,774 | — | — | 21,292,475 | 17,632,064 | ||||||||||||||||||||||||||||||
Adjusted EBITDA | 7,403,822 | 5,504,124 | 612,697 | 263,962 | 801,687 | 467,580 | (30,224 | ) | (7,412 | ) | 8,787,982 | 6,228,254 | ||||||||||||||||||||||||||||
Net impairment (losses)/gains on financial and contract assets | (248,171 | ) | 49,468 | (4,088 | ) | (6,070 | ) | (94,131 | ) | (79,676 | ) | — | — | (346,390 | ) | (36,278 | ) |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
4. Segment information (Continued)
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Profit for the period | 4,239,620 | 3,276,690 | 2,177,335 | |||||||
Add(Less): | ||||||||||
(Profit)/loss from discontinued operations | — | (772,436 | ) | — | ||||||
Profit from continuing operations | 4,239,620 | 2,504,254 | 2,177,335 | |||||||
Income tax expense | 387,193 | 785,630 | 495,481 | |||||||
Finance income | (2,119,483 | ) | (297,450 | ) | (1,677,114 | ) | ||||
Finance costs | 3,251,164 | 2,025,118 | 3,364,072 | |||||||
Other income | (96,585 | ) | (140,705 | ) | (241,435 | ) | ||||
Other expenses | 619,835 | 487,295 | 381,582 | |||||||
Depreciation and amortization | 5,974,779 | 5,046,565 | 4,287,974 | |||||||
Share of loss of equity accounted investees | 13,775 | 15,712 | 87 | |||||||
| | | | | | | | | | |
Consolidated adjusted EBITDA | 12,270,298 | 10,426,419 | 8,787,982 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Geographical information
|
2019 | 2018 | 2017 | ||||||||||
Profit for the period | 3,276,690 | 2,177,335 | 2,037,759 | |||||||||
Add(Less): | ||||||||||||
(Profit)/loss from discontinued operations | (772,436 | ) | — | — | ||||||||
Profit from continuing operations | 2,504,254 | 2,177,335 | 2,037,759 | |||||||||
Income tax expense | 785,630 | 495,481 | 571,758 | |||||||||
Finance income | (297,450 | ) | (1,677,114 | ) | (597,246 | ) | ||||||
Finance costs | 2,025,118 | 3,364,072 | 920,112 | |||||||||
Other income | (140,705 | ) | (241,435 | ) | (74,438 | ) | ||||||
Other expenses | 487,295 | 381,582 | 773,329 | |||||||||
Depreciation and amortization | 5,046,565 | 4,287,974 | 2,596,980 | |||||||||
Share of loss of equity accounted investees | 15,712 | 87 | — | |||||||||
|
|
|
|
|
| |||||||
Consolidated adjusted EBITDA | 10,426,419 | 8,787,982 | 6,228,254 | |||||||||
|
|
|
|
|
|
Geographical information
In presenting the information based on the basis of geographical segments, segment revenue is based on the geographical location of operations and segment assets are based on the geographical location of the assets.
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Revenues | ||||||||||
Turkey | 26,648,183 | 23,229,046 | 19,636,682 | |||||||
Ukraine | 1,800,983 | 1,322,116 | 923,181 | |||||||
Belarus | 395,363 | 366,314 | 293,181 | |||||||
Turkish Republic of Northern Cyprus | 229,652 | 209,109 | 169,014 | |||||||
Netherlands | 28,863 | 8,396 | 366 | |||||||
Germany | 694 | 2,154 | 1,580 | |||||||
Azerbaijan | — | — | 268,471 | |||||||
| | | | | | | | | | |
29,103,738 | 25,137,135 | 21,292,475 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Revenues | ||||||||||||
Turkey | 23,229,046 | 19,636,682 | 16,431,863 | |||||||||
Ukraine | 1,322,116 | 923,181 | 664,643 | |||||||||
Belarus | 366,314 | 293,181 | 209,884 | |||||||||
Turkish Republic of Northern Cyprus | 209,109 | 169,014 | 148,637 | |||||||||
Netherlands | 8,396 | 366 | — | |||||||||
Germany | 2,154 | 1,580 | 3,016 | |||||||||
Azerbaijan | — | 268,471 | 174,021 | |||||||||
|
|
|
|
|
| |||||||
25,137,135 | 21,292,475 | 17,632,064 | ||||||||||
|
|
|
|
|
|
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Non-current assets | |||||||
Turkey | 26,165,209 | 22,737,468 | |||||
Ukraine | 3,390,246 | 3,030,095 | |||||
Belarus | 264,864 | 219,281 | |||||
Turkish Republic of Northern Cyprus | 244,710 | 198,732 | |||||
Unallocated non-current assets | 849,992 | 197,255 | |||||
| | | | | | | |
30,915,021 | 26,382,831 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Non-current assets | ||||||||
Turkey | 22,737,468 | 21,037,351 | ||||||
Ukraine | 3,030,095 | 2,751,277 | ||||||
Belarus | 219,281 | 293,622 | ||||||
Turkish Republic of Northern Cyprus | 198,732 | 177,380 | ||||||
Unallocatednon-current assets | 197,255 | 168,536 | ||||||
|
|
|
| |||||
26,382,831 | 24,428,166 | |||||||
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
5. Revenue
| Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
Telecommunication services | 21,676,330 | 19,157,657 | 2,299,682 | 1,780,793 | — | — | (58,507 | ) | (60,147 | ) | 23,917,505 | 20,878,303 | |||||||||||||||||||
Equipment revenues | 3,194,083 | 2,130,135 | 122,901 | 115,905 | — | — | — | — | 3,316,984 | 2,246,040 | |||||||||||||||||||||
Revenue from financial services | — | — | — | — | 845,189 | 1,141,712 | (14,202 | ) | (839 | ) | 830,987 | 1,140,873 | |||||||||||||||||||
Call center revenues | 25,397 | 21,851 | 34,566 | 17,008 | 415,366 | 308,126 | (43,358 | ) | (34,542 | ) | 431,971 | 312,443 | |||||||||||||||||||
Commission fees on betting business | — | — | — | — | — | 132,300 | — | — | — | 132,300 | |||||||||||||||||||||
Other | 264,430 | 177,513 | 85,261 | 89,083 | 813,071 | 635,841 | (556,471 | ) | (475,261 | ) | 606,291 | 427,176 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 25,160,240 | 21,487,156 | 2,542,410 | 2,002,789 | 2,073,626 | 2,217,979 | (672,538 | ) | (570,789 | ) | 29,103,738 | 25,137,135 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||
Telecommunication services | 19,157,657 | 16,636,497 | 1,780,793 | 1,281,595 | — | — | (60,147 | ) | (58,335 | ) | 20,878,303 | 17,859,757 | |||||||||||||||||||
Equipment revenues | 2,130,135 | 1,209,745 | 115,905 | 101,350 | — | — | — | — | 2,246,040 | 1,311,095 | |||||||||||||||||||||
Revenue from financial services | — | — | — | — | 1,141,712 | 1,121,768 | (839 | ) | (2,647 | ) | 1,140,873 | 1,119,121 | |||||||||||||||||||
Call center revenues | 21,851 | 12,954 | 17,008 | 9,763 | 308,126 | 211,195 | (34,542 | ) | (30,740 | ) | 312,443 | 203,172 | |||||||||||||||||||
Commission fees on betting business | — | — | — | — | 132,300 | 200,315 | — | — | 132,300 | 200,315 | |||||||||||||||||||||
Revenue from betting business | — | — | — | — | — | 268,470 | — | — | — | 268,470 | |||||||||||||||||||||
Other | 177,513 | 233,390 | 89,083 | 64,272 | 635,841 | 311,933 | (475,261 | ) | (279,050 | ) | 427,176 | 330,545 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 21,487,156 | 18,092,586 | 2,002,789 | 1,456,980 | 2,217,979 | 2,113,681 | (570,789 | ) | (370,772 | ) | 25,137,135 | 21,292,475 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||||||
Telecommunication services | 19,157,657 | 16,636,497 | 1,780,793 | 1,281,595 | — | — | (60,147 | ) | (58,335 | ) | 20,878,303 | 17,859,757 | ||||||||||||||||||||||||||||
Equipment revenues | 2,130,135 | 1,209,745 | 115,905 | 101,350 | — | — | — | — | 2,246,040 | 1,311,095 | ||||||||||||||||||||||||||||||
Revenue from financial services | — | — | — | — | 1,141,712 | 1,121,768 | (839 | ) | (2,647 | ) | 1,140,873 | 1,119,121 | ||||||||||||||||||||||||||||
Call center revenues | 21,851 | 12,954 | 17,008 | 9,763 | 308,126 | 211,195 | (34,542 | ) | (30,740 | ) | 312,443 | 203,172 | ||||||||||||||||||||||||||||
Commission fees on betting business | — | — | — | — | 132,300 | 200,315 | — | — | 132,300 | 200,315 | ||||||||||||||||||||||||||||||
Revenue from betting business | — | — | — | — | — | 268,470 | — | — | — | 268,470 | ||||||||||||||||||||||||||||||
Other | 177,513 | 233,390 | 89,083 | 64,272 | 635,841 | 311,933 | (475,261 | ) | (279,050 | ) | 427,176 | 330,545 | ||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total | 21,487,156 | 18,092,586 | 2,002,789 | 1,456,980 | 2,217,979 | 2,113,681 | (570,789 | ) | (370,772 | ) | 25,137,135 | 21,292,475 | ||||||||||||||||||||||||||||
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Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||||
Telecommunication services | 16,636,497 | 14,159,955 | 1,281,595 | 952,246 | — | — | (58,335 | ) | (71,143 | ) | 17,859,757 | 15,041,058 | ||||||||||||||||||||||||||||
Equipment revenues | 1,209,745 | 1,033,647 | 101,350 | 69,801 | — | — | — | — | 1,311,095 | 1,103,448 | ||||||||||||||||||||||||||||||
Revenue from financial services | — | — | — | — | 1,121,768 | 715,754 | (2,647 | ) | (754 | ) | 1,119,121 | 715,000 | ||||||||||||||||||||||||||||
Call center revenues | 12,954 | 8,395 | 9,763 | 7,706 | 211,195 | 224,973 | (30,740 | ) | (8,395 | ) | 203,172 | 232,679 | ||||||||||||||||||||||||||||
Commission fees on betting business | — | — | — | — | 200,315 | 181,886 | — | — | 200,315 | 181,886 | ||||||||||||||||||||||||||||||
Revenue from betting business | — | — | — | — | 268,470 | 174,021 | — | — | 268,470 | 174,021 | ||||||||||||||||||||||||||||||
Other | 233,390 | 138,869 | 64,272 | 37,325 | 311,933 | 911 | (279,050 | ) | 6,867 | 330,545 | 183,972 | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||
Total | 18,092,586 | 15,340,866 | 1,456,980 | 1,067,078 | 2,113,681 | 1,297,545 | (370,772 | ) | (73,425 | ) | 21,292,475 | 17,632,064 | ||||||||||||||||||||||||||||
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TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
5. Revenue (Continued)
| 2020 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | |||||||||||
Telecommunication services | 21,676,330 | 2,299,682 | — | (58,507 | ) | 23,917,505 | ||||||||||
At a point in time | 254,619 | 14,821 | — | — | 269,440 | |||||||||||
Over time | 21,421,711 | 2,284,861 | — | (58,507 | ) | 23,648,065 | ||||||||||
Equipment revenues | 3,194,083 | 122,901 | — | — | 3,316,984 | |||||||||||
At a point in time | 3,105,851 | 122,901 | — | — | 3,228,752 | |||||||||||
Over time | 88,232 | — | — | — | 88,232 | |||||||||||
Revenue from financial services | — | — | 845,189 | (14,202 | ) | 830,987 | ||||||||||
At a point in time | — | — | 245,223 | (14,202 | ) | 231,021 | ||||||||||
Over time | — | — | 599,966 | — | 599,966 | |||||||||||
Call center revenues | 25,397 | 34,566 | 415,366 | (43,358 | ) | 431,971 | ||||||||||
At a point in time | — | — | — | — | — | |||||||||||
Over time | 25,397 | 34,566 | 415,366 | (43,358 | ) | 431,971 | ||||||||||
All other | 264,430 | 85,261 | 813,071 | (556,471 | ) | 606,291 | ||||||||||
At a point in time | 48,626 | 9,132 | — | — | 57,758 | |||||||||||
Over time | 215,804 | 76,129 | 813,071 | (556,471 | ) | 548,533 | ||||||||||
Total | 25,160,240 | 2,542,410 | 2,073,626 | (672,538 | ) | 29,103,738 | ||||||||||
At a point in time | 3,409,096 | 146,854 | 245,223 | (14,202 | ) | 3,786,971 | ||||||||||
Over time | 21,751,144 | 2,395,556 | 1,828,403 | (658,336 | ) | 25,316,767 |
|
2019 | ||||||||||||||||||||
Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | ||||||||||||||||
Telecommunication Services | 19,157,657 | 1,780,793 | — | (60,147 | ) | 20,878,303 | ||||||||||||||
At a point in time | 198,734 | 10,555 | — | — | 209,289 | |||||||||||||||
Over time | 18,958,923 | 1,770,238 | — | (60,147 | ) | 20,669,014 | ||||||||||||||
Equipment Related | 2,130,135 | 115,905 | — | — | 2,246,040 | |||||||||||||||
At a point in time | 2,050,055 | 115,905 | — | — | 2,165,960 | |||||||||||||||
Over time | 80,080 | — | — | — | 80,080 | |||||||||||||||
Revenue from financial operations | — | — | 1,141,712 | (839 | ) | 1,140,873 | ||||||||||||||
At a point in time | — | — | 222,930 | (839 | ) | 222,091 | ||||||||||||||
Over time | — | — | 918,782 | — | 918,782 | |||||||||||||||
Call Center | 21,851 | 17,008 | 308,126 | (34,542 | ) | 312,443 | ||||||||||||||
At a point in time | — | — | — | — | — | |||||||||||||||
Over time | 21,851 | 17,008 | 308,126 | (34,542 | ) | 312,443 | ||||||||||||||
Commission fees on betting business | — | — | 132,300 | — | 132,300 | |||||||||||||||
At a point in time | — | — | — | — | — | |||||||||||||||
Over time | — | — | 132,300 | — | 132,300 | |||||||||||||||
Revenue from betting business | — | — | — | — | — | |||||||||||||||
At a point in time | — | — | — | — | — | |||||||||||||||
Over time | — | — | — | — | — | |||||||||||||||
All other segments | 177,513 | 89,083 | 635,841 | (475,261 | ) | 427,176 | ||||||||||||||
At a point in time | 37,726 | 19,300 | 2,306 | (657 | ) | 58,675 | ||||||||||||||
Over time | 139,787 | 69,783 | 633,535 | (474,604 | ) | 368,501 | ||||||||||||||
Total | 21,487,156 | 2,002,789 | 2,217,979 | (570,789 | ) | 25,137,135 | ||||||||||||||
At a point in time | 2,286,515 | 145,760 | 225,236 | (1,496 | ) | 2,656,015 | ||||||||||||||
Over time | 19,200,641 | 1,857,029 | 1,992,743 | (569,293 | ) | 22,481,120 |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
5. Revenue (Continued)
| 2019 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | |||||||||||
Telecommunication services | 19,157,657 | 1,780,793 | — | (60,147 | ) | 20,878,303 | ||||||||||
At a point in time | 198,734 | 10,555 | — | — | 209,289 | |||||||||||
Over time | 18,958,923 | 1,770,238 | — | (60,147 | ) | 20,669,014 | ||||||||||
Equipment revenues | 2,130,135 | 115,905 | — | — | 2,246,040 | |||||||||||
At a point in time | 2,050,055 | 115,905 | — | — | 2,165,960 | |||||||||||
Over time | 80,080 | — | — | — | 80,080 | |||||||||||
Revenue from financial services | — | — | 1,141,712 | (839 | ) | 1,140,873 | ||||||||||
At a point in time | — | — | 222,930 | (839 | ) | 222,091 | ||||||||||
Over time | — | — | 918,782 | — | 918,782 | |||||||||||
Call center revenues | 21,851 | 17,008 | 308,126 | (34,542 | ) | 312,443 | ||||||||||
At a point in time | — | — | — | — | — | |||||||||||
Over time | 21,851 | 17,008 | 308,126 | (34,542 | ) | 312,443 | ||||||||||
Commission fees on betting business | — | — | 132,300 | — | 132,300 | |||||||||||
At a point in time | — | — | — | — | — | |||||||||||
Over time | — | — | 132,300 | — | 132,300 | |||||||||||
All other | 177,513 | 89,083 | 635,841 | (475,261 | ) | 427,176 | ||||||||||
At a point in time | 37,726 | 19,300 | 2,306 | (657 | ) | 58,675 | ||||||||||
Over time | 139,787 | 69,783 | 633,535 | (474,604 | ) | 368,501 | ||||||||||
Total | 21,487,156 | 2,002,789 | 2,217,979 | (570,789 | ) | 25,137,135 | ||||||||||
At a point in time | 2,286,515 | 145,760 | 225,236 | (1,496 | ) | 2,656,015 | ||||||||||
Over time | 19,200,641 | 1,857,029 | 1,992,743 | (569,293 | ) | 22,481,120 |
|
2018 | ||||||||||||||||||||
Turkcell Turkey | Turkcell International | Other | Intersegment eliminations | Consolidated | ||||||||||||||||
Telecommunication Services | 16,636,497 | 1,281,595 | — | (58,335 | ) | 17,859,757 | ||||||||||||||
At a point in time | 102,524 | — | — | (11,504 | ) | 91,020 | ||||||||||||||
Over time | 16,533,973 | 1,281,595 | — | (46,831 | ) | 17,768,737 | ||||||||||||||
Equipment Related | 1,209,745 | 101,350 | — | — | 1,311,095 | |||||||||||||||
At a point in time | 1,203,058 | 101,350 | — | — | 1,304,408 | |||||||||||||||
Over time | 6,687 | — | — | — | 6,687 | |||||||||||||||
Revenue from financial operations | — | — | 1,121,768 | (2,647 | ) | 1,119,121 | ||||||||||||||
At a point in time | — | — | 254,383 | (2,647 | ) | 251,736 | ||||||||||||||
Over time | — | — | 867,385 | — | 867,385 | |||||||||||||||
Call Center | 12,954 | 9,763 | 211,195 | (30,740 | ) | 203,172 | ||||||||||||||
At a point in time | — | — | — | — | — | |||||||||||||||
Over time | 12,954 | 9,763 | 211,195 | (30,740 | ) | 203,172 | ||||||||||||||
Commission fees on betting business | — | — | 200,315 | — | 200,315 | |||||||||||||||
At a point in time | — | — | — | — | — | |||||||||||||||
Over time | — | — | 200,315 | — | 200,315 | |||||||||||||||
Revenue from betting business | — | — | 268,470 | — | 268,470 | |||||||||||||||
At a point in time | — | — | — | — | — | |||||||||||||||
Over time | — | — | 268,470 | — | 268,470 | |||||||||||||||
All other segments | 233,390 | 64,272 | 311,933 | (279,050 | ) | 330,545 | ||||||||||||||
At a point in time | 142,504 | 8,556 | 7,576 | — | 158,636 | |||||||||||||||
Over time | 90,886 | 55,716 | 304,357 | (279,050 | ) | 171,909 | ||||||||||||||
Total | 18,092,586 | 1,456,980 | 2,113,681 | (370,772 | ) | 21,292,475 | ||||||||||||||
At a point in time | 1,448,086 | 109,906 | 261,959 | (14,151 | ) | 1,805,800 | ||||||||||||||
Over time | 16,644,500 | 1,347,074 | 1,851,722 | (356,621 | ) | 19,486,675 |
|
Other income amounted to TL 140,705, TL 241,435 and TL 74,438 for the years ended 31 December 2019, 2018 and 2017, respectively.
Other income for the year ended 31 December 2019 comprises gain on sale of fixed assets amounted toTL 47,169, rent income amounted to TL 6,522 and other miscellaneous expenses. Other income for the year ended 31 December 2018 consists of gain on sale of fixed assets amounted to TL 43,727, reversal of legal provisions amounted to TL 21,054 and other miscellaneous expenses. Other income for the year ended 31 December 2017 comprises gain on sale of fixed assets amounted to TL 33,837 and other miscellaneous expenses.
Other expenses amounted to TL 487,295, TL 381,582 and TL 773,329 for years ended 31 December 2019, 2018 and 2017, respectively.
Other expenses for the year ended 31 December 2019 mainly consist of tax settlements, restructuring costs and litigation expenses amounted to TL 199,000, TL 91,710 and TL 29,444, respectively. Other expenses for the years ended 31 December 2018 and 2017 mainly consist of donations and litigation expenses amounted to TL 176,321 (2017: TL 113,085) and TL 87,099 (2017: TL 585,585).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
6. Other income and expense
Recognized in the statement of profit or loss:
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Gain on sale of fixed assets | 23,950 | 47,169 | 43,727 | |||||||
Gain on modification of lease contract | 13,840 | 1,484 | — | |||||||
Non-interest income from banks | 12,245 | 2,477 | 5,996 | |||||||
Rent income | 8,839 | 6,522 | 4,637 | |||||||
Gain on sale of investments | — | — | 110,308 | |||||||
Other | 37,711 | 83,053 | 76,767 | |||||||
| | | | | | | | | | |
Other income | 96,585 | 140,705 | 241,435 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Litigation expenses | (387,352 | ) | (303,879 | ) | (87,099 | ) | ||||
Donation expenses | (60,778 | ) | — | (176,321 | ) | |||||
Supplementary contributions to retailers | (46,804 | ) | — | — | ||||||
Subscriber returns | (22,722 | ) | — | — | ||||||
Restructuring cost | (13,051 | ) | (91,710 | ) | (9,840 | ) | ||||
Other | (89,128 | ) | (91,706 | ) | (108,322 | ) | ||||
| | | | | | | | | | |
Other expense | (619,835 | ) | (487,295 | ) | (381,582 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
7. Employee benefit expenses
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Wages and salaries (*) | 2,820,500 | 2,434,790 | 1,968,882 | |||||||
Employee termination benefits (**) | 38,879 | 31,799 | 29,140 | |||||||
Defined contribution plans | 14,677 | 12,785 | 9,361 | |||||||
| | | | | | | | | | |
2,874,056 | 2,479,374 | 2,007,383 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
2019 | 2018 | 2017 | ||||||||||
Wages and salaries (*) | 2,503,611 | 2,030,641 | 1,746,147 | |||||||||
Employee termination benefits (**) | 31,799 | 29,140 | 32,862 | |||||||||
Defined contribution plans | 12,785 | 9,361 | 8,107 | |||||||||
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| |||||||
2,548,195 | 2,069,142 | 1,787,116 | ||||||||||
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|
|
Employee benefit expenses are recognized in cost of revenue, selling and marketing expenses and administrative expenses.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
8. Finance income and costs
|
Recognized in the statement of profit or loss:
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Cash flow hedges—reclassified to profit or loss | 1,410,997 | — | 568,370 | |||||||
Net fair value gains and interest on derivative financial instruments | 317,820 | — | 654,933 | |||||||
Interest income | 366,695 | 288,010 | 395,045 | |||||||
Other | 23,971 | 9,440 | 58,766 | |||||||
| | | | | | | | | | |
Finance income | 2,119,483 | 297,450 | 1,677,114 | |||||||
| | | | | | | | | | |
Net foreign exchange losses | (2,409,550 | ) | (1,039,618 | ) | (2,695,045 | ) | ||||
Net interest expenses for financial assets and liabilities measured at amortized cost | (811,439 | ) | (874,535 | ) | (552,101 | ) | ||||
Net fair value losses and interest on derivative financial instruments | — | (550,438 | ) | — | ||||||
Cash flow hedges—reclassified to profit or loss | — | 461,133 | — | |||||||
Other | (30,175 | ) | (21,660 | ) | (116,926 | ) | ||||
| | | | | | | | | | |
Finance costs | (3,251,164 | ) | (2,025,118 | ) | (3,364,072 | ) | ||||
| | | | | | | | | | |
Net finance costs | (1,131,681 | ) | (1,727,668 | ) | (1,686,958 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Interest income | 288,010 | 395,045 | 278,599 | |||||||||
Net fair value gains on derivative financial instruments and interest (*) | — | 654,933 | 317,542 | |||||||||
Cash flow hedges – reclassified to profit or loss (*) | — | 568,370 | — | |||||||||
Other | 9,440 | 58,766 | 1,105 | |||||||||
|
|
|
|
|
| |||||||
Finance income | 297,450 | 1,677,114 | 597,246 | |||||||||
|
|
|
|
|
| |||||||
Net foreign exchange losses | (1,039,618 | ) | (2,695,045 | ) | (718,501 | ) | ||||||
Net interest expenses for financial assets and liabilities measured at amortized cost | (864,492 | ) | (552,101 | ) | (193,311 | ) | ||||||
Net fair value losses on derivative financial instruments and interest (*) | (550,438 | ) | — | — | ||||||||
Cash flow hedges – reclassified to profit or loss (*) | 461,133 | — | — | |||||||||
Other | (31,703 | ) | (116,926 | ) | (8,300 | ) | ||||||
|
|
|
|
|
| |||||||
Finance costs | (2,025,118 | ) | (3,364,072 | ) | (920,112 | ) | ||||||
|
|
|
|
|
| |||||||
Net finance costs | (1,727,668 | ) | (1,686,958 | ) | (322,866 | ) | ||||||
|
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| �� |
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|
|
Finance incomes for the years ended 31 December 2019, are mainly attributable to interest income on bank deposits.
Finance income for the years ended 31 December 2018 and 2017 are mainly attributable to interest income on contracted handset sales, changes in fair value of derivative financial instruments, interest income on bank deposits and cash flow hedge.
Net foreign exchange losses mainly include foreign exchange losses on borrowings, bonds issued and cash and cash equivalents.
Finance costs for year ended 31 December 2019, 2018 and 2017 are mainly attributable to the financing costs of borrowings, foreign exchange losses from operating and financing activities.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Foreign exchange losses from Belarusian Telecom and lifecell exclude foreign exchange losses incurred in the foreign operations’operations' individual financial statements, which have been recognized directly in equity under foreign currency translation reserve in the consolidated financial statements in accordance with the accounting policy for net investment in foreign operations as disclosed in Note 2c.
Interest income and expense on financial assets measured at amortized cost are shown netted of on consolidated statement of profit or loss. The Company has gross interest income and expense on financial assets at amortized cost amounting to TL 281,993, TL (1,093,432), TL 316,932, TL (1,191,467), and TL 255,019, TL (807,120) for the years ended 31 December 2020, 2019 and 2018, respectively.
|
9. Income tax expense
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Current income tax expense | (724,688 | ) | (570,509 | ) | (654,953 | ) | ||||
Deferred income tax credit/(expense) | 337,495 | (215,121 | ) | 159,472 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total income tax expense | (387,193 | ) | (785,630 | ) | (495,481 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Current income tax expense | (570,509 | ) | (654,953 | ) | (437,967 | ) | ||||||
Deferred income tax (expense)/credit | (215,121 | ) | 159,472 | (133,791 | ) | |||||||
|
|
|
|
|
| |||||||
Total income tax expense | (785,630 | ) | (495,481 | ) | (571,758 | ) | ||||||
|
|
|
|
|
|
Income tax expense is attributable to profit from continuing operations.
Income tax relating to each component of other comprehensive income | ||||||||||||
Before tax | Tax (expense)/ credit | Net of tax | ||||||||||
2019 | ||||||||||||
Foreign currency translation differences | 536,796 | (99,234 | ) | 437,562 | ||||||||
Change in cash flow hedge reserve | (217,877 | ) | 47,933 | (169,944 | ) | |||||||
Change in cost of hedging reserve | 75,605 | (16,634 | ) | 58,971 | ||||||||
Fair value reserve | 4,451 | (979 | ) | 3,472 | ||||||||
Hedges of net investments in foreign operations | (55,389 | ) | 12,186 | (43,203 | ) | |||||||
Remeasurements of employee termination benefits | (36,385 | ) | 8,005 | (28,380 | ) | |||||||
|
|
|
|
|
| |||||||
307,201 | (48,723 | ) | 258,478 | |||||||||
|
|
|
|
|
| |||||||
2018 | ||||||||||||
Foreign currency translation differences | 850,188 | (226,667 | ) | 623,521 | ||||||||
Change in cash flow hedge reserve | 19,156 | (4,214 | ) | 14,942 | ||||||||
Change in cost of hedging reserve | (347,602 | ) | 76,472 | (271,130 | ) | |||||||
Remeasurements of employee termination benefits | 12,699 | (2,794 | ) | 9,905 | ||||||||
|
|
|
|
|
| |||||||
534,441 | (157,203 | ) | 377,238 | |||||||||
|
|
|
|
|
| |||||||
2017 | ||||||||||||
Foreign currency translation differences | 100,149 | (107,299 | ) | (7,150 | ) | |||||||
Remeasurements of employee termination benefits | (3,738 | ) | 748 | (2,990 | ) | |||||||
|
|
|
|
|
| |||||||
96,411 | (106,551 | ) | (10,140 | ) | ||||||||
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
9. Income tax expense (Continued)
Income tax relating to each component of other comprehensive income
|
| Before tax | Tax (expense)/ credit | Net of tax | |||||||
---|---|---|---|---|---|---|---|---|---|---|
2020 | ||||||||||
Foreign currency translation differences | 29,352 | 7,729 | 37,081 | |||||||
Change in cash flow hedge reserve | 9,914 | (5,957 | ) | 3,957 | ||||||
Change in cost of hedging reserve | (487,644 | ) | 92,089 | (395,555 | ) | |||||
Fair value reserve | (1,970 | ) | 483 | (1,487 | ) | |||||
Hedges of net investments in foreign operations | (368,959 | ) | 72,684 | (296,275 | ) | |||||
Remeasurements of employee termination benefits | (37,230 | ) | 6,085 | (31,145 | ) | |||||
| | | | | | | | | | |
(856,537 | ) | 173,113 | (683,424 | ) | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | ||||||||||
Foreign currency translation differences | 536,796 | (99,234 | ) | 437,562 | ||||||
Change in cash flow hedge reserve | (217,877 | ) | 47,933 | (169,944 | ) | |||||
Change in cost of hedging reserve | 75,605 | (16,634 | ) | 58,971 | ||||||
Fair value reserve | 4,451 | (979 | ) | 3,472 | ||||||
Hedges of net investments in foreign operations | (55,389 | ) | 12,186 | (43,203 | ) | |||||
Remeasurements of employee termination benefits | (36,385 | ) | 8,005 | (28,380 | ) | |||||
| | | | | | | | | | |
307,201 | (48,723 | ) | 258,478 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2018 | ||||||||||
Foreign currency translation differences | 850,188 | (226,667 | ) | 623,521 | ||||||
Change in cash flow hedge reserve | 19,156 | (4,214 | ) | 14,942 | ||||||
Change in cost of hedging reserve | (347,602 | ) | 76,472 | (271,130 | ) | |||||
Remeasurements of employee termination benefits | 12,699 | (2,794 | ) | 9,905 | ||||||
| | | | | | | | | | |
534,441 | (157,203 | ) | 377,238 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
9. Income tax expense (Continued)
Reconciliation of income tax expense
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Profit from continuing operations before income tax expense | 4,626,813 | 3,289,884 | 2,672,816 | |||||||
(Loss) from discontinued operations before income tax expense | — | 772,436 | — | |||||||
| | | | | | | | | | |
Profit before income tax expense | 4,626,813 | 4,062,320 | 2,672,816 | |||||||
| | | | | | | | | | |
Tax at the Turkey's tax rate | (1,017,899 | ) | (893,710 | ) | (588,020 | ) | ||||
Difference in overseas tax rates | (3,825 | ) | (12,580 | ) | 7,617 | |||||
Effect of exemptions (*) | 130,718 | 123,878 | 198,160 | |||||||
Previously unrecognized tax losses used to reduce deferred tax expense (**) | 665,842 | — | — | |||||||
Utilization of previously unrecognized tax losses | 6,746 | — | — | |||||||
Effect of amounts which are not deductible and permanent differences | (123,738 | ) | (134,538 | ) | (91,778 | ) | ||||
Tax exemptions from sale of subsidiary and associate (***) | — | 169,936 | 24,268 | |||||||
Change in unrecognized deferred tax assets (****) | (47,094 | ) | (41,681 | ) | (50,551 | ) | ||||
Adjustments for current tax of prior years | 3,452 | 3,880 | 2,510 | |||||||
Tax effect of investment in associate and joint venture | (2,794 | ) | (2,592 | ) | — | |||||
Other | 1,399 | 1,777 | 2,313 | |||||||
| | | | | | | | | | |
Total income tax expense | (387,193 | ) | (785,630 | ) | (495,481 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(*) Mainly comprises of research and development tax credit exemption. For the year ended 31 December 2018, includes the exemption effect of sales of Fintur amounted to TL 76,164.
(**) Mainly comprises the deferred tax credit of TL 665,842 which relates to the carried-forward tax losses of lifecell. lifecell has recorded positive taxable profits for the year ended 31 December 2020, mainly as a result of increased subscriber numbers and cost management. The Group has concluded that the deferred tax assets will be recoverable using the estimated future taxable profits based on the business plan of lifecell. The tax losses can be carried forward indefinitely and have no expiry date.
2019 | 2018 | 2017 | ||||||||||
Profit from continuing operations before income tax expense | 3,289,884 | 2,672,816 | 2,609,517 | |||||||||
(Loss) from discontinued operations before income tax expense | 772,436 | — | — | |||||||||
|
|
|
|
|
| |||||||
Profit before income tax expense | 4,062,320 | 2,672,816 | 2,609,517 | |||||||||
|
|
|
|
|
| |||||||
Tax at the Turkey’s tax rate | (893,710 | ) | (588,020 | ) | (521,903 | ) | ||||||
Difference in overseas tax rates | (12,580 | ) | 7,617 | 4,133 | ||||||||
Effect of exemptions (*) | 123,878 | 198,160 | 73,916 | |||||||||
Effect of amounts which are not deductible and permanent differences | (134,538 | ) | (91,778 | ) | (102,102 | ) | ||||||
Tax exemption from subsidiary sale (**) | 169,936 | 24,268 | — | |||||||||
Change in unrecognized deferred tax assets (***) | (46,865 | ) | (50,551 | ) | (41,340 | ) | ||||||
Adjustments for current tax of prior years | 3,880 | 2,510 | 11,280 | |||||||||
Tax effect of investment in associate and joint venture | 2,592 | — | — | |||||||||
Other | 1,777 | 2,313 | 4,258 | |||||||||
|
|
|
|
|
| |||||||
Total income tax expense | (785,630 | ) | (495,481 | ) | (571,758 | ) | ||||||
|
|
|
|
|
|
(***) For the years ended 31 December 2019 and 2018, includes the Group's transfer of its total shareholding in Fintur and Azerinteltek, respectively (Note 39).
(****) Mainly comprises of unused tax losses for which no deferred tax asset has been recognized.
|
|
|
The Turkish entities within the Group are subject to corporate tax at the rate of 20%. Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding backnon-deductible expenses, and by deducting tax exempt income. On 5 December 2017, Turkey’sTurkey's Law No. 7061 on the Amendment of Certain Tax Laws and Some Other Laws, and which was adopted on28on 28 November 2017, was published in the Official Gazette. The Law increases the corporate tax rate under Corporate Tax Law, No. 5520, from the current 20% rate to 22% for tax years 2018,
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
9. Income tax expense (Continued)
2019, and 2020; the change took effect on the Law’sLaw's date of publication. The corporate tax rate is expected to decreasedecreases to 20% from 2021 onwards.in 2021.
In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns by the 25th dayend of the fourth month following the closing of the accounting year to which they relate. Corporate tax payment is made by the end of the month in which the tax return is filed. The tax authorities may, however, examine such returns and the underlying accounting records, and may revise assessments within a five-year period. Advance tax returns are filed on a quarterly basis.
In Turkey, the transfer pricing provisions have been stated under Article 13 of Corporate Tax Law with the heading of “disguised"disguised profit distribution via transfer pricing”pricing". The General Communiqué on disguised profit distribution via Transfer Pricing, dated 18 November 2007 sets out the details of implementation.
If a taxpayer enters into transactions regarding the sale or purchase of goods and services with related parties, where the prices are not set in accordance with arm’sarm's length principle, then related profits are considered to be distributed in a disguised manner through transfer pricing. Such disguised profit distributions through transfer pricing are not accepted as tax deductible for corporate income tax purposes.
The deduction of 100% of the research and development expenses is allowed when the taxpayers are made these expenditures exclusively for new technology and information researches.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Reconciliation of income tax expense (continued)
Dividend payments of Turkish resident corporations to Turkish real persons, foreign corporations and foreign real persons are subject to 15% withholding tax. It is possible to apply reduced withholding tax rate for dividend payments made to abroad, under the scope of provisions of an applicable double taxation treaty. On the other hand, dividend payments made to Turkish resident companies are not subject to withholding tax.
Dividend income of Turkish taxpayers received from other Turkish taxpayers is exempted from corporate tax. However, dividends received from participation shares and stocks of fund and investment partnerships cannot utilize from this exemption.
75% of the profits arising from the sale of affiliate shares, founders’founders' shares, redeemed shares and preemptive rights that are held by the corporations for at least two years are exempted from corporate tax. However, as of 5 December 2017, the date of the publication of the Law No. 7061, 50% of the profits arising from the sale of immovable properties included in the assets of corporations for two years are exempted from corporate tax. The exemption rate had been 75% prior to this date. In order to benefit from these exemptions, profits must be recorded under a passive fund account on the balance sheet and not withdrawn for 5 years. Also, the sale amounts must be received until the end of the second calendar year following the sale.
Pursuant to Article10/13-h of Law No.7143No. 7143 published in the Official Gazette dated 18 May 2018 and numbered 30425;
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
9. Income tax expense (Continued)
including those obtained until the date 31 October 2018, are exempted from income tax or corporation tax under condition that incomes are transferred from the effective date of Article until 31 December 2018. In accordance with the Presidential Decree dated 29 August 2018 and numbered 48, the terms of the Article have been extended for 6 months. In this way, including those obtained until the date 30 April 2019, income from the sale ofnon-resident subsidiary’s subsidiary's shares are exempted from corporation tax under condition that incomes are transferred until 30 June 2019.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
10. Expenses by nature
|
Breakdown of expenses by nature for the years ended 31 December 2020, 2019 2018 and 20172018 is as follows:
Cost of revenue:
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Depreciation and amortization (*) | (5,974,779 | ) | (5,046,565 | ) | (4,287,974 | ) | ||||
Cost of goods sold | (3,301,984 | ) | (2,278,283 | ) | (1,284,180 | ) | ||||
Treasury share | (2,418,800 | ) | (2,191,427 | ) | (1,884,556 | ) | ||||
Interconnection and termination expenses | (2,247,647 | ) | (1,909,614 | ) | (1,763,414 | ) | ||||
Employee benefit expenses | (1,741,591 | ) | (1,447,037 | ) | (1,148,445 | ) | ||||
Radio expenses | (921,153 | ) | (734,583 | ) | (508,884 | ) | ||||
Frequency expenses | (887,243 | ) | (802,950 | ) | (622,390 | ) | ||||
Transmission expenses | (426,036 | ) | (335,980 | ) | (326,080 | ) | ||||
Universal service fund | (330,932 | ) | (297,053 | ) | (256,454 | ) | ||||
Roaming expenses | (214,478 | ) | (238,147 | ) | (226,806 | ) | ||||
Cost of revenue from financial services (**) | (135,237 | ) | (240,297 | ) | (378,477 | ) | ||||
Others | (1,736,179 | ) | (1,561,544 | ) | (1,458,333 | ) | ||||
| | | | | | | | | | |
(20,336,059 | ) | (17,083,480 | ) | (14,145,993 | ) | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Depreciation and amortization (*) | (5,046,565 | ) | (4,287,974 | ) | (2,596,980 | ) | ||||||
Cost of goods sold | (2,278,283 | ) | (1,284,180 | ) | (965,054 | ) | ||||||
Treasury share | (2,191,427 | ) | (1,884,556 | ) | (1,669,807 | ) | ||||||
Interconnection and termination expenses | (1,909,614 | ) | (1,763,414 | ) | (1,607,079 | ) | ||||||
Employee benefit expenses | (1,501,617 | ) | (1,193,953 | ) | (1,041,755 | ) | ||||||
Frequency expenses | (802,950 | ) | (622,390 | ) | (278,727 | ) | ||||||
Radio expenses | (734,583 | ) | (508,884 | ) | (844,941 | ) | ||||||
Transmission expenses | (335,980 | ) | (326,080 | ) | (218,221 | ) | ||||||
Universal service fund | (297,053 | ) | (256,454 | ) | (221,431 | ) | ||||||
Cost of revenue from financial services (**) | (240,297 | ) | (378,477 | ) | (283,000 | ) | ||||||
Roaming expenses | (238,147 | ) | (226,806 | ) | (177,258 | ) | ||||||
Billing and archiving expenses | (48,970 | ) | (50,929 | ) | (55,185 | ) | ||||||
Others | (1,457,994 | ) | (1,361,896 | ) | (1,390,736 | ) | ||||||
|
|
|
|
|
| |||||||
(17,083,480 | ) | (14,145,993 | ) | (11,350,174 | ) | |||||||
|
|
|
|
|
|
|
|
Selling and marketing expenses:
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Employee benefit expenses | (634,367 | ) | (547,136 | ) | (433,997 | ) | ||||
Marketing expenses | (507,921 | ) | (554,538 | ) | (551,127 | ) | ||||
Selling expenses | (173,064 | ) | (349,269 | ) | (555,158 | ) | ||||
Others | (57,601 | ) | (104,246 | ) | (86,432 | ) | ||||
| | | | | | | | | | |
(1,372,953 | ) | (1,555,189 | ) | (1,626,714 | ) | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Marketing expenses | (554,538 | ) | (551,127 | ) | (532,989 | ) | ||||||
Employee benefit expenses | (551,801 | ) | (440,976 | ) | (394,421 | ) | ||||||
Selling expenses | (349,269 | ) | (555,158 | ) | (898,936 | ) | ||||||
Frequency usage fees related to prepaid subscribers (**) | — | — | (82,994 | ) | ||||||||
Others | (99,581 | ) | (79,453 | ) | (96,080 | ) | ||||||
|
|
|
|
|
| |||||||
(1,555,189 | ) | (1,626,714 | ) | (2,005,420 | ) | |||||||
|
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
10. Expenses by nature (Continued)
|
Administrative expenses:
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Employee benefit expenses | (479,932 | ) | (473,843 | ) | (416,409 | ) | ||||
Service expenses | (58,255 | ) | (52,756 | ) | (35,257 | ) | ||||
Consultancy expenses | (53,105 | ) | (51,308 | ) | (38,252 | ) | ||||
Collection expenses | (52,189 | ) | (57,097 | ) | (37,525 | ) | ||||
Maintenance and repair expenses | (20,139 | ) | (26,610 | ) | (26,867 | ) | ||||
Travel and entertainment expenses | (17,009 | ) | (34,644 | ) | (38,406 | ) | ||||
Other | (68,983 | ) | (83,497 | ) | (80,654 | ) | ||||
| | | | | | | | | | |
(749,612 | ) | (779,755 | ) | (673,370 | ) | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Employee benefit expenses | (483,419 | ) | (425,681 | ) | (346,151 | ) | ||||||
Collection expenses | (57,097 | ) | (37,525 | ) | (20,415 | ) | ||||||
Consultancy expenses | (51,308 | ) | (38,252 | ) | (50,247 | ) | ||||||
Travel and entertainment expenses | (34,644 | ) | (38,406 | ) | (30,957 | ) | ||||||
Maintenance and repair expenses | (26,610 | ) | (26,867 | ) | (24,342 | ) | ||||||
Rent expenses | — | — | (36,280 | ) | ||||||||
Net impairment expense recognized on receivables | — | — | (36,278 | ) | ||||||||
Other | (126,677 | ) | (106,639 | ) | (100,526 | ) | ||||||
|
|
|
|
|
| |||||||
(779,755 | ) | (673,370 | ) | (645,196 | ) | |||||||
|
|
|
|
|
|
Net impairment losses on financial and contract assets:
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Net impairment losses on financial and contract assets | (349,595 | ) | (338,857 | ) | (346,390 | ) | ||||
| | | | | | | | | | |
(349,595 | ) | (338,857 | ) | (346,390 | ) | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Net impairment losses on financial and contract assets | (338,857 | ) | (346,390 | ) | — | |||||||
|
|
|
|
|
| |||||||
(338,857 | ) | (346,390 | ) | — | ||||||||
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
11. Property, plant and equipment
Cost | Balance as at 1 January 2020 | Additions | Disposals | Transfers | Disposal of subsidiaries | Impairment expenses/ (reversals) | Transfer to investment property | Effects of movements in exchange rates | Balance as at 31 December 2020 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Network infrastructure (All operational) | 22,022,991 | 818,989 | (699,727 | ) | 2,671,001 | (15,536 | ) | — | — | 125,400 | 24,923,118 | |||||||||||||||||
Land and buildings | 1,211,323 | 68,667 | (2,004 | ) | 212,943 | — | — | (6,781 | ) | 1,101 | 1,485,249 | |||||||||||||||||
Equipment, fixtures and fittings | 866,409 | 93,428 | (10,954 | ) | 8,961 | (3,482 | ) | — | — | 1,532 | 955,894 | |||||||||||||||||
Motor vehicles | 44,518 | 2,098 | (1,690 | ) | — | (4 | ) | — | — | 77 | 44,999 | |||||||||||||||||
Leasehold improvements | 335,837 | 7,149 | (62 | ) | 341 | (1,574 | ) | — | — | 402 | 342,093 | |||||||||||||||||
Construction in progress | 666,328 | 2,921,952 | (11,372 | ) | (2,898,087 | ) | — | (2 | ) | — | 2,480 | 681,299 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 25,147,406 | 3,912,283 | (725,809 | ) | (4,841 | ) | (20,596 | ) | (2 | ) | (6,781 | ) | 130,992 | 28,432,652 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation | ||||||||||||||||||||||||||||
Network infrastructure (All operational) | 11,382,813 | 2,270,537 | (656,472 | ) | — | (15,536 | ) | 4,183 | — | 105,298 | 13,090,823 | |||||||||||||||||
Land and buildings | 285,626 | 73,594 | — | — | — | — | (5,528 | ) | 620 | 354,312 | ||||||||||||||||||
Equipment, fixtures and fittings | 673,927 | 53,914 | (7,865 | ) | — | (3,287 | ) | — | — | 1,182 | 717,871 | |||||||||||||||||
Motor vehicles | 37,840 | 3,714 | (1,593 | ) | — | (4 | ) | — | — | 70 | 40,027 | |||||||||||||||||
Leasehold improvements | 308,709 | 19,622 | (49 | ) | — | (1,574 | ) | — | — | 181 | 326,889 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 12,688,915 | 2,421,381 | (665,979 | ) | — | (20,401 | ) | 4,183 | (5,528 | ) | 107,351 | 14,529,922 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net book amount | 12,458,491 | 1,490,902 | (59,830 | ) | (4,841 | ) | (195 | ) | (4,185 | ) | (1,253 | ) | 23,641 | 13,902,730 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Balance as at 1 January 2019 | Additions | Disposals | Transfers | Impairment expenses/ (reversals) | Effects of movements in exchange rates | Balance as at 31 December 2019 | ||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||
Network infrastructure (All operational) | 19,132,278 | 708,891 | (756,889 | ) | 1,982,073 | — | 956,638 | 22,022,991 | ||||||||||||||||||||
Land and buildings | 929,901 | 52,877 | — | 220,637 | — | 7,908 | 1,211,323 | |||||||||||||||||||||
Equipment, fixtures and fittings | 803,500 | 97,225 | (48,813 | ) | 1,446 | — | 13,051 | 866,409 | ||||||||||||||||||||
Motor vehicles | 40,106 | 3,833 | (491 | ) | — | — | 1,070 | 44,518 | ||||||||||||||||||||
Leasehold improvements | 327,492 | 5,418 | (7 | ) | 317 | — | 2,617 | 335,837 | ||||||||||||||||||||
Construction in progress | 512,087 | 2,354,918 | (2,058 | ) | (2,216,841 | ) | (3,125 | ) | 21,347 | 666,328 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 21,745,364 | 3,223,162 | (808,258 | ) | (12,368 | ) | (3,125 | ) | 1,002,631 | 25,147,406 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||
Network infrastructure (All operational) | 9,446,217 | 2,006,650 | (738,527 | ) | 31,327 | 14,543 | 622,603 | 11,382,813 | ||||||||||||||||||||
Land and buildings | 239,088 | 58,292 | — | (16,359 | ) | — | 4,605 | 285,626 | ||||||||||||||||||||
Equipment, fixtures and fittings | 633,507 | 80,254 | (39,143 | ) | (11,440 | ) | — | 10,749 | 673,927 | |||||||||||||||||||
Motor vehicles | 34,230 | 2,923 | (296 | ) | — | — | 983 | 37,840 | ||||||||||||||||||||
Leasehold improvements | 276,006 | 30,776 | (7 | ) | — | 339 | 1,595 | 308,709 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 10,629,048 | 2,178,895 | (777,973 | ) | 3,528 | 14,882 | 640,535 | 12,688,915 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net book amount | 11,116,316 | 1,044,267 | (30,285 | ) | (15,896 | ) | (18,007 | ) | 362,096 | 12,458,491 | ||||||||||||||||||
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|
|
|
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|
|
|
|
|
|
|
Depreciation expenses for the years ended 31 December 2020, 2019 2018 and 20172018 amounting to TL 2,425,566 , TL 2,196,902 and TL 1,888,834, and TL 1,499,242, respectively include impairment losses and are recognized in cost of revenue.
Impairment losses on property, plant and equipment for the years ended 31 December 2020, 2019 2018 and 20172018 are TL 4,185, TL 18,007 and TL 34,382, and TL 39,721, respectively and are recognized in depreciation expenses.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
11. Property, plant and equipment (Continued)
Capitalization rates and amounts other than borrowings made specifically for the purpose of acquiring a qualifying asset are 6.5%3.1%, 6.8%6.5% and 10.0%,6.8%; TL 100,051 and TL 123,449 and TL 75,054 and TL 66,513 for the years ended 31 December 2020, 2019 2018 and 20172018 respectively.
Impaired network infrastructure mainly consists of damaged or technologically inadequate mobile and fixed network infrastructure investments.
Network infrastructure mainly consists of mobile and fixed network infrastructure investments.
Cost | Balance as at 1 January 2019 | Additions | Disposals | Transfers | Impairment expenses/ (reversals) | Effects of movements in exchange rates | Balance as at 31 December 2019 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Network infrastructure (All operational) | 19,132,278 | 708,891 | (756,889 | ) | 1,982,073 | — | 956,638 | 22,022,991 | ||||||||||||||
Land and buildings | 929,901 | 52,877 | — | 220,637 | — | 7,908 | 1,211,323 | |||||||||||||||
Equipment, fixtures and fittings | 803,500 | 97,225 | (48,813 | ) | 1,446 | — | 13,051 | 866,409 | ||||||||||||||
Motor vehicles | 40,106 | 3,833 | (491 | ) | — | — | 1,070 | 44,518 | ||||||||||||||
Leasehold improvements | 327,492 | 5,418 | (7 | ) | 317 | — | 2,617 | 335,837 | ||||||||||||||
Construction in progress | 512,087 | 2,354,918 | (2,058 | ) | (2,216,841 | ) | (3,125 | ) | 21,347 | 666,328 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total | 21,745,364 | 3,223,162 | (808,258 | ) | (12,368 | ) | (3,125 | ) | 1,002,631 | 25,147,406 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated depreciation | ||||||||||||||||||||||
Network infrastructure (All operational) | 9,446,217 | 2,006,650 | (738,527 | ) | 31,327 | 14,543 | 622,603 | 11,382,813 | ||||||||||||||
Land and buildings | 239,088 | 58,292 | — | (16,359 | ) | — | 4,605 | 285,626 | ||||||||||||||
Equipment, fixtures and fittings | 633,507 | 80,254 | (39,143 | ) | (11,440 | ) | — | 10,749 | 673,927 | |||||||||||||
Motor vehicles | 34,230 | 2,923 | (296 | ) | — | — | 983 | 37,840 | ||||||||||||||
Leasehold improvements | 276,006 | 30,776 | (7 | ) | — | 339 | 1,595 | 308,709 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total | 10,629,048 | 2,178,895 | (777,973 | ) | 3,528 | 14,882 | 640,535 | 12,688,915 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net book amount | 11,116,316 | 1,044,267 | (30,285 | ) | (15,896 | ) | (18,007 | ) | 362,096 | 12,458,491 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
12. Intangible assets
Turkcell
The carrying amounts of 2G, 3G and 4.5G licenses are TL 103,460, TL 320,599 and TL 3,320,721, respectively (31 December 2019: TL 149,443, TL 359,071 and TL 3,723,232, respectively).
lifecell
lifecell owns nine activity licenses: a technology neutral license, issued for 3G, one license for international and long-distance calls and seven PSTN licenses for seven regions in Ukraine. As of 31 December 2020, lifecell owns twenty frequency use licenses for IMT (LTE-2600, LTE-1800, LTE-900), IMT-2000 (UMTS), GSM-900, GSM-1800, and microwave Radiorelay and Broadband Radio Access, which are regional and national. Additionally, lifecell holds a specific number range—three NDC codes for mobile network, twenty-eight permissions on a number resource for short numbers, ten permissions on a number resource for SS-7 codes (six regional and four international), one permission on a number resource for Mobile Network Code, eight permissions on a number resource for local ranges for PSTN licenses, two permissions on service codes for alternative routing selection for international and long-distance fixed telephony, and one permission on a code for global telecommunication service "800". The carrying amount of lifecell's licenses is TL 1,217,173 (31 December 2019: TL 1,254,713).
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Balance as at 1 January 2018 | Additions | Disposals | Transfers | Impairment expenses/ (reversals) | Disposal of subsidiary | Effects of movements in exchange rates | Transfer to investment property | Balance as at 31 December 2018 | ||||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||
Network infrastructure (All operational) | 15,480,128 | 650,610 | (232,888 | ) | 2,270,262 | — | (15,081 | ) | 979,247 | — | 19,132,278 | |||||||||||||||||||||||||
Land and buildings | 786,058 | 28,828 | (2,535 | ) | 156,540 | — | — | 6,831 | (45,821 | ) | 929,901 | |||||||||||||||||||||||||
Equipment, fixtures and fittings | 728,202 | 59,311 | (15,827 | ) | 10,712 | — | (4,041 | ) | 25,143 | — | 803,500 | |||||||||||||||||||||||||
Motor vehicles | 37,216 | 3,121 | (775 | ) | — | — | (1,400 | ) | 1,944 | — | 40,106 | |||||||||||||||||||||||||
Leasehold improvements | 314,867 | 5,998 | (547 | ) | 3,123 | — | (1,639 | ) | 5,690 | — | 327,492 | |||||||||||||||||||||||||
Construction in progress | 672,294 | 2,260,360 | (670 | ) | (2,448,448 | ) | (10,744 | ) | — | 39,295 | — | 512,087 | ||||||||||||||||||||||||
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|
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| |||||||||||||||||||
Total | 18,018,765 | 3,008,228 | (253,242 | ) | (7,811 | ) | (10,744 | ) | (22,161 | ) | 1,058,150 | (45,821 | ) | 21,745,364 | ||||||||||||||||||||||
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| |||||||||||||||||||
Accumulated depreciation | ||||||||||||||||||||||||||||||||||||
Network infrastructure (All operational) | 7,326,559 | 1,693,374 | (218,894 | ) | — | 23,568 | (6,887 | ) | 628,497 | — | 9,446,217 | |||||||||||||||||||||||||
Land and buildings | 209,918 | 50,514 | (274 | ) | — | 9 | — | 4,686 | (25,765 | ) | 239,088 | |||||||||||||||||||||||||
Equipment, fixtures and fittings | 539,827 | 77,694 | (10,839 | ) | — | 49 | (2,694 | ) | 29,470 | — | 633,507 | |||||||||||||||||||||||||
Motor vehicles | 31,306 | 2,637 | (712 | ) | — | — | (918 | ) | 1,917 | — | 34,230 | |||||||||||||||||||||||||
Leasehold improvements | 245,747 | 30,233 | (547 | ) | — | 12 | (1,639 | ) | 2,200 | — | 276,006 | |||||||||||||||||||||||||
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|
|
|
|
|
|
|
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|
|
|
|
|
|
| |||||||||||||||||||
Total | 8,353,357 | 1,854,452 | (231,266 | ) | — | 23,638 | (12,138 | ) | 666,770 | (25,765 | ) | 10,629,048 | ||||||||||||||||||||||||
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Net book amount | 9,665,408 | 1,153,776 | (21,976 | ) | (7,811 | ) | (34,382 | ) | (10,023 | ) | 391,380 | (20,056 | ) | 11,116,316 | ||||||||||||||||||||||
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TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.) (Continued)
12. Intangible assets (Continued)
|
Cost | Balance at 1 January 2020 | Additions | Disposals | Transfers | Impairment expenses/ (reversals) | Disposal of subsidiaries | Acquisition through business combinations | Effects of movements in exchange rates | Balance at 31 December 2020 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Telecommunication licenses | 9,132,617 | 695 | (32,445 | ) | 10,110 | — | — | — | 77,756 | 9,188,733 | ||||||||||||||||||
Computer software | 10,133,924 | 1,621,210 | (31,808 | ) | 107,819 | — | (10,164 | ) | — | 14,846 | 11,835,827 | |||||||||||||||||
Transmission line software | 74,379 | 14,120 | — | — | — | — | — | — | 88,499 | |||||||||||||||||||
Central betting system operating right | 12,426 | — | — | — | — | (12,426 | ) | — | — | — | ||||||||||||||||||
Indefeasible right of usage | 117,618 | 9,709 | — | 32,668 | — | — | — | — | 159,995 | |||||||||||||||||||
Brand name | 7,740 | 1,518 | — | — | — | — | — | 225 | 9,483 | |||||||||||||||||||
Customer base | 15,512 | — | — | — | — | — | — | — | 15,512 | |||||||||||||||||||
Goodwill(*) | 32,834 | — | — | — | — | — | 7,176 | — | 40,010 | |||||||||||||||||||
Subscriber acquisition cost | 3,248,859 | 1,573,606 | (37,307 | ) | — | — | — | — | 2,695 | 4,787,853 | ||||||||||||||||||
Other | 93,942 | 20,968 | (388 | ) | 39 | — | — | 71,652 | 530 | 186,743 | ||||||||||||||||||
Construction in progress | 13,452 | 134,089 | (712 | ) | (145,795 | ) | — | — | — | 108 | 1,142 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 22,883,303 | 3,375,915 | (102,660 | ) | 4,841 | — | (22,590 | ) | 78,828 | 96,160 | 26,313,797 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated amortization | ||||||||||||||||||||||||||||
Telecommunication licenses | 3,632,968 | 636,749 | (28,052 | ) | (7,700 | ) | — | — | — | 19,238 | 4,253,203 | |||||||||||||||||
Computer software | 6,290,133 | 1,023,203 | (24,295 | ) | — | 18,460 | (10,164 | ) | — | 6,857 | 7,304,194 | |||||||||||||||||
Transmission line software | 71,602 | 7,471 | — | — | — | — | — | — | 79,073 | |||||||||||||||||||
Central betting system operating right | 12,375 | — | — | — | — | (12,375 | ) | — | — | — | ||||||||||||||||||
Indefeasible right of usage | 40,420 | 8,854 | — | 7,700 | — | — | — | — | 56,974 | |||||||||||||||||||
Brand name | 7,040 | — | — | — | — | — | — | — | 7,040 | |||||||||||||||||||
Customer base | 12,648 | 437 | — | — | — | — | — | — | 13,085 | |||||||||||||||||||
Subscriber acquisition cost | 1,447,606 | 721,637 | (37,307 | ) | — | — | — | — | 1,819 | 2,133,755 | ||||||||||||||||||
Other | 60,449 | 38,158 | (107 | ) | — | — | — | — | 189 | 98,689 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | 11,575,241 | 2,436,509 | (89,761 | ) | — | 18,460 | (22,539 | ) | — | 28,103 | 13,946,013 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net book amount | 11,308,062 | 939,406 | (12,899 | ) | 4,841 | (18,460 | ) | (51 | ) | 78,828 | 68,057 | 12,367,784 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
On 27 April 1998, the Company was grantedsigned a25-year GSM license (the “2G License”) for a consideration of USD 500,000, the carrying amount share purchase agreement to acquire 100% of the 2G license isshares of Yaani (formerly "NTENT Netherlands BV"). The transfer of legal shares was completed on 14 May 2019. The acquisition date has been determined as 1 June 2020. The total consideration transferred amounting to USD 12,310 (TL 78,828) has been accounted for under 'Goodwill' in the 30 June 2020 financial statements. In accordance with a purchase price allocation report prepared by qualified external experts, total acquisition amount has been allocated to 'Intangible assets' amounting to USD 10,472 (TL 71,652), 'Deferred tax assets' amounting to USD 2,618 (TL 17,913) and 'Goodwill' amounting to TL 149,443 at 31 December 2019 (31 December 2018: TL 195,425) and it is amortized over 25 years.
Turkcell – 3G License
On 30 April 2009, the Company signed a license agreement (the “3G License”)7,176. Management worked closely with the ICTA, which provides authorization for providing IMT 2000/UMTS servicesqualified external experts to establish the appropriate valuation techniques and infrastructure. The Company acquiredinputs to the model.
A-type license providing the widest frequency band for a considerationTable of EUR 358,000 (excluding VAT). The license is effective for 20 years starting from 30 April 2009. The carrying amount of the 3G License is TL 359,071 at 31 December 2019 (31 December 2018: TL 397,543) and is amortized over 25 years.Contents
Turkcell – 4.5G License
On 26 August 2015, the “Authorization Tender on IMT Services and Infrastructure” publicly known as the 4.5G license tender, was held by the Information Technologies and Communication Authority and the Company was granted a total frequency band of 172.4M Hz for 13 years for a consideration of EUR 1,623,460 (excluding VAT).
IMT authorization period expires on 30 April 2029 and operators commenced service delivery for 4.5G from 1 April 2016. 2x1.4 MHz frequency band in 900MHz spectrum and 2 units of 2x5 MHz frequency band in 2100 MHz spectrum were commenced on 1 December 2015, while remaining packages were commenced on 1 April 2016.
The carrying amount of the 4.5G License is TL 3,723,232 at 31 December 2019(31 December 2018: TL 4,125,743).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.) (Continued)
12. Intangible assets (Continued)
Cost | Balance at 1 January 2019 | Additions | Disposals | Transfers | Impairment | Effects of movements in exchange rates | Balance at 31 December 2019 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Telecommunication licenses | 8,722,998 | 8,871 | (17,035 | ) | 29,161 | — | 388,622 | 9,132,617 | ||||||||||||||
Computer software | 8,539,038 | 1,441,780 | (44,952 | ) | 89,729 | �� | — | 108,329 | 10,133,924 | |||||||||||||
Transmission line software | 73,139 | 1,240 | — | — | — | — | 74,379 | |||||||||||||||
Central betting system operating right | 11,981 | 445 | — | — | — | — | 12,426 | |||||||||||||||
Indefeasible right of usage | 117,618 | — | — | — | — | — | 117,618 | |||||||||||||||
Brand name | 7,040 | 700 | — | — | — | — | 7,740 | |||||||||||||||
Customer base | 15,512 | — | — | — | — | — | 15,512 | |||||||||||||||
Goodwill | 32,834 | — | — | — | — | — | 32,834 | |||||||||||||||
Subscriber acquisition cost | 2,034,053 | 1,232,539 | (39,496 | ) | — | — | 21,763 | 3,248,859 | ||||||||||||||
Other | 50,005 | 50,334 | (61 | ) | (8,972 | ) | — | 2,636 | 93,942 | |||||||||||||
Construction in progress | 18,007 | 85,202 | — | (96,991 | ) | (585 | ) | 7,819 | 13,452 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total | 19,622,225 | 2,821,111 | (101,544 | ) | 12,927 | (585 | ) | 529,169 | 22,883,303 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated amortization | ||||||||||||||||||||||
Telecommunication licenses | 2,948,235 | 611,197 | (17,035 | ) | — | 17 | 90,554 | 3,632,968 | ||||||||||||||
Computer software | 5,481,895 | 768,238 | (41,214 | ) | 7,770 | 1,902 | 71,542 | 6,290,133 | ||||||||||||||
Transmission line software | 67,017 | 4,585 | — | — | — | — | 71,602 | |||||||||||||||
Central betting system operating right | 12,074 | 301 | — | — | — | — | 12,375 | |||||||||||||||
Indefeasible right of usage | 31,855 | 8,565 | — | — | — | — | 40,420 | |||||||||||||||
Brand name | 7,040 | — | — | — | — | — | 7,040 | |||||||||||||||
Customer base | 12,211 | 437 | — | — | — | — | 12,648 | |||||||||||||||
Subscriber acquisition cost | 974,200 | 495,861 | (39,496 | ) | — | — | 17,041 | 1,447,606 | ||||||||||||||
Other | 37,526 | 29,032 | (61 | ) | (7,940 | ) | 36 | 1,856 | 60,449 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total | 9,572,053 | 1,918,216 | (97,806 | ) | (170 | ) | 1,955 | 180,993 | 11,575,241 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net book amount | 10,050,172 | 902,895 | (3,738 | ) | 13,097 | (2,540 | ) | 348,176 | 11,308,062 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
Balance at 1 January 2019 | Additions | Disposals | Transfers | Impairment | Effects of movements in exchange rates | Balance at 31 December 2019 | ||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||
Telecommunication licenses | 8,722,998 | 8,871 | (17,035 | ) | 29,161 | — | 388,622 | 9,132,617 | ||||||||||||||||||||
Computer software | 8,539,038 | 1,441,780 | (44,952 | ) | 89,729 | — | 108,329 | 10,133,924 | ||||||||||||||||||||
Transmission line software | 73,139 | 1,240 | — | — | — | — | 74,379 | |||||||||||||||||||||
Central betting system operating right | 11,981 | 445 | — | — | — | — | 12,426 | |||||||||||||||||||||
Indefeasible right of usage | 117,618 | — | — | — | — | — | 117,618 | |||||||||||||||||||||
Brand name | 7,040 | 700 | — | — | — | — | 7,740 | |||||||||||||||||||||
Customer base | 15,512 | — | — | — | — | — | 15,512 | |||||||||||||||||||||
Goodwill | 32,834 | — | — | — | — | — | 32,834 | |||||||||||||||||||||
Subscriber acquisition cost | 2,034,053 | 1,232,539 | (39,496 | ) | — | — | 21,763 | 3,248,859 | ||||||||||||||||||||
Other | 50,005 | 50,334 | (61 | ) | (8,972 | ) | — | 2,636 | 93,942 | |||||||||||||||||||
Construction in progress | 18,007 | 85,202 | — | (96,991 | ) | (585 | ) | 7,819 | 13,452 | |||||||||||||||||||
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| |||||||||||||||
Total | 19,622,225 | �� | 2,821,111 | (101,544 | ) | 12,927 | (585 | ) | 529,169 | 22,883,303 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||
Telecommunication licenses | 2,948,235 | 611,197 | (17,035 | ) | — | 17 | 90,554 | 3,632,968 | ||||||||||||||||||||
Computer software | 5,481,895 | 768,238 | (41,214 | ) | 7,770 | 1,902 | 71,542 | 6,290,133 | ||||||||||||||||||||
Transmission line software | 67,017 | 4,585 | — | — | — | — | 71,602 | |||||||||||||||||||||
Central betting system operating right | 12,074 | 301 | — | — | — | — | 12,375 | |||||||||||||||||||||
Indefeasible right of usage | 31,855 | 8,565 | — | — | — | — | 40,420 | |||||||||||||||||||||
Brand name | 7,040 | — | — | — | — | — | 7,040 | |||||||||||||||||||||
Customer base | 12,211 | 437 | — | — | — | — | 12,648 | |||||||||||||||||||||
Subscriber acquisition cost | 974,200 | 495,861 | (39,496 | ) | — | — | 17,041 | 1,447,606 | ||||||||||||||||||||
Other | 37,526 | 29,032 | (61 | ) | (7,940 | ) | 36 | 1,856 | 60,449 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 9,572,053 | 1,918,216 | (97,806 | ) | (170 | ) | 1,955 | 180,993 | 11,575,241 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net book amount | 10,050,172 | 902,895 | (3,738 | ) | 13,097 | (2,540 | ) | 348,176 | 11,308,062 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expenses for the years ended 31 December 2019, 2018 and 2017 amounting to TL 1,920,756, TL 1,580,319 and TL 1,095,401, respectively include impairment losses and are recognized in costTable of revenue.Contents
Impairment losses on intangible assets for the years ended 31 December 2019, 2018 and 2017 are TL 2,540, TL 3,232 and TL 1,986, respectively and are recognized in amortization expenses.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
12. Intangible assets (Continued)
Amortization expenses for the years ended 31 December 2020, 2019 and 2018 amounting to TL 2,454,969, TL 1,920,756 and TL 1,580,319, respectively include impairment losses and are recognized in cost of revenue. Impairment losses on intangible assets for the years ended 31 December 2020, 2019 and 2018 are TL 18,460, TL 2,540 and TL 3,232, respectively and are recognized in amortization expenses.
|
Computer software includes capitalized software development costs that meet the definition of an intangible asset. The amount of capitalized development costs is TL 206,064244,204 for the year ended 31 December 20192020 (31 December 2018:2019: TL 171,442)206,064). The amortization expenses related to capitalized software development costs for the years ended 31 December 2020, 2019 2018 and 20172018 amounting to TL 46,601, TL 47,591 and TL 40,934, and TL 37,532, respectively are recognized in cost of revenue.
�� | Balance at 1 January 2018 | Impact of IFRS 15 adaption | Additions | Disposals | Transfers | Impairment | Disposal of subsidiary | Effects of movements in exchange rates | Balance at 31 December 2018 | |||||||||||||||||||||||||||
Cost | ||||||||||||||||||||||||||||||||||||
Telecommunication licenses | 8,139,628 | — | 6,394 | (220,986 | ) | 466,379 | — | — | 331,583 | 8,722,998 | ||||||||||||||||||||||||||
Computer software | 7,117,116 | — | 1,175,040 | (4,822 | ) | 159,453 | — | (18,370 | ) | 110,621 | 8,539,038 | |||||||||||||||||||||||||
Transmission line software | 71,820 | — | 1,319 | — | — | — | — | — | 73,139 | |||||||||||||||||||||||||||
Central betting system operating right | 11,981 | — | — | — | — | — | — | — | 11,981 | |||||||||||||||||||||||||||
Indefeasible right of usage | 112,556 | — | 5,062 | — | — | — | — | — | 117,618 | |||||||||||||||||||||||||||
Brand name | 7,040 | — | — | — | — | — | — | — | 7,040 | |||||||||||||||||||||||||||
Customer base | 15,512 | — | — | — | — | — | — | — | 15,512 | |||||||||||||||||||||||||||
Goodwill | 32,834 | — | — | — | — | — | — | — | 32,834 | |||||||||||||||||||||||||||
Subscriber acquisition cost | — | 1,431,901 | 583,809 | — | — | — | — | 18,343 | 2,034,053 | |||||||||||||||||||||||||||
Other | 42,749 | — | 7,473 | (37 | ) | 11 | — | (191 | ) | — | 50,005 | |||||||||||||||||||||||||
Construction in progress | 127,637 | — | 485,815 | — | (618,032 | ) | — | — | 22,587 | 18,007 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 15,678,873 | 1,431,901 | 2,264,912 | (225,845 | ) | 7,811 | — | (18,561 | ) | 483,134 | 19,622,225 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Accumulated amortization | ||||||||||||||||||||||||||||||||||||
Telecommunication licenses | 2,419,230 | — | 533,311 | (184,582 | ) | — | — | — | 180,276 | 2,948,235 | ||||||||||||||||||||||||||
Computer software | 4,770,880 | — | 663,967 | (3,071 | ) | — | 3,232 | (12,793 | ) | 59,680 | 5,481,895 | |||||||||||||||||||||||||
Transmission line software | 62,468 | — | 4,549 | — | — | — | — | — | 67,017 | |||||||||||||||||||||||||||
Central betting system operating right | 11,491 | — | 583 | — | — | — | — | — | 12,074 | |||||||||||||||||||||||||||
Indefeasible right of usage | 23,274 | — | 8,581 | — | — | — | — | — | 31,855 | |||||||||||||||||||||||||||
Brand name | 6,512 | — | 528 | — | — | — | — | — | 7,040 | |||||||||||||||||||||||||||
Customer base | 11,774 | — | 437 | — | — | — | — | — | 12,211 | |||||||||||||||||||||||||||
Subscriber acquisition cost | — | 601,890 | 360,232 | — | — | — | — | 12,078 | 974,200 | |||||||||||||||||||||||||||
Other | 32,834 | — | 4,899 | (31 | ) | — | — | (176 | ) | — | 37,526 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total | 7,338,463 | 601,890 | 1,577,087 | (187,684 | ) | — | 3,232 | (12,969 | ) | 252,034 | 9,572,053 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net book amount | 8,340,410 | 830,011 | 687,825 | (38,161 | ) | 7,811 | (3,232 | ) | (5,592 | ) | 231,100 | 10,050,172 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)13. Impairment of assets
|
The Group’sGroup's cash-generating units (CGUs) are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amount of the CGU is estimated. The recoverable amount of the CGU is its fair value less cost of disposal. At31At 31 December 2019,2020, no impairment test has been carried out since there iswas no indication of impairment indicator in any of the Group’sGroup's CGUs.
14. Investment properties
|
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Cost | |||||||
Opening balance | 46,283 | 145,759 | |||||
Addition | — | 987 | |||||
Disposal | (15,985 | ) | — | ||||
Transfer to property, plant and equipment | 6,781 | (100,463 | ) | ||||
| | | | | | | |
Closing balance | 37,079 | 46,283 | |||||
| | | | | | | |
Accumulated depreciation | |||||||
Opening balance | (30,000 | ) | (130,334 | ) | |||
Transfer to property, plant and equipment | (5,528 | ) | 103,262 | ||||
Depreciation and impairment charges during the year | (697 | ) | (2,928 | ) | |||
Disposal | 12,821 | — | |||||
| | | | | | | |
Closing balance | (23,404 | ) | (30,000 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net book amount | 13,675 | 16,283 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Cost | ||||||||
Opening balance | 145,759 | 99,938 | ||||||
Addition | 987 | — | ||||||
Transfer to property, plant and equipment | (100,463 | ) | 45,821 | |||||
|
|
|
| |||||
Closing balance | 46,283 | 145,759 | ||||||
|
|
|
| |||||
Accumulated depreciation | ||||||||
Opening balance | (130,334 | ) | (98,958 | ) | ||||
Transfer to property, plant and equipment | 103,262 | (25,765 | ) | |||||
Depreciation and impairment charges during the year | (2,928 | ) | (5,611 | ) | ||||
|
|
|
| |||||
Closing balance | (30,000 | ) | (130,334 | ) | ||||
|
|
|
| |||||
Net book amount | 16,283 | 15,425 | ||||||
|
|
|
|
Determination of the fair values of the Group’sGroup's investment properties
The Group engages qualified external experts, authorized by the Capital Markets Board of Turkey, to perform the valuation of investment properties. Management works closely with the qualified
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
14. Investment properties (Continued)
external experts to establish the appropriate valuation techniques and inputs to the model. The fair values of these investment properties were determined using a variety of valuation methods:income capitalization approachandmarket approach. In estimating the fair values of the properties, the highest and best use of the property is its current use.
Rent income from investment properties during the year ended 31 December 20192020 is TL 5,855 (31 December 2019: TL 4,078 (31and 31 December 2018: TL 3,092 and 31 December 2017: TL 2,821)3,092). There is TL 522294 direct operating expense for investment properties during the year ended 31 December 20192020 (31 December 2018: None2019: TL 522 and 31 December 2017: TL 22)2018: None).
The Group’sGroup's investment properties and their fair values at 31 December 20192020 and 20182019 are as follows:
31 December 2020 | Level 1 | Level 2 | Level 3 | Valuation Method | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Investment properties in Gebze | — | — | 22,340 | Income capitalization approach | |||||||
Investment properties in Ankara | — | 15,160 | — | Market approach | |||||||
Investment properties in Aydin | — | 2,515 | — | Market approach | |||||||
| | | | | | | | | | | |
— | 17,675 | 22,340 | |||||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
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| ||||||||||||||
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Determination of the fair values of the Group’s investment properties (continued)
Significant unobservable inputs and sensitivity of fair values of respective investment properties are as follows:
In the “income capitalization”"income capitalization" approach, a significant increase/(decrease) in rentals will cause a significant increase/(decrease) in the fair value. In addition, a slight decrease/(increase) in risk premium and discount rate which are calculated by considering current market conditions will cause a significant increase/(decrease) in the fair value.
In the “market approach”"market approach", a significant increase/(decrease) in the market value of any properties which are located in similar areas with similar conditions will cause a significant increase/(decrease) in the fair value.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
15. Right |
As of 1 January 2018, The Company provided a right of use asset equal to the lease liability adjusted for prepaid or accrued rent payments. In accordance with this methodology, the application of IFRS 16 does not impact the Group’s retained earnings as of 1 January 2018.assets
Closing balances of right of use assets as of 31 December 20192020 and 31 December 20182019 and depreciation and amortization expenses for the years ended31ended 31 December 20192020 and 31 December 20182019 is stated as below:
| Tangible | Intangible | | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Site Rent | Building | Network equipment | Other | Total | Right of way | License | Total | Total | |||||||||||||||||||
Balance at 1 January 2020 | 1,082,193 | 96,073 | 69,036 | 132,364 | 1,379,666 | 22,984 | 380,446 | 403,430 | 1,783,096 | |||||||||||||||||||
Depreciation and amortization charge for the year | (576,941 | ) | (42,097 | ) | (275,038 | ) | (135,085 | ) | (1,029,161 | ) | (18,657 | ) | (45,729 | ) | (64,386 | ) | (1,093,547 | ) | ||||||||||
Balance at 31 December 2020 | 1,182,847 | 229,240 | 218,104 | 348,334 | 1,978,525 | 24,956 | 376,693 | 401,649 | 2,380,174 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tangible | Intangible | |||||||||||||||||||||||||||||||||||
Site Rent | Building | Network equipment | Other | Total | Right of way | License | Total | Total | ||||||||||||||||||||||||||||
Balance at 1 January 2019 | 1,021,638 | 135,158 | 50,538 | 109,883 | 1,317,217 | 8,643 | 323,742 | 332,385 | 1,649,602 | |||||||||||||||||||||||||||
Depreciation and amortization charge for the year | (506,386 | ) | (54,605 | ) | (150,282 | ) | (159,784 | ) | (871,057 | ) | (8,849 | ) | (46,073 | ) | (54,922 | ) | (925,979 | ) | ||||||||||||||||||
Balance at 31 December 2019 | 1,082,193 | 96,073 | 69,036 | 132,364 | 1,379,666 | 22,984 | 380,446 | 403,430 | 1,783,096 |
| Tangible | Intangible | | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Site Rent | Building | Network equipment | Other | Total | Right of way | License | Total | Total | |||||||||||||||||||
Balance at 1 January 2019 | 1,021,638 | 135,158 | 50,538 | 109,883 | 1,317,217 | 8,643 | 323,742 | 332,385 | 1,649,602 | |||||||||||||||||||
Depreciation and amortization charge for the year | (506,386 | ) | (54,605 | ) | (150,282 | ) | (159,784 | ) | (871,057 | ) | (8,849 | ) | (46,073 | ) | (54,922 | ) | (925,979 | ) | ||||||||||
Balance at 31 December 2019 | 1,082,193 | 96,073 | 69,036 | 132,364 | 1,379,666 | 22,984 | 380,446 | 403,430 | 1,783,096 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tangible | Intangible | |||||||||||||||||||||||||||||||||||
Site Rent | Building | Network equipment | Other | Total | Right of way | License | Total | Total | ||||||||||||||||||||||||||||
Balance at 1 January 2018 | 1,077,517 | 146,826 | 226,243 | 115,652 | 1,566,238 | 12,321 | — | 12,321 | 1,578,559 | |||||||||||||||||||||||||||
Depreciation and amortization charge for the year | (451,850 | ) | (43,563 | ) | (181,741 | ) | (81,325 | ) | (758,479 | ) | (6,458 | ) | (48,273 | ) | (54,731 | ) | (813,210 | ) | ||||||||||||||||||
Balance at 31 December 2018 | 1,021,638 | 135,158 | 50,538 | 109,883 | 1,317,217 | 8,643 | 323,742 | 332,385 | 1,649,602 |
As at 31 December 2019,2020, the Company has additions to right of use assets amounting to TL 1,209,0081,791,823 (31 December 2018:2019: TL 1,156,973)1,209,008) and interest expense on lease liabilities amounting to TL 282,769289,718 (31 December 2018:2019: TL 210,200)282,769). Depreciation expenseand amortization expenses amounting to TL 925,9791,093,547 (31 December 2018:2019: TL 813,210) is925,979) are recognized in cost of revenues.
16. Discontinued operations
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Disposal of Fintur
In 2016, the Group has committed to the plan to exit from Fintur operations in relevant jurisdictions and initiated an active program to locate a buyer for its associate. In this regard, Fintur has been classified as held for sale and reported as discontinued operation starting from 1 October 2016.
Equity accounting for Fintur ceased as of from 1 October 2016, and in accordance with IFRS 5, Fintur has been measured at the lower of the carrying amount and fair value less costs to sell.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the sales process during 2018 was caused by eventsconsolidated financial statements and circumstances beyondnotes have been rounded off
to the Company’s control.nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
Fintur, has transferred its total shareholding in Azertel Telekomunikasyon Yatırım Dış Ticaret A.Ş. (“Azertel”) to Azerbaijan International Telecom LLC (“Azintelecom”) at the price ofEUR 221,687 on 5 March 2018. The signing of definitive agreement, the transfer of shares to Azintelecom and the transfer of proceeds to Fintur were completed simultaneously.16. Discontinued operations (Continued)
Fintur has completed the transfer of all its shares in Geocell LLC to Silknet JSC on20 March 2018, a joint stock company organized under the laws of Georgia, for a total consideration of USD 153,000 upon receiving the necessary regulatory approvals.
Fintur, has transferred its total shareholding in Kcell JSC to Kazakhtelecom JSC (“Kazakhtelecom”), established in Kazakhstan, a fixed line operator controlled by the government of the Republic of Kazakhstan through sovereign wealth fundSamruk-Kazyna for a total consideration of USD 302,571.
The definitive agreement has been signed on 12 December 2018. The transfer of shares to Kazakhtelecom and the transfer of proceeds to Fintur were completed simultaneously on 21 December 2018.
The Company signed the definitive agreement on 12 December 2018 to transfer its total shareholding in Fintur to the other shareholder of Fintur, Sonera Holding B.V. (“("Sonera Holding”Holding"). The transfer to Sonera Holding and the transfer of proceeds completed on 2 April 2019 subsequent to obtainmentreceipt of regulatory approvals on 29 March 2019. The final transaction value is realized as TL 2,229,595(EUR2,229,595 (EUR 352,851). The share transfer has been completed in 2019, gain on sale of the associate, amounting to TL 772,436 has been recognized under profit from discountingdiscontinued operations in the consolidated financial statements.
Reconciliation of Fintur sales for the period ended 31 December 2019 is stated as below:
31 December 2019 | ||||
---|---|---|---|---|
Consideration received or receivable: | ||||
| ||||
Cash | 2,229,595 | |||
| | | | |
Total disposal consideration | 2,229,595 | |||
| | | | |
Carrying amount of net assets sold | (1,825,292 | ) | ||
Gain on sale before income tax and reclassification of foreign currency translation | 404,303 | |||
Reclassification of foreign currency translation reserve | 368,133 | |||
Income tax expense on gain | — | |||
| | | | |
Gain on sale after income tax | 772,436 | |||
| | | | |
| | | | |
| | | | |
Subsequent to recognition of gain on sale of Fintur disposal for the three months period ended 31 March 2019, the Company has recognized compensation expense, which has been paid on 23 July 2019 according to Kcell Share Purchase Agreement amounting to TL 59,224 (USD 10,448).
17. Other non-current assets
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
Advances given for property, plant and equipment | 561,298 | 59,959 | |||||
Prepaid expenses | 141,201 | 133,914 | |||||
Deposits and guarantees given | 78,401 | 34,602 | |||||
Receivables from the Public Administration | 72,848 | 72,848 | |||||
VAT receivable | 29,025 | 1,902 | |||||
Others | 1,069 | 1,045 | |||||
| | | | | | | |
883,842 | 304,270 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
18. Deferred tax assets and liabilities
|
2019 | 2018 | |||||||
Prepaid expenses | 133,914 | 89,603 | ||||||
Receivables from the Public Administration | 72,848 | 72,848 | ||||||
Advances given for property, plant and equipment | 59,959 | 216,894 | ||||||
Deposits and guarantees given | 34,602 | 27,071 | ||||||
VAT receivable | 1,902 | 2,318 | ||||||
Others | 1,045 | 12,572 | ||||||
|
|
|
| |||||
304,270 | 421,306 | |||||||
|
|
|
|
|
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities at 31 December 20192020 and 20182019 are attributable to the following:
| Assets | Liabilities | Net | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Property, plant and equipment and intangible assets | 123,871 | 145,242 | (2,117,594 | ) | (1,915,567 | ) | (1,993,723 | ) | (1,770,325 | ) | |||||||||
Investment | — | 32,926 | — | — | — | 32,926 | |||||||||||||
Derivative instruments | 27,177 | 24,303 | (407,740 | ) | (349,797 | ) | (380,563 | ) | (325,494 | ) | |||||||||
Reserve for employee termination benefits and provisions | 258,675 | 167,589 | (1,362 | ) | (36,289 | ) | 257,313 | 131,300 | |||||||||||
Trade and other payables | 26,511 | 81,558 | (149,827 | ) | (14,823 | ) | (123,316 | ) | 66,735 | ||||||||||
Tax losses carried forward | 1,101,043 | 258,040 | (3,254 | ) | — | 1,097,789 | 258,040 | ||||||||||||
Tax allowances | 5,158 | 59,176 | — | — | 5,158 | 59,176 | |||||||||||||
Other assets and liabilities(*) | 638,991 | 586,769 | (2,872 | ) | (15,415 | ) | 636,119 | 571,354 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Deferred tax assets/(liabilities) | 2,181,426 | 1,355,603 | (2,682,649 | ) | (2,331,891 | ) | (501,223 | ) | (976,288 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | |
Offsetting | (1,344,818 | ) | (1,166,261 | ) | 1,344,818 | 1,166,261 | — | — | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Net deferred tax assets/(liabilities) | 836,608 | 189,342 | (1,337,831 | ) | (1,165,630 | ) | (501,223 | ) | (976,288 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Assets | Liabilities | Net | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Property, plant and equipment and intangible assets | 145,242 | 106,128 | (1,915,567 | ) | (936,167 | ) | (1,770,325 | ) | (830,039 | ) | ||||||||||||||
Investment | 32,926 | 32,926 | — | — | 32,926 | 32,926 | ||||||||||||||||||
Derivative instruments | 24,303 | 15,380 | (349,797 | ) | (429,162 | ) | (325,494 | ) | (413,782 | ) | ||||||||||||||
Reserve for employee termination benefits and provisions | 167,589 | 155,132 | (36,289 | ) | (45,581 | ) | 131,300 | 109,551 | ||||||||||||||||
Tax losses carried forward | 258,040 | 224,179 | — | — | 258,040 | 224,179 | ||||||||||||||||||
Tax allowances | 59,176 | 20,554 | — | — | 59,176 | 20,554 | ||||||||||||||||||
Other assets and liabilities (*) | 668,327 | 248,251 | (30,238 | ) | (101,268 | ) | 638,089 | 146,983 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Deferred tax assets/(liabilities) | 1,355,603 | 802,550 | (2,331,891 | ) | (1,512,178 | ) | (976,288 | ) | (709,628 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Offsetting | (1,166,261 | ) | (649,818 | ) | 1,166,261 | 649,818 | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net deferred tax assets/(liabilities) | 189,342 | 152,732 | (1,165,630 | ) | (862,360 | ) | (976,288 | ) | (709,628 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in deferred tax assets/ (liabilities) for the years ended 31 December 20192020 and 20182019 were as follows:
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
Opening balance | (976,288 | ) | (709,628 | ) | |||
Income statement charge | 337,495 | (215,121 | ) | ||||
Tax charge relating to components of other comprehensive income | 173,113 | (48,723 | ) | ||||
Exchange differences | (35,543 | ) | (2,816 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Closing balance, net | (501,223 | ) | (976,288 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
2019 | 2018 | |||||||
Opening balance | (709,628 | ) | (555,062 | ) | ||||
IFRS 9 and 15 effects | — | (141,213 | ) | |||||
Income statement charge | (215,121 | ) | 159,472 | |||||
Tax charge relating to components of other comprehensive income | (48,723 | ) | (157,203 | ) | ||||
Prior year corporate tax base differences | — | (8,608 | ) | |||||
Exchange differences | (2,816 | ) | (7,014 | ) | ||||
|
|
|
| |||||
Closing balance, net | (976,288 | ) | (709,628 | ) | ||||
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Recognized deferred tax assets and liabilities (continued)
The Group did not recognize deferred income tax assets of TL 6,588,723551,847 (31 December 2018:2019: TL 5,310,000)1,199,670) in respect of tax losses amounting to TL 1,199,6702,986,951 (31 December 2018:2019: TL 972,730)6,588,723) that can be carried forward against future taxable income. The unused tax losses were incurred mainly by lifecell and Belarusian Telecom that are not likely to generate taxable income in the foreseeable future.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
18. Deferred tax assets and liabilities (Continued)
Unused tax losses will expire at the following dates:
Expiration Date | Amount | |||
---|---|---|---|---|
2021 | 212,836 | |||
2022 | 136,298 | |||
2023 | 201,770 | |||
2024 | 345,681 | |||
2025 | 1,196,884 | |||
2026 | 45,470 | |||
2027 | 571,210 | |||
2028 | 188,354 | |||
Indefinite | 88,448 | |||
| | | | |
Total | 2,986,951 | |||
| | | | |
| | | | |
| | | | |
19. Trade receivables and accrued revenue
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Receivables from subscribers | 2,263,544 | 2,090,242 | |||||
Accounts and notes receivable | 766,921 | 745,442 | |||||
Undue assigned contracted receivables | 435,332 | 298,291 | |||||
| | | | | | | |
3,465,797 | 3,133,975 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Expiration Date | Amount | |||
2020 | 297 | |||
2021 | 220,895 | |||
2022 | 135,055 | |||
2023 | 204,933 | |||
2024 | 346,592 | |||
2025 | 1,201,315 | |||
2026 | 51,353 | |||
2027 | 579,546 | |||
2028 | 169,906 | |||
Indefinite | 3,678,831 | |||
|
| |||
Total | 6,588,723 | |||
|
|
|
31 December 2019 | 31 December 2018 | |||||||
Receivables from subscribers | 2,090,242 | 1,647,236 | ||||||
Accounts and notes receivable | 745,442 | 555,436 | ||||||
Undue assigned contracted receivables | 298,291 | 271,306 | ||||||
|
|
|
| |||||
3,133,975 | 2,473,978 | |||||||
|
|
|
|
Trade receivables are shown net of provision for impairment amounting to TL 620,247,617,932 as at31at 31 December 20192020 (31 December 2018:2019: TL 728,830)620,247). Movements in provision for impairment of trade receivables and due from related parties are disclosed in Note 36. The accounts and notes receivable represent receivables from distributors and roaming receivables. The Group’sGroup's exposure to currency risk and credit risk arising from trade receivables are disclosed in Note 36.
Letters of guarantee received with respect to the accounts and notes receivable amounted toTL 332,180to TL 351,698 and TL 174,975332,180 at 31 December 20192020 and 2018,2019, respectively.
The undue assigned contracted receivables are the remaining portion of the assigned receivables from the distributors related to the handset campaigns which will be collected from subscribers by the Company in instalments. When the monthly instalment is billed to the subscriber, that portion is transferred to “Receivables"Receivables from subscribers”subscribers". The Company measures the undue assigned contracted receivables at amortized cost, bears the credit risk and recognizes interest income throughout the contract period.
The accrued revenue represents accrued revenue from subscribers. Due to the high volume of subscribers, there are different billing cycles. Accordingly, an accrual is made at the end of each reporting period to accrue revenue for services rendered but not billed. The undue assigned contracted
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
19. Trade receivables and accrued revenue (Continued)
receivables related to handset campaigns, which will be billed after one year amounted to TL 116,462172,261 (31 December 2018:2019: TL 115,001)116,462) is presented undernon-current trade receivable amounted to TL 148,159222,451 (31 December 2018:2019: TL 115,001)148,159).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated20. Receivables from financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)services
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Current receivables from financial services | 1,886,381 | 2,319,122 | |||||
Non-current receivables from financial services | 75,717 | 123,136 | |||||
| | | | | | | |
1,962,098 | 2,442,258 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
31 December 2019 | 31 December 2018 | |||||||
Current receivables from financial services | 2,319,122 | 3,318,255 | ||||||
Non-current receivables from financial services | 123,136 | 884,686 | ||||||
|
|
|
| |||||
2,442,258 | 4,202,941 | |||||||
|
|
|
|
Movements in provision for impairment of receivables from financial services are disclosed in Note 36.
Starting from 2016 the Group and its distributors have offered handset campaigns where subscribers can buy handsets using loans placed by Turkcell Finansman. The Group assumes credit risk in these transactions. Turkcell Finansman collects the loan from the subscriber during the contract period and the Group does not recognize handset revenue sinceunless it is not acting as principal in the handset sale.
21. Contract assets
|
Current contract assets:
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Contract assets | 972,052 | 933,969 | |||||
| | | | | | | |
972,052 | 933,969 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Contract assets | 933,969 | 711,928 | ||||||
|
|
|
| |||||
933,969 | 711,928 | |||||||
|
|
|
|
Non-current contract assets:
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Contract assets | 128,114 | 10,291 | |||||
| | | | | | | |
128,114 | 10,291 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Contract assets | 10,291 | 3,513 | ||||||
|
|
|
| |||||
10,291 | 3,513 | |||||||
|
|
|
|
The contract assets represent contract assets from subscribers. Due to the high volume of subscribers, there are different billing cycles. Accordingly, an accrual is made at the end of each reporting period to accrue revenue for services rendered but not billed. ContractedContract assets also include contracted receivables related to handset campaigns, and the portion which will be billed after one year is presented under long term contract assets.
|
|
31 December 2019 | 31 December 2018 | |||||||
Receivables from the Ministry of Transport and Infrastructure of Turkey | 669,621 | 415,524 | ||||||
Prepaid expenses | 135,881 | 79,149 | ||||||
VAT receivable | 109,777 | 65,123 | ||||||
Receivables from tax office | 99,882 | 83,392 | ||||||
Advances given to suppliers | 90,454 | 92,715 | ||||||
Other advances given (Note 40) | 65,263 | — | ||||||
Restricted cash | — | 204,077 | ||||||
Other | 156,126 | 151,532 | ||||||
|
|
|
| |||||
1,327,004 | 1,091,512 | |||||||
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
22. Inventory
As of 31 December 2020, inventories amounting to TL 203,715 which consist of mainly mobile phone and its accessories, tablet, sim-cards and tower construction materials (31 December 2019: TL 178,399).
23. Other current assets
|
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Receivables from the Ministry of Transport and Infrastructure of Turkey | 224,563 | 669,621 | |||||
Prepaid expenses | 163,657 | 135,881 | |||||
VAT receivable | 49,490 | 109,777 | |||||
Advances given to suppliers | 48,141 | 90,454 | |||||
Receivables from tax office | 20,864 | 99,882 | |||||
Other advances given | — | 65,263 | |||||
Other | 52,271 | 156,126 | |||||
| | | | | | | |
558,986 | 1,327,004 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
24. Cash and cash equivalents
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Cash in hand | 179 | 131 | |||||
Banks | 11,852,022 | 10,238,310 | |||||
—Demand deposits | 975,753 | 632,022 | |||||
—Time deposits | 10,876,269 | 9,606,288 | |||||
Other cash and cash equivalents | 8,354 | 274 | |||||
| | | | | | | |
Cash and cash equivalents | 11,860,555 | 10,238,715 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
As at 31 December 2018, restricted cash amounting to TL 204,077 represents the deposits as guarantees in connection with the foreign currency loans utilized by Turkcell Finansman.
|
31 December 2019 | 31 December 2018 | |||||||
Cash in hand | 131 | 144 | ||||||
Banks | 10,238,310 | 7,413,113 | ||||||
– Demand deposits | 632,022 | 587,007 | ||||||
– Time deposits | 9,606,288 | 6,826,106 | ||||||
Other cash and cash equivalents | 274 | 5,982 | ||||||
|
|
|
| |||||
Cash and cash equivalents | 10,238,715 | 7,419,239 | ||||||
|
|
|
|
As at 31 December 2019,2020, the average effective interest rates of TL, USD and EUR time deposits are 17.4%, 2.8% and 1.8% (31 December 2019: 10.7%, 2.3% and 0.4% (31 December 2018: 22.5%, 5.9% and 3.3%) respectively.
As at 31 December 2019,2020, average maturity of time deposits is 3830 days (31 December 2018: 352019: 38 days).
|
Debt investments at fair value through other comprehensive incomeTable of Contents
Debt investments at FVOCI comprise the following investments in listed and unlisted securities:
31 December 2019 | 31 December 2018 | |||||||
Current Assets | ||||||||
Listed debt securities | 345,602 | 42,454 | ||||||
|
|
|
| |||||
345,602 | 42,454 | |||||||
|
|
|
|
Fair values | ||||||||||||||
31 December 2019 | 31 December 2018 | Fair value hierarchy | Valuation technique | |||||||||||
Financial assets at fair value through other comprehensive income | 345,602 | 42,454 | Level 1 | Pricing models based on quoted market prices at the end of the reporting period. | ||||||||||
|
|
|
| |||||||||||
Total | 345,602 | 42,454 | ||||||||||||
|
|
|
|
As of 31 December 2019 and 2018, the nominal and fair value amounts of financial assets are as follows:
31 December 2019 | ||||||||||||
Currency | Nominal amount (original currency) | Fair value (in TL) | Maturity | |||||||||
EUR | 2,000 | 15,026 | 16 February 2026 | |||||||||
EUR | 10,000 | 67,773 | 5 February 2021 | |||||||||
USD | 300 | 1,878 | 21 February 2022 | |||||||||
EUR | 20,000 | 133,072 | 17 December 2021 | |||||||||
EUR | 17,990 | 121,456 | 29 May 2020 | |||||||||
USD | 1,000 | 6,397 | 10 August 2024 | |||||||||
|
| |||||||||||
Total financial assets | 345,602 | |||||||||||
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
25. Financial assets
Debt investments at fair value through other comprehensive income
Debt investments at FVOCI comprise the following investments in listed and unlisted securities:
Current Assets | 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Listed debt securities | 529,610 | 345,602 | |||||
| | | | | | | |
529,610 | 345,602 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Fair values | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 31 December 2020 | 31 December 2019 | Fair value hierarchy | Valuation technique | ||||||
Financial assets at fair value through other comprehensive income | 272,334 | — | Level 2 | Present value of the estimated future cash flows based on observable yield curves and period end FX rates | ||||||
257,276 | 345,602 | Level 1 | Pricing models based on quoted market prices at the end of the reporting period. | |||||||
| | | | | | | | | | |
Total | 529,610 | 345,602 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
As of 31 December 2020 and 2019, the nominal and fair value amounts of financial assets are as follows:
31 December 2020 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Currency | Nominal amount (original currency) | Fair value (in TL) | Maturity | |||||||
EUR | 10,000 | 91,229 | 5 February 2021 | |||||||
EUR | 20,000 | 181,105 | 13 March 2021 | |||||||
EUR | 20,000 | 178,375 | 17 December 2021 | |||||||
EUR | 1,995 | 19,718 | 16 February 2026 | |||||||
TRY | 24,108 | 24,819 | 2 March 2022 | |||||||
TRY | 24,312 | 24,362 | 2 March 2022 | |||||||
USD | 300 | 1,966 | 21 February 2022 | |||||||
USD | 996 | 8,036 | 10 August 2024 | |||||||
| | | | | | | | | | |
Total financial assets | 529,610 | |||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
25. Financial assets (Continued)
Debt investments at fair value through other comprehensive income (continued)(Continued)
31 December 2018 | ||||||||||||
Currency | Nominal amount (original currency) | Fair value (in TL) | Maturity | |||||||||
EUR | 6,981 | 42,454 | 16 February 2026 | |||||||||
|
| |||||||||||
Total financial assets | 42,454 | |||||||||||
|
|
31 December 2019 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Currency | Nominal amount (original currency) | Fair value (in TL) | Maturity | |||||||
EUR | 17,990 | 121,456 | 29 May 2020 | |||||||
EUR | 10,000 | 67,773 | 5 February 2021 | |||||||
EUR | 20,000 | 133,072 | 17 December 2021 | |||||||
EUR | 2,000 | 15,026 | 16 February 2026 | |||||||
USD | 300 | 1,878 | 21 February 2022 | |||||||
USD | 1,000 | 6,397 | 10 August 2024 | |||||||
| | | | | | | | | | |
Total financial assets | 345,602 | |||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
During the year, the following gains (losses) were recognized in other comprehensive income.
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Gains / (Losses) recognized in other comprehensive income | |||||||
Related to debt securities | (1,487 | ) | 3,472 | ||||
| | | | | | | |
(1,487 | ) | 3,472 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
26. Equity
| ||||||||
| ||||||||
|
Share capital
As at 31 December 2019,2020, share capital represents 2,200,000,000 (31 December 2018:2019: 2,200,000,000) authorized, issued and fully paid shares with a par value of TL 1 each. In this respect, share capital presented in the consolidated financial statements refers to nominal amount of registered share capital.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
26. Equity (Continued)
Each holder of shares is entitled to receive dividends as declared and is entitled to onetheir vote at a meetingentitlements are determined as explained in person or by proxy.Note 1.
Companies with their shareholding percentage are as follows:
| 31 December 2020 | 31 December 2019 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | TL | (%) | TL | |||||||||
Public Share | 53.95 | 1,187,004 | 48.95 | 1,077,004 | |||||||||
TVF BTIH | 26.20 | 576,400 | — | — | |||||||||
IMTIS Holdings | 19.80 | 435,600 | — | — | |||||||||
Turkcell Holding | — | — | 51.00 | 1,122,000 | |||||||||
Other | 0.05 | 996 | 0.05 | 996 | |||||||||
| | | | | | | | | | | | | |
Total | 100.00 | 2,200,000 | 100.00 | 2,200,000 | |||||||||
Inflation adjustment to share capital | (52,352 | ) | (52,352 | ) | |||||||||
| | | | | | | | | | | | | |
Inflation adjusted capital | 2,147,648 | 2,147,648 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
31 December 2019 | 31 December 2018 | |||||||||||||||
(%) | TL | (%) | TL | |||||||||||||
Turkcell Holding | 51.00 | 1,122,000 | 51.00 | 1,122,000 | ||||||||||||
Public Share | 48.95 | 1,077,004 | 48.95 | 1,077,004 | ||||||||||||
Other | 0.05 | 996 | 0.05 | 996 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 100.00 | 2,200,000 | 100.00 | 2,200,000 | ||||||||||||
Inflation adjustment to share capital | (52,352 | ) | (52,352 | ) | ||||||||||||
|
|
|
| |||||||||||||
Inflation adjusted capital | 2,147,648 | 2,147,648 | ||||||||||||||
|
|
|
|
As at 31 December 2019,2020, total number of shares pledged as security is 995,509 (2018:(2019: 995,509).
Legal reserves
The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (“TCC”("TCC"). The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of a company’scompany's paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash dividends in excess of 5% of thepaid-in share capital. Under the TCC, the legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% ofpaid-in share capital.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Treasury shares
During 2019,2020, the Company purchased 827,750816,290 of its shareson-market with prices ranging from full TL 11.8912.09 to full TL 12.24.12.35. The buyback was approved by the Board of Directors on 27 July 2016 and 30 January 2017. Total amount of TL 9,9989,994 was deducted from equity (2018:(2019: TL 94,620)9,998).
Dividends
Azerinteltek:
According to the two resolution of the General Assembly Meeting of Azerinteltek within 2018, shareholders decided to pay dividend amounting to AZN 5,959 (TL 13,103) from the profit realized for the last quarter of 2017, dividend payment was made in 2018. The share purchase agreement of Azerinteltek was signed on 15 November 2018 and the transfer of proceeds to Inteltek was completed on 27 December 2018. The Group have lost the control over the subsidiary unconditionally on 27 December 2018 with transfer of money. The transfer of shares to Baltech was completed subsequently on 11 January 2019.
Inteltek:
According to the resolution of the Ordinary General Assembly Meeting of Inteltek dated 1513 March 2019,2020, the shareholders resolved to pay a dividend amount equal to TL 232,87538,029 out of profits for the year ended 31 December 20182019 and a dividend out legal reserves amount equal to TL 9,742.34,985 (2019: TL 277,837 in total). The aggregate amount of dividends has been paid on 29 April 2019.23 March 2020.
According to Board of Directors Resolution of Inteltek dated 16 October 2019 the advanced dividend payment has been made in 17 October 2019 amounting to TL 35,220 for the first six months of 2019 profit.
Turkcell:
On 12 September 2019, the Company’s General Assembly has approved a dividend distribution for the year ended 31 December 2018 amounting to TL 1,010,000; this represents a gross cash dividend of full TL 0.45909 per share. The dividend has been paid to the shareholders on 31 October 2019.
|
2019 | 2018 | 2017 | ||||||||||
Numerator: | ||||||||||||
Profit attributable to owners of the Company | 3,246,487 | 2,021,065 | 1,979,129 | |||||||||
Denominator: | ||||||||||||
Weighted average number of shares (*) | 2,183,922,483 | 2,184,750,233 | 2,193,184,437 | |||||||||
|
|
|
|
|
| |||||||
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL) | 1.49 | 0.93 | 0.90 | |||||||||
|
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
26. Equity (Continued)
Turkcell:
On 24 September 2020, the Company's General Assembly has approved a dividend distribution for the year ended 31 December 2019 amounting to TL 811,622 (2019: TL 1,010,000); this represents a gross cash dividend of full TL 0.36892 per share. The dividend has been paid to the shareholders on 30 November 2020.
27. Earnings per share
|
| 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Numerator: | ||||||||||
Profit attributable to owners of the Company | 4,237,086 | 3,246,487 | 2,021,065 | |||||||
Denominator: | ||||||||||
Weighted average number of shares(*) | 2,183,106,193 | 2,183,922,483 | 2,184,750,233 | |||||||
| | | | | | | | | �� | |
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL) | 1.94 | 1.49 | 0.93 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Numerator: | ||||||||||
Profit from continuing operations attributable to owners of the Company | 4,237,086 | 2,474,051 | 2,021,065 | |||||||
Denominator: | ||||||||||
Weighted average number of shares(*) | 2,183,106,193 | 2,183,922,483 | 2,184,750,233 | |||||||
| | | | | | | | | | |
Basic and diluted earnings per share for profit from continuing operations attributable to owners of the Company (in full TL) | 1.94 | 1.14 | 0.93 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Numerator: | ||||||||||
Profit from discontinuing operations attributable to owners of the Company | — | 772,436 | — | |||||||
Denominator: | ||||||||||
Weighted average number of shares(*) | 2,183,106,193 | 2,183,922,483 | 2,184,750,233 | |||||||
| | | | | | | | | | |
Basic and diluted earnings per share for profit from discontinued operations attributable to owners of the Company (in full TL) | — | 0.35 | — | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
28. Other non-current liabilities
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
Consideration payable in relation to the acquisition of Belarusian Telecom | 475,879 | 359,554 | |||||
Deferred revenue | 22,180 | 303 | |||||
| | | | | | | |
498,059 | 359,857 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Numerator: | ||||||||||||
Profit from continuing operations attributable to owners of the Company | 2,474,051 | 2,021,065 | 1,979,129 | |||||||||
Denominator: | ||||||||||||
Weighted average number of shares (*) | 2,183,922,483 | 2,184,750,233 | 2,193,184,437 | |||||||||
|
|
|
|
|
| |||||||
Basic and diluted earnings per share for profit from continuing operations attributable to owners of the Company (in full TL) | 1.14 | 0.93 | 0.90 | |||||||||
|
|
|
|
|
|
|
2019 | 2018 | 2017 | ||||||||||
Numerator: | ||||||||||||
Profit from continuing operations attributable to owners of the Company | 772,436 | — | — | |||||||||
Denominator: | ||||||||||||
Weighted average number of shares (*) | 2,183,922,483 | 2,184,750,233 | 2,193,184,437 | |||||||||
|
|
|
|
|
| |||||||
Basic and diluted earnings per share for profit from discontinued operations attributable to owners of the Company (in full TL) | 0.35 | — | — | |||||||||
|
|
|
|
|
|
|
|
2019 | 2018 | |||||||
Consideration payable in relation to the acquisition of Belarusian Telecom | 359,554 | 358,304 | ||||||
Deferred revenue | 303 | 2,497 | ||||||
Deposits and guarantees received from dealers | — | 3,809 | ||||||
|
|
|
| |||||
359,857 | 364,610 | |||||||
|
|
|
|
A considerationConsideration payable in relation to the acquisition of Belarusian Telecom represents the present value of the long-term contingent consideration payablespayable to the seller. Payment of USD 100,000 (equivalent to TL 594,020734,050 as of 31 December 2019)2020) is contingent on the financial performance of Belarusian Telecom, and based on management’smanagement's estimations, where the amount is expected to be paid in instalments between 20262025 and 2030 (31 December 2018: the first quarter of 2023)2019: in instalments between 2026-2030). The discount rate used for calculating present value of the consideration payable in relation to the acquisition of Belarusian Telecom as of 31 December 2019 is in a range from 5.2% to 6.1%2020 ranges between 4.3% and 5.6% (31 December 2018: 9.5%2019: 5.2% and 6.1%).
29. Loans and borrowings
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Non-current liabilities | |||||||
Unsecured bank loans | 7,779,354 | 6,092,170 | |||||
Secured bank loans | 151,543 | — | |||||
Lease liabilities | 1,521,713 | 1,101,303 | |||||
Debt securities issued | 6,901,075 | 5,483,921 | |||||
| | | | | | | |
16,353,685 | 12,677,394 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Current liabilities | |||||||
Unsecured bank loans | 4,049,824 | 6,712,297 | |||||
Secured bank loans | 144,261 | 2,415 | |||||
Lease liabilities | 577,173 | 431,752 | |||||
Debt securities issued | 461,479 | 481,869 | |||||
| | | | | | | |
5,232,737 | 7,628,333 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The company has used loans in accordance with the loan agreement previously signed with J.P.Morgan and AB Svensk Exportkredit under the Swedish Export Credit Organization ("EKN") insurance. As of 31 December 2020, the Company has used USD 47,100 and USD 29,410 loan on 1 April 2020 and 27 November 2020, respectively, with a fixed interest rate of 3.84%.
As at 31 December 2020, the company signed a green loan agreement amounting to EUR 50,000 with ING European Financial Services Plc. The respective loan has a maturity of 5 years and its annual interest rate is Euribor+1.95%. The loan facility is utilized to finance sustainable investments such as
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
29. Loans and borrowings (Continued)
|
31 December 2019 | 31 December 2018 | |||||||
Non-current liabilities | ||||||||
Unsecured bank loans | 6,092,170 | 7,244,992 | ||||||
Secured bank loans | — | 1,862 | ||||||
Lease liabilities | 1,101,303 | 1,026,955 | ||||||
Debt securities issued | 5,483,921 | 4,845,827 | ||||||
|
|
|
| |||||
12,677,394 | 13,119,636 | |||||||
|
|
|
| |||||
Current liabilities | ||||||||
Unsecured bank loans | 6,712,297 | 6,281,855 | ||||||
Secured bank loans | 2,415 | 2,318 | ||||||
Lease liabilities | 431,752 | 387,001 | ||||||
Debt securities issued | 481,869 | 364,735 | ||||||
|
|
|
| |||||
7,628,333 | 7,035,909 | |||||||
|
|
|
|
Asrenewable energy, energy efficiency, green digital services and green buildings under the internationally recognized Green Loan Principles. The loan will be repaid at 31 December 2019,once at the Company has utilized, USD 225,000 (equivalent to TL 1,336,545 as at 31 December 2019) and EUR 35,000 (equivalent to TL 232,771 as at 31 December 2019) comparatively, under loan agreement signed with China Development Bank (“CDB”).
The annual interest ratesend of the USD and EUR denominated loans5-year maturity term. The loan was fully utilized as part of the EUR 750,000 loan agreement between the Company and CDB, which were LIBOR + 2.22% and EURIBOR + 2.20%, have been revised as LIBOR + 2.17% and EURIBOR + 2.15%, respectively.on 20 March 2020.
The updated rates are effective as of 10 April 2019. There have been no changes to the maturity or the repayment terms of the loan.
The Companycompany has signed a loan agreement ofamounting to USD 150,00090,000 with J.P.MorganING BANK N.V. and AB Svensk Exportkredit within the frameworkscope of the EKN insurance on 18 December 2020, which can be used for financing the products and services procured from Ericsson AB and Ericsson Telekomunikasyon A.S.. Each tranches has a period of 15 months respectively and the last tranche will be available until April 2024. The repayments of the Swedish Export Credit Agency (EKN)tranches will be made in 2 equal installments per year and with a fixed interest rate of 3.04%.
The availability periodcompany has signed a loan agreement amounting to EUR 500,000 with the China Development Bank on 10 August 2020, which can be used for the infrastructure investment financing of the Group for 3 years, and can be utilized both in EUR and RMB. The maturity of the loan is until April 2021, to be utilized in three equal tranches each with a maturity of 10 years.8 years and the first 3 years are without principal repayment. The total annual costinterest rate of the loan is LIBOR + 2.10%Euribor+2.29% for the firstEUR tranche and the fixed 5.35%5.15% for the secondRMB tranche.
Within the scope of buy-back decisions on 27 July 2016, 30 January 2017 and third tranches. As at 31 December 2019, the Company has utilized USD 50,000 under this agreement.
The Company signed a loan agreement of EUR 50,000 with BNP Paribas Fortis SA/NV for general corporate purposes. The respective loan has a maturity of 3 years and 1 week and its annual cost of funding is in Euribor + 2.05%-1.85% range. Cost of funding can potentially decline to Euribor + 1.85% subject to meeting sustainability based environmental objectives set as part of the loan agreement. These objectives include recycling of electronic waste, use of solar energy for electricity consumption and reducing paper consumption through increased use of Dergilik application. As of 31 December 2019, the Company has utilized EUR 50,000 under this agreement.
As at 31 December 2019,24 March 2020, the Company sold their debt securities issued with a total nominal value of USD 10,000 comprising portion20,500 as at 31 December 2020.
The company has decided to prepay and close its Club loan, which was utilized under the credit agreement disclosed on 17 September 2015 and which is to fully mature on 16 September 2020. Accordingly, the last two principal payments of the debt securities issued previously addedloan, which are due in June 2020 and September 2020 as per the credit agreement and which in total amounted to its portfolio within the scope of thebuy-back decisions dated 27 July 2016EUR 148.4 million and 30 January 2017.USD 166.7 million were made on 23 March 2020.
In 2019, On 4 June 2020, CMB approval has been taken on issuance of management agreement based lease certificates in accordance with capital markets legislation in the domestic market, in Turkish Lira terms, at an amount of up to TL 500,000,600,000, on various dates and at various amounts without public offering, as private placement and/or to be sold to institutional investors. As at 8 October 2019,investors within one year. On 18 November 2020, the Company has issued management agreement based lease certificates through Halk Yatırım amounting TL 150,00050,000 with the maturity of 4 February 2020.23 March 2021.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
29. Loans and borrowings (Continued)
|
Terms and conditions of outstanding loans are as follows:
| | | 31 December 2020 | 31 December 2019 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Currency | Interest rate type | Nominal interest rate | Payment period | Carrying amount | Nominal interest Rate | Payment period | Carrying amount | |||||||||||
Unsecured bank loans | EUR | Floating | Euribor+2.0% - Euribor+2.2% | 2021 - 2026 | 5,624,277 | Euribor+1.3% - Euribor+2.2% | 2020 - 2026 | 5,638,726 | |||||||||||
Unsecured bank loans | USD | Floating | Libor+2.1% - Libor+2.4% | 2021 - 2028 | 2,384,622 | Libor+1.5% - Libor+2.2% | 2020 - 2028 | 4,478,457 | |||||||||||
Unsecured bank loans | TL | Fixed | 6.5% - 16.9% | 2021 | 1,627,198 | 9.5% - 11.5% | 2020 | 1,442,818 | |||||||||||
Unsecured bank loans | UAH | Fixed | 6% - 10.9% | 2021 - 2023 | 980,207 | 11.5% - 18.0% | 2020 | 1,043,883 | |||||||||||
Unsecured bank loans | USD | Fixed | 3.8% | 2030 | 501,036 | — | — | — | |||||||||||
Unsecured bank loans | EUR | Fixed | 1.5% - 1.8% | 2021 - 2022 | 428,565 | — | — | — | |||||||||||
Unsecured bank loans | RMB | Fixed | 5.2% - 5.5% | 2021 - 2026 | 283,273 | 5.5% | 2020 - 2026 | 200,583 | |||||||||||
Secured bank loans | USD | Floating | Libor+1.7% | 2023 | 259,427 | — | — | — | |||||||||||
Secured bank loans | EUR | Floating | Euribor+1.3% | 2021 | 36,377 | — | — | — | |||||||||||
Secured bank loans (*) | BYN | Fixed | — | — | — | 11.5% | 2020 | 2,415 | |||||||||||
Debt securities issued | USD | Fixed | 5.8% | 2021 - 2028 | 7,311,688 | 5.8% | 2020 - 2028 | 5,810,989 | |||||||||||
Debt securities issued | TL | Fixed | 15.0% | 2021 | 50,866 | 14.0% | 2020 | 154,801 | |||||||||||
Lease liabilities | TL | Fixed | 9.8% - 45.0% | 2021 - 2048 | 1,201,988 | 12.8% - 45.0% | 2020 - 2048 | 735,211 | |||||||||||
Lease liabilities | UAH | Fixed | 8.1% - 24.0% | 2021 - 2069 | 555,597 | 16.6% - 24.0% | 2020 - 2067 | 521,496 | |||||||||||
Lease liabilities | EUR | Fixed | 1.0% - 10.0% | 2021 - 2034 | 185,557 | 1.0% - 7.9% | 2020 - 2031 | 162,786 | |||||||||||
Lease liabilities | BYN | Fixed | 11.5% - 15.0% | 2021 - 2028 | 99,259 | 11.7% - 15.0% | 2020 - 2028 | 94,998 | |||||||||||
Lease liabilities | USD | Fixed | 3.9% - 10.9% | 2021 - 2028 | 56,485 | 3.9% - 10.8% | 2020 - 2027 | 18,564 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
21,586,422 | 20,305,727 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
31 December 2019 | 31 December 2018 | |||||||||||||||||||||||||||
Currency | Interest rate type | Nominal interest rate | Payment period | Carrying amount | Nominal interest Rate | Payment period | Carrying amount | |||||||||||||||||||||
Unsecured bank loans | EUR | Floating | Euribor+1.3%-Euribor+2.2% | 2020-2026 | 5,638,726 | Euribor+1.2%-Euribor+3.4% | 2019-2026 | 6,975,890 | ||||||||||||||||||||
Unsecured bank loans | USD | Floating | Libor+1.5%-Libor+2.2% | 2020-2028 | 4,478,457 | Libor+2.0%-Libor+4.1% | 2019-2026 | 4,589,157 | ||||||||||||||||||||
Unsecured bank loans | TL | Fixed | 9.5%-11.5% | 2020 | 1,442,818 | 12.6%-25.0% | 2019 | 873,914 | ||||||||||||||||||||
Unsecured bank loans | UAH | Fixed | 11.5%-18.0% | 2020 | 1,043,883 | 21.5%-22.5% | 2019 | 894,511 | ||||||||||||||||||||
Unsecured bank loans | RMB | Fixed | 5.5% | 2020-2026 | 200,583 | 5.5% | 2019-2026 | 193,375 | ||||||||||||||||||||
Secured bank loans (*) | BYN | Fixed | 11.5% | 2020 | 2,415 | 12.0%-16.0% | 2019-2020 | 4,180 | ||||||||||||||||||||
Debt securities issued | USD | Fixed | 5.8% | 2020-2028 | 5,810,989 | 5.8% | 2019-2028 | 5,135,565 | ||||||||||||||||||||
Debt securities issued | TL | Fixed | 14.0% | 2020 | 154,801 | 24.5% | 2019 | 74,997 | ||||||||||||||||||||
Lease liabilities | EUR | Fixed | 1.0%-7.9% | 2020-2031 | 162,786 | 1.0%-7.9% | 2019-2031 | 194,645 | ||||||||||||||||||||
Lease liabilities | TL | Fixed | 12.8%-45.0% | 2020-2048 | 735,211 | 16.1%-45.0% | 2019-2048 | 719,718 | ||||||||||||||||||||
Lease liabilities | USD | Fixed | 3.9%-10.8% | 2020-2027 | 18,564 | 3.9%-10.8% | 2019-2027 | 40,351 | ||||||||||||||||||||
Lease liabilities | UAH | Fixed | 16.6%-24.0% | 2020-2067 | 521,496 | 16.6%-24.0% | 2019-2067 | 418,390 | ||||||||||||||||||||
Lease liabilities | BYN | Fixed | 11.7%-15.0% | 2020-2028 | 94,998 | 12.0%-15.0% | 2019-2028 | 40,852 | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
20,305,727 | 20,155,545 | |||||||||||||||||||||||||||
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
30. Employee benefits
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Retirement pay liability provision | 301,459 | 222,164 | |||||
Unused vacation provision | 80,464 | 72,167 | |||||
| | | | | | | |
381,923 | 294,331 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
31 December 2019 | 31 December 2018 | |||||||
Retirement pay liability provision | 222,164 | 160,613 | ||||||
Unused vacation provision | 72,167 | 64,134 | ||||||
|
|
|
| |||||
294,331 | 224,747 | |||||||
|
|
|
|
Provision for employee termination benefits
Movements in provision for employee termination benefits are as follows:
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
1 January | 222,164 | 160,613 | |||||
Service cost | 38,304 | 35,831 | |||||
Remeasurements | 37,230 | 36,385 | |||||
Interest expense | 25,535 | 25,566 | |||||
Benefit payments | (21,774 | ) | (36,231 | ) | |||
| | | | | | | |
31 December | 301,459 | 222,164 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
2019 | 2018 | |||||||
1 January | 160,613 | 149,449 | ||||||
Service cost | 35,831 | 26,971 | ||||||
Remeasurements | 36,385 | (12,699 | ) | |||||
Interest expense | 25,566 | 16,957 | ||||||
Benefit payments | (36,231 | ) | (20,065 | ) | ||||
|
|
|
| |||||
31 December | 222,164 | 160,613 | ||||||
|
|
|
|
The sensitivity of provision for employee termination benefits to changes in the significant actuarial assumptions is:
| Interest Rate | Inflation Rate | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
31 December 2020 Sensitivity Level | 1% increase | 1% decrease | 1% increase | 1% decrease | |||||||||
Change in assumption | (14.1% | ) | 17.3 | % | 17.6 | % | (14.6% | ) | |||||
Impact on provision for employee termination benefits | (42,566 | ) | 52,122 | 53,117 | (43,953 | ) |
31 December 2019 | Discount Rate | Inflation Rate | ||||||||||||||
Sensitivity Level | 1% increase | 1% decrease | 1% increase | 1% decrease | ||||||||||||
Change in assumption | (14.2% | ) | 17.4 | % | 17.9 | % | (14.7% | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Impact on provision for employee termination benefits | (31,547 | ) | 38,657 | 39,767 | (32,658 | ) | ||||||||||
|
|
|
|
|
|
|
|
| Interest Rate | Inflation Rate | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
31 December 2019 Sensitivity Level | 1% increase | 1% decrease | 1% increase | 1% decrease | |||||||||
Change in assumption | (14.2% | ) | 17.4 | % | 17.9 | % | (14.7% | ) | |||||
Impact on provision for employee termination benefits | (31,547 | ) | 38,657 | 39,767 | (32,658 | ) |
31 December 2018 | Discount Rate | Inflation Rate | ||||||||||||||
Sensitivity Level | 1% increase | 1% decrease | 1% increase | 1% decrease | ||||||||||||
Change in assumption | (13.0% | ) | 15.7 | % | 16.5 | % | (13.7% | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Impact on provision for employee termination benefits | (20,880 | ) | 25,216 | 26,501 | (22,004 | ) | ||||||||||
|
|
|
|
|
|
|
|
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.
Defined contribution plans
Obligations for contribution to defined contribution plans are recognized as an expense in the consolidated statement of profit or loss as incurred. The Group incurred TL 14,677, TL 12,785 and TL 9,361 and TL 8,107 in relation to defined contribution retirement plan for the years ended 31 December 2020, 2019 and 2018, respectively.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and 2017, respectively.for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
30. Employee benefits (Continued)
Share based payments
The Group has a share performance based payment plan (cash settled incentive plan) in order to build a common interest with its shareholders, support sustainable success, and ensure loyalty of key employees. The KPIs of the plan are; the total shareholder return in excess of weighted average cost of capital (WACC), and ranking of total shareholder return in comparison withBIST-30 and peer group. Bonus amount is determined according to these evaluations, and it is distributed over a three-year payment plan.
As of 31 December 2019,2020, the Group recognized expenses of TL 28,19912,085 regarding this plan (31 December 2018:2019: TL 26,224)28,199).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)31. Deferred revenue
|
Deferred revenue primarily consists of rent income and it is classified as current at 31 December 20192020 and 2018.2019. The amount of deferred revenue is TL 56,544116,921 and TL 8,94856,544 as at 31 December 20192020 and 2018,2019, respectively.
32. Contract liabilities
|
Current contract liabilities:
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Contract liabilities | 315,070 | 290,408 | |||||
| | | | | | | |
315,070 | 290,408 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Contract liabilities | 290,408 | 255,756 | ||||||
|
|
|
| |||||
290,408 | 255,756 | |||||||
|
|
|
|
Non-current contract liabilities:
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Contract liabilities | 164,764 | 141,890 | |||||
| | | | | | | |
164,764 | 141,890 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Contract liabilities | 141,890 | 131,598 | ||||||
|
|
|
| |||||
141,890 | 131,598 | |||||||
|
|
|
|
Contract liabilities primarily consists of right of use sold but not used by prepaid subscribers.
Revenue recognized in the current reporting period relatesrelating to carried forward contract liabilities is TL 255,756 (2018:290,408 (2019: TL 181,710)255,756).
The following table shows unrealized performance obligation result asTable of 31 December 2019;Contents
| ||||
| ||||
| ||||
|
Management expects that 71% of the transaction price allocated to the unsatisfied contracts as of 31 December 2019 will be recognized as revenue during the next reporting period. The remaining 29% will be recognized in the 2020 financial year.
|
Non-current provisions:
Legal claims | Obligations for dismantling, removing and site restoration | Total | ||||||||||
Balance at 1 January 2019 | 9,364 | 259,358 | 268,722 | |||||||||
Provisions recognized | 12,187 | 29,080 | 41,267 | |||||||||
Unwinding of discount | — | 14,262 | 14,262 | |||||||||
Transfer to current provisions | (7,916 | ) | — | (7,916 | ) | |||||||
Effect of changes in exchange rates | — | 21,069 | 21,069 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2019 | 13,635 | 323,769 | 337,404 | |||||||||
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
32. Contract liabilities (Continued)
The following table shows unsatisfied performance obligation result as of 31 December 2020;
31 December 2020 | ||||
---|---|---|---|---|
| 900,816 | |||
Equipment revenues | 423,948 | |||
| | | | |
Total | 1,324,764 | |||
| | | | |
| | | | |
| | | | |
Non-current provisions (continued): Management expects that 61% of the transaction price allocated to the unsatisfied contracts as of 31 December 2020 will be recognized as revenue during next reporting periods. The remaining 39% will be recognized in the 2021 financial year.
33. Provisions
Legal claims | Obligations for dismantling, removing and site restoration | Total | ||||||||||
Balance at 1 January 2018 | 8,887 | 188,531 | 197,418 | |||||||||
Provisions recognized | 5,859 | 47,580 | 53,439 | |||||||||
Unwinding of discount | — | 9,760 | 9,760 | |||||||||
Transfer to current provisions | (5,382 | ) | — | (5,382 | ) | |||||||
Effect of changes in exchange rates | — | 13,487 | 13,487 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2018 | 9,364 | 259,358 | 268,722 | |||||||||
|
|
|
|
|
|
Non-current provisions:
| Legal claims | Obligations for dismantling, removing and site restoration | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at 1 January 2020 | 13,635 | 323,769 | 337,404 | |||||||
Provisions recognized | 11,033 | 7,840 | 18,873 | |||||||
Unwinding of discount | — | 21,521 | 21,521 | |||||||
Transfer to current provisions | (7,774 | ) | — | (7,774 | ) | |||||
Remeasurements | — | 39,504 | 39,504 | |||||||
Effect of changes in exchange rates | — | 2,403 | 2,403 | |||||||
| | | | | | | | | | |
Balance at 31 December 2020 | 16,894 | 395,037 | 411,931 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Legal claims | Obligations for dismantling, removing and site restoration | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at 1 January 2019 | 9,364 | 259,358 | 268,722 | |||||||
Provisions recognized | 12,187 | 29,080 | 41,267 | |||||||
Unwinding of discount | — | 14,262 | 14,262 | |||||||
Transfer to current provisions | (7,916 | ) | — | (7,916 | ) | |||||
Effect of changes in exchange rates | — | 21,069 | 21,069 | |||||||
| | | | | | | | | | |
Balance at 31 December 2019 | 13,635 | 323,769 | 337,404 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Provision for legal claims are recognized for the probable cash outflows related to legal disputes. Refer to Note 38.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
33. Provisions (Continued)
The Group is required to incur certain costs in respect of a liability to dismantle and remove assets and to restore sites on which the assets were located. The dismantling costs are calculated according to best estimate of future expected payments discounted at apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the liability.
It is expected that the obligations for dismantling, removing and site restoration will be realized in accordance with the useful life of GSM services materials.
Additions to obligations for dismantling, removing and site restoration during the period arenon-cash transactions and are recorded against property, plant and equipment.
Obligations for dismantling, removing and site restoration are discounted using a discount rate of 6.1%9.9% at 31 December 20192020 (31 December 2018: 5.1%2019: 6.1%).
Current provisions:
| Legal claims(**) | Bonus(*) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at 1 January 2020 | 17,840 | 324,972 | 342,812 | |||||||
Provisions recognized | 232,879 | 590,187 | 823,066 | |||||||
Payments | (6,109 | ) | (537,598 | ) | (543,707 | ) | ||||
Transfers from non-current provisions | 7,774 | — | 7,774 | |||||||
Effect of changes in exchange rates | 1,249 | (906 | ) | 343 | ||||||
| | | | | | | | | | |
Balance at 31 December 2020 | 253,633 | 376,655 | 630,288 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Legal claims(**) | Bonus(*) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance at 1 January 2019 | 8,593 | 298,475 | 307,068 | |||||||
Provisions recognized | 4,369 | 521,647 | 526,016 | |||||||
Payments | (4,344 | ) | (501,234 | ) | (505,578 | ) | ||||
Transfers from non-current provisions | 7,916 | — | 7,916 | |||||||
Effect of changes in exchange rates | 1,306 | 6,084 | 7,390 | |||||||
| | | | | | | | | | |
Balance at 31 December 2019 | 17,840 | 324,972 | 342,812 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Legal claims | Bonus(*) | Total | ||||||||||
Balance at 1 January 2019 | 8,593 | 298,475 | 307,068 | |||||||||
Provisions recognized | 4,369 | 521,647 | 526,016 | |||||||||
Payments | (4,344 | ) | (501,234 | ) | (505,578 | ) | ||||||
Transfers fromnon-current provisions | 7,916 | — | 7,916 | |||||||||
Effect of changes in exchange rates | 1,306 | 6,084 | 7,390 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2019 | 17,840 | 324,972 | 342,812 | |||||||||
|
|
|
|
|
|
Legal claims | Bonus(*) | Total | ||||||||||
Balance at 1 January 2018 | 605,679 | 229,520 | 835,199 | |||||||||
Provisions recognized/(reversed)(**) | (3,520 | ) | 408,740 | 405,220 | ||||||||
Payments | (626,214 | ) | (338,650 | ) | (964,864 | ) | ||||||
Unwinding of discount | 26,185 | — | 26,185 | |||||||||
Transfers fromnon-current provisions | 5,381 | — | 5,381 | |||||||||
Disposal of subsidiaries | — | (2,070 | ) | (2,070 | ) | |||||||
Effect of changes in exchange rates | 1,082 | 935 | 2,017 | |||||||||
|
|
|
|
|
| |||||||
Balance at 31 December 2018 | 8,593 | 298,475 | 307,068 | |||||||||
|
|
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
34. Trade and other payables
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
Payable to suppliers | 3,563,918 | 2,728,485 | |||||
Taxes payable | 668,260 | 523,584 | |||||
Accrued treasury share, universal service fund contribution and contributions to the ICTA's expenses | 533,440 | 562,536 | |||||
Accrued selling and marketing expenses | 4,477 | 100,792 | |||||
Other | 206,510 | 202,074 | |||||
| | | | | | | |
4,976,605 | 4,117,471 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
2019 | 2018 | |||||||
Payable to suppliers | 2,728,485 | 2,372,512 | ||||||
Accrued treasury share, universal service fund contribution and contributions to the ICTA’s expenses | 562,536 | 455,496 | ||||||
Taxes payable | 523,584 | 465,966 | ||||||
Accrued selling and marketing expenses | 100,792 | 91,747 | ||||||
Other | 202,074 | 402,453 | ||||||
|
|
|
| |||||
4,117,471 | 3,788,174 | |||||||
|
|
|
|
Payable to suppliers arises in the ordinary course of business.
Taxes payables include VAT payables, special communications taxes payable, frequency usage fees payable to the ICTA and personnel income taxes payable.
Accrued selling and marketing expenses mainly result from services received from third parties related to the marketing activities of the Group, but not yet invoiced.
35. Derivative financial instruments
|
The fair value of derivative financial instruments at 31 December 20192020 and 20182019 are attributable to the following:
| 31 December 2020 | 31 December 2019 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | Liabilities | Assets | Liabilities | |||||||||
Held for trading | 360,047 | 41,132 | 443,880 | 72,539 | |||||||||
Derivatives used for hedging | 642,623 | 66,851 | 483,448 | — | |||||||||
| | | | | | | | | | | | | |
Total | 1,002,670 | 107,983 | 927,328 | 72,539 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
31 December 2019 | 31 December 2018 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Held for trading | 443,880 | 72,539 | 709,617 | 131,097 | ||||||||||||
Derivatives used for hedging | 483,448 | — | 730,924 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 927,328 | 72,539 | 1,440,541 | 131,097 | ||||||||||||
|
|
|
|
|
|
|
|
At 31 December 2019,2020, the total held for trading derivative financial assets of TL 845,513(31917,437 (31 December 2018:2019: TL 1,356,062)845,513) also includes a net accrued interest expense of TL 81,815(3185,233 (31 December 2018:2019: TL 84,479)81,815) and the total held for trading derivative financial liabilities of TL 86,617119,111 (31 December 2018:2019: TL 165,265)86,617) also includes a net accrued interest expense of TL 14,078(11,128 (31 December 2019: TL 14,078).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2018: TL 34,168).2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Derivatives used for hedging
Participating cross currency swap and cross currency swap contracts
The notional amount and the fair value of participating cross currency swap and cross currency swap contracts for hedging purposes at 31 December 2020 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
Participating cross currency swap contracts | |||||||||||||
TL | 1,903,692 | EUR | 366,800 | 221,937 | 23 October 2025 | ||||||||
TL | 239,107 | EUR | 48,012 | 17,202 | 22 April 2026 | ||||||||
TL | 118,650 | EUR | 17,146 | 35,940 | 22 April 2026 | ||||||||
TL | 224,536 | USD | 40,010 | 55,830 | 22 April 2026 | ||||||||
TL | 220,055 | USD | 40,010 | 42,674 | 22 April 2026 | ||||||||
TL | 184,622 | USD | 32,008 | 42,554 | 22 April 2026 | ||||||||
TL | 159,500 | USD | 28,007 | 42,068 | 22 April 2026 | ||||||||
TL | 156,999 | USD | 24,006 | 14,793 | 22 April 2026 | ||||||||
TL | 125,231 | USD | 20,005 | 27,096 | 22 April 2026 | ||||||||
TL | 92,887 | USD | 16,004 | 17,169 | 22 April 2026 | ||||||||
TL | 85,206 | USD | 16,004 | 28,131 | 22 April 2026 | ||||||||
Cross currency swap contracts | |||||||||||||
TL | 99,127 | RMB | 162,121 | 97,229 | 22 April 2026 | ||||||||
| | | | | | | | | | | | | |
Derivatives used for hedge accounting financial assets | 642,623 | ||||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
EUR 414,812 participating cross currency swap contracts includes TL 1,121,303 guarantees after the CSA agreement.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Interest rate swap contracts
The notional amount and the fair value of interest rate swap contracts for hedging purposes at 31 December 2020 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
Interest rate swap contracts | |||||||||||||
USD | 80,020 | USD | 80,020 | (31,749 | ) | 22 April 2026 | |||||||
USD | 40,010 | USD | 40,010 | (15,112 | ) | 22 April 2026 | |||||||
USD | 32,008 | USD | 32,008 | (10,656 | ) | 22 April 2026 | |||||||
USD | 28,007 | USD | 28,007 | (9,334 | ) | 22 April 2026 | |||||||
| | | | | | | | | | | | | |
Derivatives used for hedge accounting financial liabilities | (66,851 | ) | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Held for trading
Cross currency swap, participating cross currency swap, FX swap and interest rate swap contracts
The notional amount and the fair value of cross currency swap, participating cross currency swap, FX swap and interest rate swap contracts for hedging purposes at 31 December 2020 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
Cross currency swap contracts | |||||||||||||
TL | 45,504 | EUR | 7,200 | 20,853 | 23 September 2021 | ||||||||
TL | 99,154 | USD | 17,143 | 31,140 | 20 March 2023 | ||||||||
TL | 98,537 | USD | 17,143 | 31,575 | 20 March 2023 | ||||||||
TL | 30,707 | RMB | 38,801 | 14,535 | 22 April 2026 | ||||||||
Participating cross currency swap contracts | |||||||||||||
TL | 218,295 | EUR | 32,008 | 67,361 | 22 April 2026 | ||||||||
TL | 148,117 | EUR | 24,006 | 62,688 | 22 April 2026 | ||||||||
TL | 146,677 | EUR | 24,006 | 80,075 | 22 April 2026 | ||||||||
TL | 73,747 | EUR | 10,861 | 19,909 | 22 April 2026 | ||||||||
TL | 98,295 | USD | 16,004 | 13,356 | 22 April 2026 | ||||||||
TL | 95,944 | USD | 16,004 | 17,978 | 22 April 2026 | ||||||||
FX swap contracts | |||||||||||||
TL | 73,135 | USD | 10,000 | 319 | 6 January 2021 | ||||||||
Interest rate swap contracts | |||||||||||||
USD | 17,778 | USD | 17,778 | 258 | 29 September 2028 | ||||||||
| | | | | | | | | | | | | |
Held for trading derivative financial assets | 360,047 | ||||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Held for trading (Continued)
FX swap, interest swap and participating cross currency swap contracts
The notional amount and the fair value of FX swap, interest swap and participating cross currency swap contracts for hedging purposes at 31 December 2020 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
FX swap contracts | |||||||||||||
EUR | 5,000 | USD | 6,116 | (148 | ) | 5 January 2021 | |||||||
EUR | 33,000 | USD | 40,075 | (3,148 | ) | 12 January 2021 | |||||||
TL | 186,488 | USD | 25,000 | (2,851 | ) | 6 January 2021 | |||||||
TL | 73,865 | USD | 10,000 | (411 | ) | 6 January 2021 | |||||||
RMB | 10,500 | USD | 1,544 | (488 | ) | 13 January 2021 | |||||||
Interest swap contracts | |||||||||||||
USD | 22,222 | USD | 22,222 | (1,141 | ) | 29 September 2028 | |||||||
Participating cross currency swap contracts | |||||||||||||
TL | 195,850 | USD | 25,000 | (3,811 | ) | 20 November 2025 | |||||||
TL | 155,340 | USD | 20,000 | (5,890 | ) | 20 November 2025 | |||||||
Cross currency swap contracts | |||||||||||||
TL | 188,851 | EUR | 19,900 | (11,663 | ) | 2 December 2021 | |||||||
TL | 224,100 | EUR | 24,000 | (2,021 | ) | 21 December 2022 | |||||||
TL | 154,600 | USD | 20,000 | (6,747 | ) | 20 November 2025 | |||||||
| | | | | | | | | | | | | |
Total held for trading derivative financial liabilities | (38,319 | ) | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Held for trading (Continued)
Currency forward contracts
The notional amount and the fair value of currency forward contracts for trading purposes at 31 December 2020 are as follows:
Buy | | | ||||||
---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Fair Value | Maturity | |||||
USD | 500 | (194 | ) | 31 January 2021 | ||||
USD | 500 | (212 | ) | 28 February 2021 | ||||
USD | 500 | (216 | ) | 31 March 2021 | ||||
USD | 500 | (221 | ) | 30 April 2021 | ||||
USD | 500 | (226 | ) | 29 May 2021 | ||||
USD | 500 | (232 | ) | 30 June 2021 | ||||
USD | 500 | (237 | ) | 31 July 2021 | ||||
USD | 500 | (242 | ) | 31 August 2021 | ||||
USD | 500 | (250 | ) | 30 September 2021 | ||||
USD | 500 | (253 | ) | 30 October 2021 | ||||
USD | 500 | (262 | ) | 30 November 2021 | ||||
USD | 500 | (268 | ) | 31 December 2021 | ||||
| | | | | | | | |
Held for trading derivative financial liabilities | (2,813 | ) | ||||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Derivatives used for hedging
Participating cross currency swap and cross currency swap contracts
The notional amount and the fair value of participating cross currency swap and cross currency swap contracts for hedging purposes at 31 December 2019 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
Participating cross currency swap contracts | |||||||||||||
TL | 1,820,280 | EUR | 433,400 | 148,066 | 23 October 2025 | ||||||||
TL | 257,478 | EUR | 56,004 | 7,675 | 22 April 2026 | ||||||||
TL | 85,593 | USD | 18,668 | 21,581 | 22 April 2026 | ||||||||
TL | 145,000 | USD | 50,000 | 97,030 | 16 September 2020 | ||||||||
TL | 128,833 | USD | 33,333 | 57,280 | 16 September 2020 | ||||||||
TL | 97,833 | USD | 33,333 | 63,358 | 16 September 2020 | ||||||||
TL | 64,667 | USD | 16,667 | 28,394 | 16 September 2020 | ||||||||
TL | 245,951 | USD | 46,670 | 9,893 | 22 April 2026 | ||||||||
Cross currency swap contracts | |||||||||||||
TL | 115,628 | RMB | 189,107 | 50,171 | 22 April 2026 | ||||||||
| | | | | | | | | | | | | |
Derivatives used for hedge accounting financial assets | 483,448 | ||||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Sell | Buy | |||||||||||||||||||||
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | |||||||||||||||||
Participating cross currency swap contracts | ||||||||||||||||||||||
TL | 1,820,280 | EUR | 433,400 | 148,066 | 23 October 2025 | |||||||||||||||||
TL | 257,478 | EUR | 56,004 | 7,675 | 22 April 2026 | |||||||||||||||||
TL | 85,593 | USD | 18,668 | 21,581 | 22 April 2026 | |||||||||||||||||
TL | 145,000 | USD | 50,000 | 97,030 | 16 September 2020 | |||||||||||||||||
TL | 128,833 | USD | 33,333 | 57,280 | 16 September 2020 | |||||||||||||||||
TL | 97,833 | USD | 33,333 | 63,358 | 16 September 2020 | |||||||||||||||||
TL | 64,667 | USD | 16,667 | 28,394 | 16 September 2020 | |||||||||||||||||
TL | 245,951 | USD | 46,670 | 9,893 | 22 April 2026 | |||||||||||||||||
Cross currency swap contracts | ||||||||||||||||||||||
TL | 115,628 | RMB | 189,107 | 50,171 | 22 April 2026 | |||||||||||||||||
|
| |||||||||||||||||||||
Derivatives used for hedge accounting financial assets |
| 483,448 | ||||||||||||||||||||
|
|
EUR 489,404 participating cross currency swap contracts includes TL 833,786 guarantees after the CSA agreement.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
|
Held for trading
Cross currency swap, participating cross currency swap, FX swap and option contracts
The notional amount and the fair value of cross currency swap, participating cross currency swap, FX swap and option contracts for hedging purposes at 31 December 2019 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
Cross currency swap contracts | |||||||||||||
TL | 242,873 | USD | 70,500 | 178,968 | 16 September 2020 | ||||||||
TL | 269,451 | USD | 70,500 | 148,452 | 22 December 2020 | ||||||||
TL | 137,952 | USD | 24,000 | 5,625 | 20 March 2023 | ||||||||
TL | 138,816 | USD | 24,000 | 5,044 | 23 March 2023 | ||||||||
TL | 84,224 | EUR | 15,040 | 10,691 | 23 September 2021 | ||||||||
TL | 91,008 | EUR | 14,400 | 5,141 | 23 September 2021 | ||||||||
TL | 35,818 | RMB | 45,259 | 944 | 22 April 2026 | ||||||||
Participating cross currency swap contracts | |||||||||||||
TL | 172,772 | EUR | 28,002 | 9,904 | 22 April 2026 | ||||||||
TL | 171,092 | EUR | 28,002 | 21,355 | 22 April 2026 | ||||||||
TL | 227,750 | EUR | 37,336 | 8,705 | 22 April 2026 | ||||||||
TL | 77,520 | EUR | 12,000 | 1,097 | 16 September 2020 | ||||||||
TL | 261,912 | USD | 46,670 | 12,195 | 22 April 2026 | ||||||||
TL | 108,349 | USD | 18,668 | 3,930 | 22 April 2026 | ||||||||
TL | 135,051 | USD | 23,335 | 4,674 | 22 April 2026 | ||||||||
TL | 215,354 | USD | 37,336 | 7,813 | 22 April 2026 | ||||||||
TL | 174,000 | USD | 30,000 | 1,506 | 15 June 2026 | ||||||||
TL | 186,050 | USD | 32,669 | 9,936 | 22 April 2026 | ||||||||
FX swap contracts | |||||||||||||
USD | 20,000 | TL | 117,860 | 67 | 27 February 2020 | ||||||||
USD | 20,000 | TL | 117,900 | 51 | 27 February 2020 | ||||||||
Option contracts | |||||||||||||
EUR | 25,000 | USD | 28,038 | 186 | 3 January 2020 | ||||||||
USD | 50,000 | TL | 275,000 | 11 | 3 January 2020 | ||||||||
| | | | | | | | | | | | | |
Held for trading derivative financial assets | 436,295 | ||||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Sell | Buy | |||||||||||||||||
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | |||||||||||||
Cross currency swap contracts | ||||||||||||||||||
TL | 242,873 | USD | 70,500 | 178,968 | 16 September 2020 | |||||||||||||
TL | 269,451 | USD | 70,500 | 148,452 | 22 December 2020 | |||||||||||||
TL | 137,952 | USD | 24,000 | 5,625 | 20 March 2023 | |||||||||||||
TL | 138,816 | USD | 24,000 | 5,044 | 23 March 2023 | |||||||||||||
TL | 84,224 | EUR | 15,040 | 10,691 | 23 September 2021 | |||||||||||||
TL | 91,008 | EUR | 14,400 | 5,141 | 23 September 2021 | |||||||||||||
TL | 35,818 | RMB | 45,259 | 944 | 22 April 2026 | |||||||||||||
Participating cross currency swap contracts | ||||||||||||||||||
TL | 172,772 | EUR | 28,002 | 9,904 | 22 April 2026 | |||||||||||||
TL | 171,092 | EUR | 28,002 | 21,355 | 22 April 2026 | |||||||||||||
TL | 227,750 | EUR | 37,336 | 8,705 | 22 April 2026 | |||||||||||||
TL | 77,520 | EUR | 12,000 | 1,097 | 16 September 2020 | |||||||||||||
TL | 261,912 | USD | 46,670 | 12,195 | 22 April 2026 | |||||||||||||
TL | 108,349 | USD | 18,668 | 3,930 | 22 April 2026 | |||||||||||||
TL | 135,051 | USD | 23,335 | 4,674 | 22 April 2026 | |||||||||||||
TL | 215,354 | USD | 37,336 | 7,813 | 22 April 2026 | |||||||||||||
TL | 174,000 | USD | 30,000 | 1,506 | 15 June 2026 | |||||||||||||
TL | 186,050 | USD | 32,669 | 9,936 | 22 April 2026 | |||||||||||||
FX swap contracts (*) | ||||||||||||||||||
USD | 20,000 | TL | 117,860 | 67 | 27 February 2020 | |||||||||||||
USD | 20,000 | TL | 117,900 | 51 | 27 February 2020 | |||||||||||||
Option contracts | ||||||||||||||||||
EUR | 25,000 | USD | 28,038 | 186 | 3 January 2020 | |||||||||||||
USD | 50,000 | TL | 275,000 | 11 | 3 January 2020 | |||||||||||||
|
| |||||||||||||||||
Held for trading derivative financial assets |
| 436,295 | ||||||||||||||||
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
|
Held for trading (Continued)
Currency forward contracts
The notional amount and the fair value of currency forward contracts for trading purposes at 31 December 2019 are as follows:
Buy | | | ||||||
---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Fair Value | Maturity | |||||
USD | 30,000 | 2,081 | 28 February 2020 | |||||
USD | 7,500 | 952 | 30 March 2020 | |||||
USD | 7,500 | 916 | 29 June 2020 | |||||
USD | 10,000 | 1,038 | 30 March 2020 | |||||
USD | 10,000 | 1,016 | 29 June 2020 | |||||
USD | 7,500 | 797 | 30 March 2020 | |||||
USD | 7,500 | 785 | 29 June 2020 | |||||
| | | | | | | | |
Held for trading derivative financial assets | 7,585 | |||||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Buy | ||||||||||||
Currency | Notional amount | Fair Value | Maturity | |||||||||
USD | 30,000 | 2,081 | 28 February 2020 | |||||||||
USD | 7,500 | 952 | 30 March 2020 | |||||||||
USD | 7,500 | 916 | 29 June 2020 | |||||||||
USD | 10,000 | 1,038 | 30 March 2020 | |||||||||
USD | 10,000 | 1,016 | 29 June 2020 | |||||||||
USD | 7,500 | 797 | 30 March 2020 | |||||||||
USD | 7,500 | 785 | 29 June 2020 | |||||||||
|
| |||||||||||
Held for trading derivative financial assets |
| 7,585 | ||||||||||
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Held for trading (Continued)
FX swap, interest swap and participating cross currency swap contracts
The notional amount and the fair value of FX swap, interest swap and participating cross currency swap contracts for hedging purposes at 31 December 2019 are as follows:
Sell | Buy | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | ||||||||
FX swap contracts | |||||||||||||
EUR | 50,000 | USD | 55,488 | (3,005 | ) | 07 January 2020 | |||||||
EUR | 75,000 | USD | 83,232 | (4,512 | ) | 07 January 2020 | |||||||
EUR | 175,000 | USD | 194,560 | (8,508 | ) | 08 January 2020 | |||||||
EUR | 50,000 | USD | 55,588 | (2,432 | ) | 08 January 2020 | |||||||
EUR | 50,000 | USD | 55,588 | (2,434 | ) | 08 January 2020 | |||||||
EUR | 85,000 | USD | 94,397 | (4,748 | ) | 08 January 2020 | |||||||
EUR | 90,000 | USD | 100,492 | (2,301 | ) | 21 January 2020 | |||||||
EUR | 20,000 | USD | 22,332 | (510 | ) | 21 January 2020 | |||||||
EUR | 175,000 | USD | 195,346 | (4,875 | ) | 22 January 2020 | |||||||
EUR | 50,000 | USD | 55,825 | (1,448 | ) | 28 January 2020 | |||||||
EUR | 70,000 | USD | 78,154 | (2,036 | ) | 28 January 2020 | |||||||
EUR | 90,000 | USD | 100,484 | (2,612 | ) | 28 January 2020 | |||||||
EUR | 50,000 | USD | 55,825 | (1,448 | ) | 28 January 2020 | |||||||
TL | 11,211 | USD | 1,860 | (3 | ) | 28 February 2020 | |||||||
Interest swap contracts | |||||||||||||
USD | 93,340 | USD | 93,340 | (7,802 | ) | 22 April 2026 | |||||||
USD | 46,670 | USD | 46,670 | (3,101 | ) | 22 April 2026 | |||||||
USD | 37,336 | USD | 37,336 | (959 | ) | 22 April 2026 | |||||||
USD | 32,669 | USD | 32,669 | (849 | ) | 22 April 2026 | |||||||
Participating cross currency swap contracts | |||||||||||||
TL | 105,848 | USD | 18,668 | (14,265 | ) | 22 April 2026 | |||||||
TL | 162,552 | USD | 28,002 | (4,691 | ) | 22 April 2026 | |||||||
| | | | | | | | | | | | | |
Total held for trading derivative financial liabilities | (72,539 | ) | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Sell | Buy | |||||||||||||||||||||
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | |||||||||||||||||
FX swap contracts |
| |||||||||||||||||||||
EUR | 50,000 | USD | 55,488 | (3,005 | ) | 07 January 2020 | ||||||||||||||||
EUR | 75,000 | USD | 83,232 | (4,512 | ) | 07 January 2020 | ||||||||||||||||
EUR | 175,000 | USD | 194,560 | (8,508 | ) | 08 January 2020 | ||||||||||||||||
EUR | 50,000 | USD | 55,588 | (2,432 | ) | 08 January 2020 | ||||||||||||||||
EUR | 50,000 | USD | 55,588 | (2,434 | ) | 08 January 2020 | ||||||||||||||||
EUR | 85,000 | USD | 94,397 | (4,748 | ) | 08 January 2020 | ||||||||||||||||
EUR | 90,000 | USD | 100,492 | (2,301 | ) | 21 January 2020 | ||||||||||||||||
EUR | 20,000 | USD | 22,332 | (510 | ) | 21 January 2020 | ||||||||||||||||
EUR | 175,000 | USD | 195,346 | (4,875 | ) | 22 January 2020 | ||||||||||||||||
EUR | 50,000 | USD | 55,825 | (1,448 | ) | 28 January 2020 | ||||||||||||||||
EUR | 70,000 | USD | 78,154 | (2,036 | ) | 28 January 2020 | ||||||||||||||||
EUR | 90,000 | USD | 100,484 | (2,612 | ) | 28 January 2020 | ||||||||||||||||
EUR | 50,000 | USD | 55,825 | (1,448 | ) | 28 January 2020 | ||||||||||||||||
TL | 11,211 | USD | 1,860 | (3 | ) | 28 February 2020 | ||||||||||||||||
Interest swap contracts |
| |||||||||||||||||||||
USD | 93,340 | USD | 93,340 | (7,802 | ) | 22 April 2026 | ||||||||||||||||
USD | 46,670 | USD | 46,670 | (3,101 | ) | 22 April 2026 | ||||||||||||||||
USD | 37,336 | USD | 37,336 | (959 | ) | 22 April 2026 | ||||||||||||||||
USD | 32,669 | USD | 32,669 | (849 | ) | 22 April 2026 | ||||||||||||||||
Participating cross currency swap contracts |
| |||||||||||||||||||||
TL | 105,848 | USD | 18,668 | (14,265 | ) | 22 April 2026 | ||||||||||||||||
TL | 162,552 | USD | 28,002 | (4,691 | ) | 22 April 2026 | ||||||||||||||||
|
| |||||||||||||||||||||
Total held for trading derivative financial liabilities |
| (72,539 | ) | |||||||||||||||||||
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Derivatives used for hedging
Participating cross currency swap and cross currency swap contracts
The notional amount and the fair value of participating cross currency swap and cross currency swap contracts for hedging purposes at 31 December 2018 are as follows:
Sell | Buy | |||||||||||||||||||||||
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | |||||||||||||||||||
Participating cross currency swap contracts |
| |||||||||||||||||||||||
TL | 1,650,000 | EUR | 500,000 | 208,462 | 23 October 2025 | |||||||||||||||||||
TL | 275,850 | EUR | 60,000 | 64,670 | 22 April 2026 | |||||||||||||||||||
TL | 435,000 | USD | 150,000 | 167,116 | 16 September 2020 | |||||||||||||||||||
TL | 293,500 | USD | 100,000 | 108,777 | 16 September 2020 | |||||||||||||||||||
TL | 194,000 | USD | 50,000 | 39,394 | 16 September 2020 | |||||||||||||||||||
TL | 386,500 | USD | 100,000 | 79,688 | 16 September 2020 | |||||||||||||||||||
TL | 91,700 | USD | 20,000 | 9,234 | 22 April 2026 | |||||||||||||||||||
Cross currency swap contracts |
| |||||||||||||||||||||||
TL | 123,878 | RMB | 202,600 | 53,583 | 22 April 2026 | |||||||||||||||||||
|
| |||||||||||||||||||||||
Derivatives used for hedge accounting financial assets |
| 730,924 | ||||||||||||||||||||||
|
|
EUR 500,000 participating cross currency swap contracts includes TL 690,146 guarantees after CSA agreement.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Held for trading
FX swap, cross currency swap and participating cross currency swap contracts
The notional amount and the fair value of FX swap, cross currency swap, participating cross currency swap contracts for hedging purposes at 31 December 2018 are as follows:
Sell | Buy | |||||||||||||||||
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | |||||||||||||
FX swap contracts | ||||||||||||||||||
TL | 266,760 | USD | 50,000 | (3,715 | ) | 2 January 2019 | ||||||||||||
TL | 266,510 | USD | 50,000 | (3,465 | ) | 2 January 2019 | ||||||||||||
TL | 719,996 | USD | 135,000 | (9,774 | ) | 2 January 2019 | ||||||||||||
TL | 212,736 | USD | 40,000 | (2,300 | ) | 2 January 2019 | ||||||||||||
TL | 265,925 | USD | 50,000 | (2,880 | ) | 2 January 2019 | ||||||||||||
TL | 1,366 | USD | 253 | (48 | ) | 19 March 2019 | ||||||||||||
TL | 4,199 | USD | 680 | (939 | ) | 16 January 2019 | ||||||||||||
TL | 5,681 | USD | 920 | (1,277 | ) | 22 January 2019 | ||||||||||||
TL | 6,040 | EUR | 1,000 | (41 | ) | 2 January 2019 | ||||||||||||
USD | 68,654 | EUR | 60,000 | (861 | ) | 15 January 2019 | ||||||||||||
USD | 11,462 | EUR | 10,000 | (4 | ) | 8 January 2019 | ||||||||||||
Cross currency swap contracts | ||||||||||||||||||
TL | 6,159 | USD | 1,000 | (912 | ) | 28 January 2019 | ||||||||||||
TL | 6,159 | USD | 1,000 | (910 | ) | 24 January 2019 | ||||||||||||
TL | 130,488 | USD | 24,000 | (9,365 | ) | 20 March 2023 | ||||||||||||
TL | 268,200 | USD | 50,000 | (5,791 | ) | 14 June 2019 | ||||||||||||
TL | 128,436 | USD | 24,000 | (2,652 | ) | 19 June 2019 | ||||||||||||
TL | 169,368 | EUR | 24,000 | (24,895 | ) | 8 January 2019 | ||||||||||||
TL | 118,800 | EUR | 18,000 | (22,051 | ) | 23 September 2021 | ||||||||||||
TL | 111,732 | EUR | 18,867 | 1,920 | 14 February 2019 | |||||||||||||
TL | 185,100 | EUR | 30,000 | (8,296 | ) | 22 April 2026 | ||||||||||||
TL | 183,300 | EUR | 30,000 | (8,642 | ) | 22 April 2026 | ||||||||||||
Participating cross currency swap contracts | ||||||||||||||||||
TL | 193,800 | EUR | 30,000 | (7,148 | ) | 16 September 2020 | ||||||||||||
TL | 113,400 | USD | 20,000 | (17,051 | ) | 22 April 2026 | ||||||||||||
|
| |||||||||||||||||
Total Held for trading derivative financial liabilities |
| (131,097 | ) | |||||||||||||||
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Held for trading
Cross currency swap contracts
The notional amount and the fair value of cross currency swap contracts for hedging purposes at 31 December 2018 are as follows:
Sell | Buy | |||||||||||||||||||||||
Currency | Notional amount | Currency | Notional amount | Fair Value | Maturity | |||||||||||||||||||
Cross currency swap contracts |
| |||||||||||||||||||||||
TL | 67,410 | USD | 18,000 | 27,928 | 28 January 2019 | |||||||||||||||||||
TL | 95,550 | USD | 25,000 | 36,751 | 24 January 2019 | |||||||||||||||||||
TL | 52,164 | USD | 14,620 | 27,870 | 16 July 2019 | |||||||||||||||||||
TL | 69,744 | USD | 19,780 | 38,636 | 22 July 2019 | |||||||||||||||||||
TL | 242,873 | USD | 70,500 | 160,594 | 16 September 2020 | |||||||||||||||||||
TL | 269,451 | USD | 70,500 | 131,437 | 22 December 2020 | |||||||||||||||||||
TL | 191,300 | USD | 50,000 | 74,095 | 13 February 2019 | |||||||||||||||||||
TL | 98,625 | EUR | 25,000 | 57,161 | 13 June 2019 | |||||||||||||||||||
TL | 203,600 | EUR | 50,000 | 109,610 | 23 July 2019 | |||||||||||||||||||
TL | 97,997 | EUR | 21,500 | 37,825 | 19 December 2019 | |||||||||||||||||||
TL | 105,280 | EUR | 18,800 | 7,710 | 23 September 2021 | |||||||||||||||||||
|
| |||||||||||||||||||||||
Total held for trading derivative financial assets |
| 709,617 | ||||||||||||||||||||||
|
|
Fair value of derivative instruments and risk management
This section explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value in the financial statements. To provide an indication of the reliability of the inputs used in determining fair value, the Group has
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Fair value of derivative instruments and risk management (Continued)
classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level is as follows:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Fair value of derivative instruments and risk management (continued)
| Fair values | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 31 December 2020 | 31 December 2019 | Fair Value hierarchy | Valuation Techniques | ||||||
a) Participating cross currency swap contracts(*) | 797,060 | 495,436 | Level 3 | Pricing models based on discounted cash Present value of the estimated future cash flows based on unobservable yield curves and end period FX rates | ||||||
—Held for trading | 251,666 | 62,159 | ||||||||
—Derivatives used for hedging | 545,394 | 433,277 | ||||||||
b) FX swap, currency, interest swap and option contracts | 100,440 | 351,768 | Level 2 | Present value of the estimated future cash flows based on observable yield curves and end period FX rates | ||||||
—Held for trading | 70,062 | 301,597 | ||||||||
—Derivatives used for hedging | 30,378 | 50,171 | ||||||||
c) Currency forward contracts | (2,813 | ) | 7,585 | Level 2 | Forward exchange rates at the balance sheet date | |||||
—Held for trading | (2,813 | ) | 7,585 |
Fair values | ||||||||||||||
31 December 2019 | 31 December 2018 | Fair Value hierarchy | Valuation Techniques | |||||||||||
a) Participating cross currency swap contracts (*) | 495,436 | 653,142 | Level 3 | Pricing models based on discounted cash Present value of the estimated future cash flows based on unobservable yield curves and end period FX rates | ||||||||||
-Held for trading | 62,159 | (24,199 | ) | |||||||||||
-Derivatives used for hedging | 433,277 | 677,341 | ||||||||||||
b) FX swap, currency, interest swap and option contracts | 351,768 | 656,302 | Level 2 | Present value of the estimated future cash flows based on observable yield curves and end period FX rates | ||||||||||
-Held for trading | 301,597 | 602,719 | ||||||||||||
-Derivatives used for hedging | 50,171 | 53,583 | ||||||||||||
c) Currency forward contracts | 7,585 | — | Level 2 | Forward exchange rates at the balance sheet date | ||||||||||
-Held for trading | 7,585 | — |
|
There were no transfers between fair value hierarchy levels during the year.
The following tables present the Group’s financial assets and financial liabilities measured and recognized at fair value at 31 December 2019 and 2018 on a hedge accounting basis:
Fair values | ||||||||||||||||||||||||||||||||
Currency | Nominal Value | Maturity Date | 31 December 2019 | 31 December 2018 | Fair Value hierarchy | Hedge Ratio | Change in intrinsic value of outstanding hedging instruments since 1 January | Change in value of hedging item used to determine hedge effectiveness | ||||||||||||||||||||||||
Participating cross currency swap contracts |
| |||||||||||||||||||||||||||||||
EUR Contracts | 433,400 | 23 October 2025 | 148,066 | 208,462 | Level 3 | 1:1 | 293,774 | (293,774 | ) | |||||||||||||||||||||||
EUR Contracts | 56,004 | 22 April 2026 | 7,675 | 64,670 | Level 3 | 1:1 | 36,344 | (36,344 | ) | |||||||||||||||||||||||
USD Contracts | 133,333 | 16 September 2020 | 246,062 | 394,975 | Level 3 | 1:1 | 61,424 | (61,424 | ) | |||||||||||||||||||||||
USD Contracts | 46,670 | 22 April 2026 | 9,893 | — | Level 3 | 1:1 | 15,215 | (15,215 | ) | |||||||||||||||||||||||
USD Contracts | 18,668 | 22 April 2026 | 21,581 | 9,234 | Level 3 | 1:1 | 13,436 | (13,436 | ) | |||||||||||||||||||||||
Cross currency swap contracts |
| |||||||||||||||||||||||||||||||
CNY Contracts | 189,107 | 22 April 2026 | 50,171 | 53,583 | Level 2 | 1:1 | 19,172 | (19,172 | ) |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
|
Fair value of derivative instruments and risk management (continued)(Continued)
The following tables present the Group's financial assets and financial liabilities measured and recognized at fair value at 31 December 2020 and 2019 on a hedge accounting basis:
Fair values | ||||||||||||||||||||||||||||||||
Currency | Nominal Value | Maturity Date | 31 December 2018 | 31 December 2017 | Fair Value hierarchy | Hedge Ratio | Change in intrinsic value of outstanding hedging instruments since 1 July | Change in value of hedging item used to determine hedge effectiveness | ||||||||||||||||||||||||
Participating cross currency swap contracts |
| |||||||||||||||||||||||||||||||
EUR Contracts | 500,000 | 23 October 2025 | 208,462 | 627,385 | Level 3 | 1:1 | 359,400 | (359,400 | ) | |||||||||||||||||||||||
EUR Contracts | 60,000 | 22 April 2026 | 64,670 | 1,078 | Level 3 | 1:1 | 43,128 | (43,128 | ) | |||||||||||||||||||||||
USD Contracts | 400,000 | 16 September 2020 | 394,975 | 224,560 | Level 3 | 1:1 | 179,388 | (179,388 | ) | |||||||||||||||||||||||
USD Contracts | 20,000 | 10 April 2026 | 9,234 | — | Level 3 | 1:1 | 13,519 | (13,519 | ) | |||||||||||||||||||||||
Cross currency swap contracts |
| |||||||||||||||||||||||||||||||
CNY Contracts | 202,600 | 22 April 2026 | 53,583 | — | Level 2 | 1:1 | 15,600 | (15,600 | ) |
| Fair values | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Nominal Value | Maturity Date | 31 December 2020 | 31 December 2019 | Fair Value hierarchy | Hedge Ratio | Change in intrinsic value of outstanding hedging instruments since 1 January | Change in value of hedging item used to determine hedge effectiveness | ||||||||||||||||
Participating cross currency swap contracts | ||||||||||||||||||||||||
EUR Contracts | 366,800 | 23 October 2025 | 221,937 | 148,066 | Level 3 | 1:1 | 968,122 | (968,122 | ) | |||||||||||||||
EUR Contracts | 65,158 | 22 April 2026 | 53,142 | 7,675 | Level 3 | 1:1 | 161,325 | (161,325 | ) | |||||||||||||||
USD Contracts | — | 16 September 2020 | — | 246,062 | Level 3 | 1:1 | 1,570 | (1,570 | ) | |||||||||||||||
USD Contracts | 216,054 | 22 April 2026 | 270,315 | 31,474 | Level 3 | 1:1 | 340,553 | (340,553 | ) | |||||||||||||||
Cross currency swap contracts | ||||||||||||||||||||||||
CNY Contracts | 162,121 | 22 April 2026 | 97,229 | 50,171 | Level 2 | 1:1 | 46,858 | (46,858 | ) | |||||||||||||||
Interest rate swap contracts | ||||||||||||||||||||||||
USD Contracts | 180,045 | 22 April 2026 | (66,851 | ) | — | Level 2 | 1:1 | — | — |
| Fair values | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Currency | Nominal Value | Maturity Date | 31 December 2019 | 31 December 2018 | Fair Value hierarchy | Hedge Ratio | Change in intrinsic value of outstanding hedging instruments since 1 January | Change in value of hedging item used to determine hedge effectiveness | ||||||||||||||||
Participating cross currency swap contracts | ||||||||||||||||||||||||
EUR Contracts | 433,400 | 23 October 2025 | 148,066 | 208,462 | Level 3 | 1:1 | 293,774 | (293,774 | ) | |||||||||||||||
EUR Contracts | 56,004 | 22 April 2026 | 7,675 | 64,670 | Level 3 | 1:1 | 36,344 | (36,344 | ) | |||||||||||||||
USD Contracts | 133,333 | 16 September 2020 | 246,062 | 394,975 | Level 3 | 1:1 | 61,424 | (61,424 | ) | |||||||||||||||
USD Contracts | 46,670 | 22 April 2026 | 9,893 | — | Level 3 | 1:1 | 15,215 | (15,215 | ) | |||||||||||||||
USD Contracts | 18,668 | 22 April 2026 | 21,581 | 9,234 | Level 3 | 1:1 | 13,436 | (13,436 | ) | |||||||||||||||
Cross currency swap contracts | ||||||||||||||||||||||||
CNY Contracts | 189,107 | 22 April 2026 | 50,171 | 53,583 | Level 2 | 1:1 | 19,172 | (19,172 | ) |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Fair value of derivative instruments and risk management (Continued)
Movements in the participating cross currency swap contracts for the years ended 31 December 20192020 and 31 December 20182019 are stated below:
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Opening balance | 495,436 | 653,142 | |||||
Cash flow effect | (695,892 | ) | (582,580 | ) | |||
Total gain/loss: | |||||||
Gains recognized in profit or loss | 997,516 | 424,874 | |||||
| | | | | | | |
Closing balance | 797,060 | 495,436 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Opening balance | 653,142 | 950,862 | ||||||
Cash flow effect | (582,580 | ) | (612,466 | ) | ||||
Total gain/loss: | ||||||||
Gains recognized in profit or loss | 424,874 | 314,746 | ||||||
|
|
|
| |||||
Closing balance | 495,436 | 653,142 | ||||||
|
|
|
|
Net off / Offset
The Company signed a Credit Support Annex (CSA) against the default risk of parties in respect of a EUR 433,400366,800 participating cross currency swap transaction executed on 15 July 2016 and restructured respectively on 26 May 2017 and 9 August 2018. Additionally, in the 25 June 2019, The Company signed a new CSA to EUR 56,00448,012 participating cross currency swap transaction. As per the CSA, the swap’sswap's current(mark-to-market) value will be determined on the 10th and 24th calendar day of each calendar month, and if themark-to-market value is positive and exceeds a certain threshold, the bank will be posting cash collateral to the Company which will be equal to an amount exceeding the threshold (i.e. if themark-to-market value is negative, the Company would be required to post collateral to the bank by an amount exceeding the threshold).
With respect to valuations, on abi-weekly basis, a transfer will take place between the parties only if themark-to-market value changes by at least EUR 1,000. Following the execution of CSA, the bank transferred to the Company EUR 224,843268,563 as collateral (31 December 2019:2020: TL 1,495,341)2,419,189) which was the amount exceeding the threshold and the Company transferred EUR 99,473144,083 as collateral to the bank (31 December 2019:2020: TL 661,555)1,297,886) which was the amount exceeding the threshold. The Company clarified this with the derivative assets included in the statement of financial position because it has the legal right to offset the collateral amount TL 833,7861,121,303 that it recognizes under the borrowings and intends to pay according to the net fair value. This amount was netted from the borrowings and deducted from the derivative instruments in the balance sheet. As of 31 December 2019,2020, were this transaction not conducted, derivative financial instruments assets would have been TL 1,679,2992,038,740 and current borrowings TL 8,462,119.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)Market risk
|
Fair value of derivative instruments and risk management (continued)
Market risk
The Group uses various types of derivatives to manage market risks. All such transactions are carried out within the guidelines set by the treasury and risk management department. Generally, the Group seeks to apply hedge accounting to manage volatility in profit or loss.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Fair value of derivative instruments and risk management (Continued)
Currency risk
The Group’sGroup's risk management policy is to hedge its estimated foreign currency exposure in respect of borrowing payments with various maturities at any point in time. The Group uses participating cross currency contracts to hedge its currency risk, mostly with a maturity of over one year from the reporting date. These contracts are generally designated as cash flow hedges.
The Group designates the hedge ratio, between the amount of the hedged item and the hedging instrument is 1:1 to hedge its currency risk.
The time value of options in participating cross currency swap contracts are included in the designation of the hedging instrument and are separately accounted for as a cost of hedging, which is recognized in equity in a cost of hedging reserve. The Group’sGroup's policy is for the critical terms of the participating cross currency contracts to align with the hedged item.
The Group determines the existence of an economic relationship between the hedging instruments and hedged item based on the currency, amount and timing of their respective cash flows. The Group assesses whether the derivative designated in each hedging relationship is expected to be and has been effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative method.
In these hedge relationships, the main sources of ineffectiveness are;
Interest rate risk
The Group adopts a policy of ensuring that its interest rate risk exposure is at a fixed rate. This is achieved partly by entering into fixed-rate instruments and partly by borrowing at a floating rate and using cross currency and interest rate swaps as hedges of the variability in cash flows attributable to movements in interest rates. The Group applies a hedge ratio of 1:1.
The Group determines the existence of an economic relationship between the hedging instrument and hedged item based on the reference interest rates, tenors, repricing dates and maturities and the notional or par amounts.
The Group assesses whether the derivative designated in each hedging relationship is expected to be effective in offsetting changes in cash flows of the hedged item using the hypothetical derivative method.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
35. Derivative financial instruments (Continued)
Fair value of derivative instruments and risk management (Continued)
In these hedge relationships, the main sources of ineffectiveness are:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Fair value of derivative instruments and risk management (continued)
Cash flow sensitivity analysis for variable-rate instruments
A reasonable potential change of 100 basis points in interest rates and 10% change in foreign exchange currency at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.
| Profit or Loss | Equity, net of tax | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 100 bp increase | 100 bp decrease | 100 bp increase | 100 bp decrease | |||||||||
31 December 2020 | |||||||||||||
Participating cross currency swap contracts | 1,158,627 | 849,915 | (516,772 | ) | (247,934 | ) | |||||||
Cross currency swap contracts | 49,843 | 45,528 | 11,132 | 12,642 | |||||||||
| | | | | | | | | | | | | |
Cash Flow sensitivity (net) | 1,208,470 | 895,443 | (505,640 | ) | (235,292 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Profit or Loss | Equity, net of tax | |||||||||||||||
100 bp increase | 100 bp decrease | 100 bp increase | 100 bp decrease | |||||||||||||
31 December 2019 | ||||||||||||||||
Participating cross currency swap contracts | 376,920 | 519,967 | (102,693 | ) | (180,974 | ) | ||||||||||
Cross currency swap contracts | 17,631 | 16,516 | (16,644 | ) | (18,114 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash Flow sensitivity (net) | 394,551 | 536,483 | (119,337 | ) | (199,088 | ) | ||||||||||
|
|
|
|
|
|
|
|
| Profit or Loss | Equity, net of tax | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 100 bp increase | 100 bp decrease | 100 bp increase | 100 bp decrease | |||||||||
31 December 2019 | |||||||||||||
Participating cross currency swap contracts | 376,920 | 519,967 | (102,693 | ) | (180,974 | ) | |||||||
Cross currency swap contracts | 17,631 | 16,516 | (16,644 | ) | (18,114 | ) | |||||||
| | | | | | | | | | | | | |
Cash Flow sensitivity (net) | 394,551 | 536,483 | (119,337 | ) | (199,088 | ) | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Profit or Loss | Equity, net of tax | |||||||||||||||
100 bp increase | 100 bp decrease | 100 bp increase | 100 bp decrease | |||||||||||||
31 December 2018 | ||||||||||||||||
Participating cross currency swap contracts | 937,845 | 9,455 | (360,596 | ) | (259,066 | ) | ||||||||||
Cross currency swap contracts | 31,584 | 320 | 1,452 | 4,765 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash Flow sensitivity (net) | 969,429 | 9,775 | (359,144 | ) | (254,301 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments
Credit risk
Exposure to credit risk:
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is:
2019 | 2018 | |||||||||||
Trade receivables | 19 | 3,282,134 | 2,588,979 | |||||||||
Contract assets | 21 | 944,260 | 715,441 | |||||||||
Receivables from financial services | 20 | 2,442,258 | 4,202,941 | |||||||||
Cash and cash equivalents (*) | 24 | 10,238,584 | 7,419,095 | |||||||||
Participating cross currency swap and FX swap contracts | 35 | 845,513 | 1,356,062 | |||||||||
Other current assets (**) | 23 | 99,882 | 287,469 | |||||||||
Financial asset at fair value through profit or loss | 5,368 | 9,409 | ||||||||||
Financial asset at fair value through other comprehensive income | 25 | 345,602 | 42,454 | |||||||||
Due from related parties | 39 | 4,477 | 13,533 | |||||||||
|
|
|
| |||||||||
18,208,078 | 16,635,383 | |||||||||||
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and forcash equivalents.
(All amounts disclosed in the consolidated financial statementsMinistry of Transport and notes have been rounded off to the nearest thousand currency unitsInfrastructure of Turkey, other and advances given are expressed in Turkish Liras unless otherwise stated.)excluded from other current assets and other non-current assets.
Credit quality:
|
Credit risk (continued)
Credit quality:
The maximum exposure to credit risk for trade and subscriber receivables, other assets and cash and cash equivalent arising from sales transactions, including those classified as due from related parties at the reporting date by type of customer is:
Other assets at 31 December 2020(*) | Not Due | Less Than 30 Days Past Due | Less Than 60 Days Past Due | Less Than 90 Days Past Due | Less Than 120 Days Past Due | Less Than 150 Days Past Due | Less Than 3 years Past Due | Less Than 4 years Past Due | Less Than 5 years Past Due | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | 16,188,078 | 296,758 | 62,726 | 45,682 | 36,112 | 31,368 | 727,462 | 290,736 | 257,790 | 17,936,712 | |||||||||||||||||||||
Loss Allowance | 71,273 | 5,042 | 3,148 | 3,726 | 5,334 | 5,947 | 250,393 | 163,799 | 118,718 | 627,380 |
Contract assets at 31 December 2020 | Not Due | Less Than 30 Days Past Due | Less Than 60 Days Past Due | Less Than 90 Days Past Due | Less Than 120 Days Past Due | Less Than 150 Days Past Due | Less Than 3 years Past Due | Less Than 4 years Past Due | Less Than 5 years Past Due | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | 1,105,409 | — | — | — | — | — | — | — | — | 1,105,409 | |||||||||||||||||||||
Loss Allowance | 5,243 | — | — | — | — | — | — | — | — | 5,243 |
Other assets at 31 December 2019 (*) | Not Due | More Than 30 Days Past Due | More Than 60 Days Past Due | More Than 90 Days Past Due | More Than 120 Days Past Due | More Than 150 Days Past Due | More Than 150 Days - 3 years Past Due | More Than 3 - 4 years Past Due | More Than 4 - 5 years Past Due | Total | ||||||||||||||||||||||||||||||
Gross Carrying Amount | 11,075,880 | 383,055 | 109,594 | 134,229 | 74,380 | 63,995 | 807,941 | 299,149 | 180,029 | 13,128,252 | ||||||||||||||||||||||||||||||
Loss Allowance | 22,884 | 5,013 | 8,284 | 9,497 | 12,666 | 11,415 | 243,399 | 177,160 | 137,260 | 627,578 |
|
Contract assets at 31 December 2019 | Not Due | More Than 30 Days Past Due | More Than 60 Days Past Due | More Than 90 Days Past Due | More Than 120 Days Past Due | More Than 150 Days Past Due | More Than 150 Days - 3 years Past Due | More Than 3 - 4 years Past Due | More Than 4 - 5 years Past Due | Total | ||||||||||||||||||||||||||||||
Gross Carrying Amount | 948,950 | — | — | — | — | — | — | — | — | 948,950 | ||||||||||||||||||||||||||||||
Loss Allowance | 4,690 | — | — | — | — | — | — | — | — | 4,690 |
Other assets from financial services at 31 December 2019 (**) | Not Due | More Than 30 Days Past Due | More Than 60 Days Past Due | More Than 90 Days Past Due | More Than 120 Days Past Due | More Than 150 Days Past Due | More Than 150 Days - 3 years Past Due | More Than 3 - 4 years Past Due | More Than 4 - 5 years Past Due | Total | ||||||||||||||||||||||||||||||
Gross Carrying Amount | 2,126,580 | 239,942 | 50,513 | 25,239 | 11,345 | 10,755 | 200,867 | 1,524 | — | 2,666,765 | ||||||||||||||||||||||||||||||
Loss Allowance | 15,773 | 2,780 | 859 | 452 | 5,466 | 5,036 | 131,645 | 1,489 | — | 163,500 |
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
|
Credit risk (continued)(Continued)
Credit quality (continued):(Continued)
Other assets from financial services at 31 December 2020(**) | Not Due | Less Than 30 Days Past Due | Less Than 60 Days Past Due | Less Than 90 Days Past Due | Less Than 120 Days Past Due | Less Than 150 Days Past Due | Less Than 3 years Past Due | Less Than 4 years Past Due | Less Than 5 years Past Due | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | 1,798,720 | 109,724 | 22,023 | 8,714 | 7,021 | 6,044 | 157,821 | 5,479 | 1,100 | 2,116,646 | |||||||||||||||||||||
Loss Allowance | 11,483 | 1,192 | 407 | 204 | 3,483 | 3,146 | 128,084 | 5,449 | 1,100 | 154,548 |
Other assets at 1 January 2020(*) | Not Due | Less Than 30 Days Past Due | Less Than 60 Days Past Due | Less Than 90 Days Past Due | Less Than 120 Days Past Due | Less Than 150 Days Past Due | Less Than 3 years Past Due | Less Than 4 years Past Due | Less Than 5 years Past Due | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | 13,395,590 | 383,085 | 109,594 | 134,229 | 74,380 | 63,995 | 807,941 | 299,149 | 180,029 | 15,447,992 | |||||||||||||||||||||
Loss Allowance | 22,884 | 5,013 | 8,284 | 9,497 | 12,666 | 11,415 | 243,399 | 177,160 | 137,260 | 627,578 |
Contract assets at 1 January 2020 | Not Due | Less Than 30 Days Past Due | Less Than 60 Days Past Due | Less Than 90 Days Past Due | Less Than 120 Days Past Due | Less Than 150 Days Past Due | Less Than 3 years Past Due | Less Than 4 years Past Due | Less Than 5 years Past Due | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | 948,950 | — | — | — | — | — | — | — | — | 948,950 | |||||||||||||||||||||
Loss Allowance | 4,690 | — | — | — | — | — | — | — | — | 4,690 |
Other assets from financial services at 1 January 2020(**) | Not Due | Less Than 30 Days Past Due | Less Than 60 Days Past Due | Less Than 90 Days Past Due | Less Than 120 Days Past Due | Less Than 150 Days Past Due | Less Than 3 years Past Due | Less Than 4 years Past Due | Less Than 5 years Past Due | Total | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | 2,065,573 | 239,942 | 50,513 | 25,239 | 11,345 | 10,755 | 200,867 | 1,524 | — | 2,605,758 | |||||||||||||||||||||
Loss Allowance | 15,773 | 2,780 | 859 | 452 | 5,466 | 5,036 | 131,645 | 1,489 | — | 163,500 |
Impairment losses
Other assets at 1 January 2019 (*) | Not Due | More Than 30 Days Past Due | More Than 60 Days Past Due | More Than 90 Days Past Due | More Than 120 Days Past Due | More Than 150 Days Past Due | More Than 150 Days - 3 years Past Due | More Than 3 - 4 years Past Due | More Than 4 - 5 years Past Due | Total | ||||||||||||||||||||||||||||||
Gross Carrying Amount | 8,550,197 | 211,558 | 80,337 | 57,336 | 42,857 | 25,363 | 754,732 | 272,547 | 319,298 | 10,314,225 | ||||||||||||||||||||||||||||||
Loss Allowance | 24,864 | 4,567 | 5,238 | 4,900 | 6,368 | 6,028 | 214,893 | 182,431 | 281,522 | 730,811 |
|
Contract assets at 1 January 2019 | Not Due | More Than 30 Days Past Due | More Than 60 Days Past Due | More Than 90 Days Past Due | More Than 120 Days Past Due | More Than 150 Days Past Due | More Than 150 Days - 3 years Past Due | More Than 3 - 4 years Past Due | More Than 4 - 5 years Past Due | Total | ||||||||||||||||||||||||||||||
Gross Carrying Amount | 722,811 | — | — | — | — | — | — | — | — | 722,811 | ||||||||||||||||||||||||||||||
Loss Allowance | 7,370 | — | — | — | — | — | — | — | — | 7,370 |
Other assets from financial services at 1 January 2019 (**) | Not Due | More Than 30 Days Past Due | More Than 60 Days Past Due | More Than 90 Days Past Due | More Than 120 Days Past Due | More Than 150 Days Past Due | More Than 150 Days - 3 years Past Due | More Than 3 - 4 years Past Due | More Than 4 - 5 years Past Due | Total | ||||||||||||||||||||||||||||||
Gross Carrying Amount | 2,974,069 | 469,599 | 65,999 | 47,705 | 24,498 | 19,394 | 215,954 | — | — | 3,817,218 | ||||||||||||||||||||||||||||||
Loss Allowance | 25,655 | 6,767 | 1,690 | 1,242 | 10,793 | 8,651 | 145,475 | — | — | 200,273 |
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Impairment losses
Individual receivables, which are known to be uncollectible are written off by reducing the carrying amount directly. The other receivables are assessed collectively to determine whether there is objective evidence that an impairment has been incurred but not yet identified. The Group considers that there is evidence of impairment if any of the following indicators are present:
Receivables for which an impairment provision was recognized are written off against the provision when there is no expectation of recovering additional cash.
Impairment losses are recognized in profit or loss within net impairment losses on financial and contract assets (Note 10). Subsequent recoveries of amounts previously written off are credited against Net impairment losses on financial and contract assets (Note 10).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
Impairment losses (Continued)
Movements in the provision for impairment of trade receivables, contract assets, other assets and due from related parties are as follows:
| 31 December 2020 Contract Asset | 31 December 2020 Other Asset | |||||
---|---|---|---|---|---|---|---|
Opening balance | 4,690 | 627,578 | |||||
Provision for impairment recognized during the year | 553 | 452,506 | |||||
Amounts collected | — | (153,674 | ) | ||||
Receivables written off during the year as uncollectible | — | (300,119 | ) | ||||
Disposal of subsidiaries | — | (49 | ) | ||||
Exchange differences | — | 1,138 | |||||
| | | | | | | |
Closing balance | 5,243 | 627,380 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 Contract Asset | 31 December 2019 Other Asset | |||||||
Opening balance | 7,370 | 730,811 | ||||||
Provision for impairment recognized during the year | 1,105 | 376,107 | ||||||
Amounts collected | — | (147,858 | ) | |||||
Transfer | (3,785 | ) | 3,785 | |||||
Receivables written off during the year as uncollectible | — | (346,049 | ) | |||||
Exchange differences | — | 10,782 | ||||||
|
|
|
| |||||
Closing balance | 4,690 | 627,578 | ||||||
|
|
|
|
| 31 December 2019 Contract Asset | 31 December 2019 Other Asset | |||||
---|---|---|---|---|---|---|---|
Opening balance | 7,370 | 730,811 | |||||
Provision for impairment recognized during the year | 1,105 | 376,107 | |||||
Amounts collected | — | (147,858 | ) | ||||
Transfer | (3,785 | ) | 3,785 | ||||
Receivables written off during the year as uncollectible | — | (346,049 | ) | ||||
Exchange differences | — | 10,782 | |||||
| | | | | | | |
Closing balance | 4,690 | 627,578 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2018 Contract Asset | 31 December 2018 Other Asset | |||||||
Opening balance | 5,128 | 661,928 | ||||||
Provision for impairment recognized during the year | 2,242 | 416,557 | ||||||
Amounts collected | — | (166,641 | ) | |||||
Unused amount reversed (*) | — | (73,023 | ) | |||||
Receivables written off during the year as uncollectible | — | (118,553 | ) | |||||
Exchange differences | — | 10,540 | ||||||
Disposal of subsidiaries | — | 3 | ||||||
|
|
|
| |||||
Closing balance | 7,370 | 730,811 | ||||||
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Impairment losses (continued)
Movements in the provision for impairment of trade receivables, subscriber receivables, other assets and cash and cash equivalents from financial services are as follows:
| 31 December 2020 | 31 December 2019 | |||||
---|---|---|---|---|---|---|---|
Opening balance | 163,500 | 200,273 | |||||
Provision for impairment recognized during the year | 126,246 | 245,365 | |||||
Amounts collected | (76,036 | ) | (135,862 | ) | |||
Receivables written off during the year as uncollectible | — | (147,067 | ) | ||||
Exchange differences | (96 | ) | 791 | ||||
Unused amount reversed(*) | (59,066 | ) | — | ||||
| | | | | | | |
Closing balance | 154,548 | 163,500 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
31 December 2019 | 31 December 2018 | |||||||
Opening balance | 200,273 | 125,943 | ||||||
Provision for impairment recognized during the year | 245,365 | 190,509 | ||||||
Amounts collected | (135,862 | ) | (96,278 | ) | ||||
Receivables written off during the year as uncollectible | (147,067 | ) | — | |||||
Exchange differences | 791 | — | ||||||
Unused amount reversed (*) | — | (19,901 | ) | |||||
|
|
|
| |||||
Closing balance | 163,500 | 200,273 | ||||||
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
Liquidity risk
|
Liquidity risk
The table below analyses the Group’sGroup's financial liabilities by considering relevant maturity groupings based on their contractual maturities for:
| 31 December 2020 | 31 December 2019 | |||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying Amount | Contractual cash flows | 6 months or less | 6 - 12 Months | 1 - 2 years | 2 - 5 years | More than 5 Years | Carrying Amount | Contractual cash flows | 6 months or less | 6 - 12 months | 1 - 2 years | 2 - 5 years | More than 5 Years | |||||||||||||||||||||||||||||
Non-derivative financial liabilities | |||||||||||||||||||||||||||||||||||||||||||
Secured bank loans | 295,804 | (306,496 | ) | (91,265 | ) | (54,792 | ) | (107,483 | ) | (52,956 | ) | — | 2,415 | (2,587 | ) | (1,329 | ) | (1,258 | ) | — | — | — | |||||||||||||||||||||
Unsecured bank loans | 11,829,178 | (12,828,540 | ) | (3,040,325 | ) | (1,136,973 | ) | (2,197,659 | ) | (5,426,921 | ) | (1,026,662 | ) | 12,804,467 | (13,688,718 | ) | (4,246,288 | ) | (2,586,232 | ) | (1,338,152 | ) | (3,684,289 | ) | (1,833,757 | ) | |||||||||||||||||
Debt securities issued | 7,362,554 | (10,044,816 | ) | (264,517 | ) | (211,957 | ) | (423,914 | ) | (4,941,992 | ) | (4,202,436 | ) | 5,965,790 | (8,446,514 | ) | (318,861 | ) | (168,861 | ) | (337,723 | ) | (1,013,168 | ) | (6,607,901 | ) | |||||||||||||||||
Lease liabilities | 2,098,886 | (3,210,148 | ) | (480,282 | ) | (360,908 | ) | (540,721 | ) | (987,430 | ) | (840,807 | ) | 1,533,055 | (2,456,542 | ) | (382,558 | ) | (261,285 | ) | (406,413 | ) | (662,767 | ) | (743,519 | ) | |||||||||||||||||
Trade and other payables* | 3,563,918 | (3,713,551 | ) | (3,712,172 | ) | (430 | ) | (949 | ) | — | — | 2,728,485 | (2,789,258 | ) | (2,694,568 | ) | (94,690 | ) | — | — | — | ||||||||||||||||||||||
Due to related parties | 40,355 | (40,355 | ) | (40,355 | ) | — | — | — | — | 12,082 | (12,082 | ) | (12,082 | ) | — | — | — | — | |||||||||||||||||||||||||
Consideration payable in relation to acquisition of Belarusian Telecom (Note 28) | 475,879 | (734,050 | ) | — | — | — | (24,382 | ) | (709,668 | ) | 359,554 | (594,020 | ) | — | — | — | — | (594,020 | ) | ||||||||||||||||||||||||
Derivative financial liabilities | |||||||||||||||||||||||||||||||||||||||||||
Participating Cross Currency Swap and FX swap contracts | 119,111 | (265,863 | ) | (44,853 | ) | (46,645 | ) | (70,212 | ) | (101,591 | ) | (2,562 | ) | 86,617 | (139,936 | ) | (46,104 | ) | (14,625 | ) | (25,514 | ) | (49,492 | ) | (4,201 | ) | |||||||||||||||||
Buy | 3,077,236 | 792,428 | 363,174 | 579,502 | 1,055,551 | 286,581 | 8,577,016 | 6,947,440 | 130,640 | 254,156 | 708,073 | 536,707 | |||||||||||||||||||||||||||||||
Sell | (3,343,099 | ) | (837,281 | ) | (409,819 | ) | (649,714 | ) | (1,157,142 | ) | (289,143 | ) | (8,716,952 | ) | (6,993,544 | ) | (145,265 | ) | (279,670 | ) | (757,565 | ) | (540,908 | ) | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TOTAL | 25,785,685 | (31,143,819 | ) | (7,673,769 | ) | (1,811,705 | ) | (3,340,938 | ) | (11,535,272 | ) | (6,782,135 | ) | 23,492,465 | (28,129,657 | ) | (7,701,790 | ) | (3,126,951 | ) | (2,107,802 | ) | (5,409,716 | ) | (9,783,398 | ) | |||||||||||||||||
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31 December 2019 | 31 December 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Amount | Contractual cash flows | 6 months or less | 6-12 Months | 1-2 years | 2-5 years | More than 5 Years | Carrying Amount | Contractual cash flows | 6 months or less | 6-12 months | 1-2 years | 2-5 years | More than 5 Years | |||||||||||||||||||||||||||||||||||||||||||
Non-derivative financial liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured bank loans | 2,415 | (2,587 | ) | (1,329 | ) | (1,258 | ) | — | — | — | 4,180 | (4,712 | ) | (1,272 | ) | (1,209 | ) | (2,231 | ) | — | — | |||||||||||||||||||||||||||||||||||
Unsecured bank loans | 12,804,467 | (13,688,718 | ) | (4,246,288 | ) | (2,586,232 | ) | (1,338,152 | ) | (3,684,289 | ) | (1,833,757 | ) | 13,526,847 | (14,353,989 | ) | (4,354,548 | ) | (2,065,424 | ) | (3,587,398 | ) | (2,503,531 | ) | (1,843,088 | ) | ||||||||||||||||||||||||||||||
Debt securities issued | 5,965,790 | (8,446,514 | ) | (318,861 | ) | (168,861 | ) | (337,723 | ) | (1,013,168 | ) | (6,607,901 | ) | 5,210,562 | (7,733,943 | ) | (228,838 | ) | (149,564 | ) | (299,128 | ) | (897,385 | ) | (6,159,028 | ) | ||||||||||||||||||||||||||||||
Lease liabilities | 1,533,055 | (2,456,542 | ) | (382,558 | ) | (261,285 | ) | (406,413 | ) | (662,767 | ) | (743,519 | ) | 1,413,956 | (2,497,426 | ) | (372,682 | ) | (273,273 | ) | (410,826 | ) | (666,760 | ) | (773,885 | ) | ||||||||||||||||||||||||||||||
Trade and other payables* | 2,728,485 | (2,789,258 | ) | (2,694,568 | ) | (94,690 | ) | — | — | — | 2,372,512 | (2,440,300 | ) | (2,440,300 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Due to related parties | 12,082 | (12,082 | ) | (12,082 | ) | — | — | — | — | 45,331 | (45,331 | ) | (45,331 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Consideration payable in relation to acquisition of Belarusian Telecom (Note 28) | 359,554 | (594,020 | ) | — | — | — | — | (594,020 | ) | 358,304 | (526,090 | ) | — | — | — | (526,090 | ) | — | ||||||||||||||||||||||||||||||||||||||
Derivative financial liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Participating Cross Currency Swap and FX swap contracts | 86,617 | (139,936 | ) | (46,104 | ) | (14,625 | ) | (25,514 | ) | (49,492 | ) | (4,201 | ) | 165,265 | 97,761 | 55,377 | — | 12,960 | 14,522 | 14,902 | ||||||||||||||||||||||||||||||||||||
Buy | 8,577,016 | 6,947,440 | 130,640 | 254,156 | 708,073 | 536,707 | 3,444,271 | 2,519,383 | — | 193,800 | 249,288 | 481,800 | ||||||||||||||||||||||||||||||||||||||||||||
Sell | (8,716,952 | ) | (6,993,544 | ) | (145,265 | ) | (279,670 | ) | (757,565 | ) | (540,908 | ) | (3,346,510 | ) | (2,464,006 | ) | — | (180,840 | ) | (234,766 | ) | (466,898 | ) | |||||||||||||||||||||||||||||||||
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TOTAL | 23,492,465 | (28,129,657 | ) | (7,701,790 | ) | (3,126,951 | ) | (2,107,802 | ) | (5,409,716 | ) | (9,783,398 | ) | 23,096,957 | (27,504,030 | ) | (7,387,594 | ) | (2,489,470 | ) | (4,286,623 | ) | (4,579,244 | ) | (8,761,099 | ) | ||||||||||||||||||||||||||||||
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TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
|
Foreign exchange risk
The Group’sGroup's exposure to foreign exchange risk at the end of the reporting period, based on notional amounts, was as follows:
31 December 2019 | ||||||||||||
USD | EUR | RMB | ||||||||||
Foreign currency denominated assets | ||||||||||||
Othernon-current assets | 71 | 5,412 | — | |||||||||
Financial asset at fair value through other comprehensive income | 1,393 | 50,721 | — | |||||||||
Due from related parties-current | 152 | 581 | — | |||||||||
Trade receivables and contract assets | 17,383 | 38,496 | — | |||||||||
Other current assets | 10,602 | 4,979 | — | |||||||||
Cash and cash equivalents | 173,376 | 1,203,574 | — | |||||||||
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| |||||||
202,977 | 1,303,763 | — | ||||||||||
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Foreign currency denominated liabilities | ||||||||||||
Loans andborrowings-non-current | (351,444 | ) | (577,675 | ) | (192,367 | ) | ||||||
Debt securitiesissued-non-current | (923,188 | ) | — | — | ||||||||
Leaseobligations-non-current | (2,399 | ) | (19,282 | ) | — | |||||||
Othernon-current liabilities | (60,529 | ) | — | — | ||||||||
Loans and borrowings-current | (402,507 | ) | (385,371 | ) | (44,880 | ) | ||||||
Debt securities issued-current | (55,060 | ) | — | — | ||||||||
Lease obligations-current | (725 | ) | (5,178 | ) | — | |||||||
Trade and other payables-current | (156,320 | ) | (44,103 | ) | (555 | ) | ||||||
Due to related parties | (1,022 | ) | �� | (51 | ) | — | ||||||
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(1,953,194 | ) | (1,031,660 | ) | (237,802 | ) | |||||||
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| |||||||
Loans defined as hedging instruments (*) | — | 145,105 | — | |||||||||
Exposure related to derivative instruments | ||||||||||||
Participating cross currency swap and FX swap contracts | 1,830,226 | (430,816 | ) | 234,367 | ||||||||
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Net exposure | 80,009 | (13,608 | ) | (3,435 | ) | |||||||
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The table above shows the Company’s distribution of balance sheet and derivative foreign exchange position should be taken into account with nominal valuesgains/(losses) arising from the translation of the option transactions. The Company monitors the delta adjusted positionnet assets of the option transactions. Asinvestments in foreign operations to Turkish Lira.
Table of 31 December 2019, the Company has USD 129,825 net foreign currency position.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
|
Foreign exchange risk (continued)(Continued)
| 31 December 2019 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| USD | EUR | RMB | |||||||
Foreign currency denominated assets | ||||||||||
Other non-current assets | 71 | 5,412 | — | |||||||
Financial asset at fair value through other comprehensive income | 1,393 | 50,721 | — | |||||||
Due from related parties—current | 152 | 581 | — | |||||||
Trade receivables and contract assets | 17,383 | 38,496 | — | |||||||
Other current assets | 10,602 | 4,979 | — | |||||||
Cash and cash equivalents | 173,376 | 1,203,574 | — | |||||||
| | | | | | | | | | |
202,977 | 1,303,763 | — | ||||||||
| | | | | | | | | | |
Foreign currency denominated liabilities | ||||||||||
Loans and borrowings—non-current | (351,444 | ) | (577,675 | ) | (192,367 | ) | ||||
Debt securities issued—non-current | (923,188 | ) | — | — | ||||||
Lease obligations—non-current | (2,399 | ) | (19,282 | ) | — | |||||
Other non-current liabilities | (60,529 | ) | — | — | ||||||
Loans and borrowings—current | (402,507 | ) | (385,371 | ) | (44,880 | ) | ||||
Debt securities issued—current | (55,060 | ) | — | — | ||||||
Lease obligations—current | (725 | ) | (5,178 | ) | — | |||||
Trade and other payables—current | (156,320 | ) | (44,103 | ) | (555 | ) | ||||
Due to related parties | (1,022 | ) | (51 | ) | — | |||||
| | | | | | | | | | |
(1,953,194 | ) | (1,031,660 | ) | (237,802 | ) | |||||
| | | | | | | | | | |
Loans defined as hedging instruments | — | 145,105 | — | |||||||
Exposure related to derivative instruments | ||||||||||
Participating cross currency swap and FX swap contracts | 1,830,226 | (430,816 | ) | 234,367 | ||||||
| | | | | | | | | | |
Net exposure | 80,009 | (13,608 | ) | (3,435 | ) | |||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
31 December 2018 | ||||||||||||
USD | EUR | RMB | ||||||||||
Foreign currency denominated assets | ||||||||||||
Othernon-current assets | 222 | 11 | — | |||||||||
Financial asset at fair value through other comprehensive income | — | 7,043 | — | |||||||||
Due from related parties-current | 1,965 | 223 | — | |||||||||
Trade receivables and contract assets | 15,786 | 52,140 | — | |||||||||
Other current assets | 70,710 | 18,977 | — | |||||||||
Cash and cash equivalents | 786,322 | 384,800 | — | |||||||||
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875,005 | 463,194 | — | ||||||||||
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Foreign currency denominated liabilities | ||||||||||||
Loans andborrowings-non-current | (481,438 | ) | (748,142 | ) | (224,519 | ) | ||||||
Debt securitiesissued-non-current | (921,102 | ) | — | — | ||||||||
Leaseobligations-non-current | (4,719 | ) | (24,068 | ) | — | |||||||
Othernon-current liabilities | (68,107 | ) | — | — | ||||||||
Loans and borrowings-current | (390,876 | ) | (523,595 | ) | (29,244 | ) | ||||||
Debt securities issued-current | (55,074 | ) | — | — | ||||||||
Lease obligations-current | (2,951 | ) | (8,223 | ) | — | |||||||
Trade and other payables-current | (233,805 | ) | (32,946 | ) | (70,553 | ) | ||||||
Due to related parties | (686 | ) | (52 | ) | — | |||||||
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(2,158,758 | ) | (1,337,026 | ) | (324,316 | ) | |||||||
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Exposure related to derivative instruments | ||||||||||||
Participating cross currency swap and FX swap contracts | 1,082,036 | 811,167 | 202,600 | |||||||||
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Net exposure | (201,717 | ) | (62,665 | ) | (121,716 | ) | ||||||
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Exposure to currency risk
Sensitivity analysis
The basis for the sensitivity analysis to measure foreign exchange risk is an aggregate corporate-level currency exposure. The aggregate foreign exchange exposure is composed of all assets and liabilities denominated in foreign currencies, the analysis excludes net foreign currency investments.
A 10% strengthening/weakening of the TL, UAH, BYN, EUR against the following currencies as at 31 December 2020 and 31 December 2019 would have increased/(decreased) profit or loss before by
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
|
Exposure to currency risk (continued)
Sensitivity analysis (continued)
A 10% strengthening/weakening of the TL, UAH, BYN against the following currencies as at 31 December 2019 and 31 December 2018 would have increased/(decreased) profit or loss before by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
31 December 2020 Sensitivity analysis | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Profit/(Loss) | Equity | |||||||||||
| Appreciation of foreign currency | Depreciation of foreign currency | Appreciation of foreign currency | Depreciation of foreign currency | |||||||||
1-USD net asset/liability | 88,656 | (88,656 | ) | — | — | ||||||||
2-Hedged portion of USD risk (-) | — | — | (14,984 | ) | 14,984 | ||||||||
| | | | | | | | | | | | | |
3-USD net effect (1+2) | 88,656 | (88,656 | ) | (14,984 | ) | 14,984 | |||||||
| | | | | | | | | | | | | |
4-EUR net asset/liability | 34,304 | (34,304 | ) | — | — | ||||||||
5-Hedged portion of EUR risk (-) | — | — | (79,669 | ) | 79,669 | ||||||||
| | | | | | | | | | | | | |
6-EUR net effect (4+5) | 34,304 | (34,304 | ) | (79,669 | ) | 79,669 | |||||||
| | | | | | | | | | | | | |
7-Other foreign currency net asset/liability (RMB) | (61,036 | ) | 61,036 | — | — | ||||||||
8-Hedged portion of other foreign currency risk (-) (RMB) | — | — | (192 | ) | 192 | ||||||||
| | | | | | | | | | | | | |
9-Other foreign currency net effect (7+8) | (61,036 | ) | 61,036 | (192 | ) | 192 | |||||||
| | | | | | | | | | | | | |
Total (3+6+9) | 61,924 | (61,924 | ) | (94,845 | ) | 94,845 | |||||||
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Sensitivity analysis | ||||||||||||||||
31 December 2019 | ||||||||||||||||
Profit/(Loss) | Equity | |||||||||||||||
Appreciation of foreign currency | Depreciation of foreign currency | Appreciation of foreign currency | Depreciation of foreign currency | |||||||||||||
1- USD net asset/liability | 47,527 | (47,527 | ) | — | — | |||||||||||
2- Hedged portion of USD risk (-) | — | — | (6,135 | ) | 6,135 | |||||||||||
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3- USD net effect (1+2) | 47,527 | (47,527 | ) | (6,135 | ) | 6,135 | ||||||||||
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4- EUR net asset/liability | (9,050 | ) | 9,050 | — | — | |||||||||||
5- Hedged portion of EUR risk (-) | — | — | (39,558 | ) | 39,558 | |||||||||||
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6- EUR net effect (4+5) | (9,050 | ) | 9,050 | (39,558 | ) | 39,558 | ||||||||||
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7- Other foreign currency net asset/liability (RMB) | (290 | ) | 290 | — | — | |||||||||||
8- Hedged portion of other foreign currency risk (-) (RMB) | — | — | (1,379 | ) | 1,379 | |||||||||||
9- Other foreign currency net effect (7+8) | (290 | ) | 290 | (1,379 | ) | 1,379 | ||||||||||
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Total (3+6+9) | 38,187 | (38,187 | ) | (47,072 | ) | 47,072 | ||||||||||
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Sensitivity analysis 31 December 2019 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Profit/(Loss) | Equity | |||||||||||
| Appreciation of foreign currency | Depreciation of foreign currency | Appreciation of foreign currency | Depreciation of foreign currency | |||||||||
1-USD net asset/liability | 47,527 | (47,527 | ) | — | — | ||||||||
2-Hedged portion of USD risk (-) | — | — | (6,135 | ) | 6,135 | ||||||||
| | | | | | | | | | | | | |
3-USD net effect (1+2) | 47,527 | (47,527 | ) | (6,135 | ) | 6,135 | |||||||
| | | | | | | | | | | | | |
4-EUR net asset/liability | (9,050 | ) | 9,050 | — | — | ||||||||
5-Hedged portion of EUR risk (-) | — | — | (39,558 | ) | 39,558 | ||||||||
| | | | | | | | | | | | | |
6-EUR net effect (4+5) | (9,050 | ) | 9,050 | (39,558 | ) | 39,558 | |||||||
| | | | | | | | | | | | | |
7-Other foreign currency net asset/liability (RMB) | (290 | ) | 290 | — | — | ||||||||
8-Hedged portion of other foreign currency risk (-) (RMB) | — | — | (1,379 | ) | 1,379 | ||||||||
| | | | | | | | | | | | | |
9-Other foreign currency net effect (7+8) | (290 | ) | 290 | (1,379 | ) | 1,379 | |||||||
| | | | | | | | | | | | | |
Total (3+6+9) | 38,187 | (38,187 | ) | (47,072 | ) | 47,072 | |||||||
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Sensitivity analysis | ||||||||||||||||
31 December 2018 | ||||||||||||||||
Profit/(Loss) | Equity | |||||||||||||||
Appreciation of foreign currency | Depreciation of foreign currency | Appreciation of foreign currency | Depreciation of foreign currency | |||||||||||||
1- USD net asset/liability | (106,121 | ) | 106,121 | — | — | |||||||||||
2- Hedged portion of USD risk (-) | — | — | (9,596 | ) | 9,596 | |||||||||||
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3- USD net effect (1+2) | (106,121 | ) | 106,121 | (9,596 | ) | 9,596 | ||||||||||
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4- EUR net asset/liability | (37,775 | ) | 37,775 | — | — | |||||||||||
5- Hedged portion of EUR risk (-) | — | — | (23,613 | ) | 23,613 | |||||||||||
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6- EUR net effect (4+5) | (37,775 | ) | 37,775 | (23,613 | ) | 23,613 | ||||||||||
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| |||||||||
7- Other foreign currency net asset/liability (RMB) | (9,275 | ) | 9,275 | — | — | |||||||||||
8- Hedged portion of other foreign currency risk (-) (RMB) | — | — | 364 | (364 | ) | |||||||||||
9- Other foreign currency net effect (7+8) | (9,275 | ) | 9,275 | 364 | (364 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total (3+6+9) | (153,171 | ) | 153,171 | (32,845 | ) | 32,845 | ||||||||||
|
|
|
|
|
|
|
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
|
Interest rate risk
As at 31 December 20192020 and 20182019 the interest rate profile of the Group’sGroup's variable rate interest-bearing financial instruments was:
| | 31 December 2020 | 31 December 2019 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | Effective Interest Rate | Carrying Amount | Effective interest rate | Carrying Amount | |||||||||||
Variable rate instruments | ||||||||||||||||
USD floating rate loans | 29 | 3.2 | % | (2,644,049 | ) | 4.4 | % | (4,478,457 | ) | |||||||
EUR floating rate loans | 29 | 2.2 | % | (5,660,654 | ) | 2.2 | % | (5,638,726 | ) |
31 December 2019 | 31 December 2018 | |||||||||||||||||||
Note | Effective Interest Rate | Carrying Amount | Effective interest rate | Carrying Amount | ||||||||||||||||
Variable rate instruments | ||||||||||||||||||||
USD floating rate loans | 29 | 4.4 | % | (4,478,622 | ) | 4.3 | % | (4,589,157 | ) | |||||||||||
EUR floating rate loans | 29 | 2.2 | % | (5,638,725 | ) | 2.1 | % | (6,975,890 | ) |
Sensitivity analysis
Cash flow sensitivity analysis for variable rate instruments:
An increase/decrease of interest rates by 100 basis points would have (decreased)/increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant. The analysis is performed on the same basis at 31 December 20192020 and 2018:2019:
| Profit or loss | Equity | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 100 bps increase | 100 bps decrease | 100 bps increase | 100 bps decrease | |||||||||
31 December 2020 | |||||||||||||
Variable rate instruments (financial liability) | (23,510 | ) | 23,510 | — | — | ||||||||
| | | | | | | | | | | | | |
Cash flow sensitivity (net) | (23,510 | ) | 23,510 | — | — | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
31 December 2019 | |||||||||||||
Variable rate instruments (financial liability) | (225,528 | ) | 225,528 | — | — | ||||||||
| | | | | | | | | | | | | |
Cash flow sensitivity (net) | (225,528 | ) | 225,528 | — | — | ||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Profit or loss | Equity | |||||||||||||||
100 bps increase | 100 bps decrease | 100 bps increase | 100 bps decrease | |||||||||||||
31 December 2019 | ||||||||||||||||
Variable rate instruments (financial liability) | (225,528 | ) | 225,528 | — | — | |||||||||||
|
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| |||||||||
Cash flow sensitivity (net) | (225,528 | ) | 225,528 | — | — | |||||||||||
|
|
|
|
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|
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| |||||||||
31 December 2018 | ||||||||||||||||
Variable rate instruments (financial liability) | (234,196 | ) | 234,196 | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flow sensitivity (net) | (234,196 | ) | 234,196 | — | — | |||||||||||
|
|
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|
|
Fair values
Fair value of the Group’sGroup's financial assets and financial liabilities that are measured at fair value on a recurring basis
This section explains the judgments and estimates made in determining the fair values of the financial instruments that are recognized and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
Fair values (Continued)
classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level is as follows:
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Fair values (continued)
Valuation inputs and relationships to fair value
The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurement of contingent consideration.
| Fair value at | | Inputs | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 31 December 2020 | 31 December 2019 | Unobservable Inputs | 31 December 2020 | 31 December 2019 | Relationship of unobservable inputs to fair value | ||||||||
Contingent | 475,879 | 359,554 | Risk-adjusted discount rate | 4.3%-5.6% | 5.2%-6.1% | An increase/decrease in the discount rate by 100 bps would change FV by TL (35,686) and TL 39,070, respectively. | ||||||||
Expected settlement date | in | in | If expected settlement date increase/decrease by 1-year, FV would change by TL (23,724) and TL 24,978, respectively. |
Fair value at | Inputs | |||||||||||||||||||
31 December 2019 | 31 December 2018 | Unobservable | 31 December 2019 | 31 December 2018 | Relationship of unobservable | |||||||||||||||
Contingent consideration |
| 359,554 |
|
| 358,304 |
| Risk-adjusted discount rate |
| 5.2% - 6.1% |
|
| 9.5% |
| An increase/decrease in the discount rate by 100 bps would change FV by TL (28,622) and TL 31,460, respectively. | ||||||
Expected settlement date | | in instalments between 2026-2030 | | | first quarter of 2023 | | If expected settlement date increase/decrease by1-year, FV would change by TL (19,588) and TL 20,720, respectively. |
�� Changes in the consideration payable in relation to acquisition of Belarusian Telecom for the years ended 31 December 20192020 and 31 December 20182019 are stated below:
| 2020 | 2019 | |||||
---|---|---|---|---|---|---|---|
Opening balance | 359,554 | 358,304 | |||||
Losses recognized in profit or loss | 116,325 | 1,250 | |||||
| | | | | | | |
Closing balance | 475,879 | 359,554 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
2019 | 2018 | |||||||
Opening balance | 358,304 | 323,691 | ||||||
Gains recognized in profit or loss | 1,250 | 34,613 | ||||||
|
|
|
| |||||
Closing balance | 359,554 | 358,304 | ||||||
|
|
|
|
Financial assets:
Carrying values of a significant portion of financial assets do not differ significantly from their fair values due to their short-term nature. Fair values of financial assets are presented in Note 25.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
36. Financial instruments (Continued)
Fair values (Continued)
Financial liabilities:
As at 31 December 2018, fair values of financial liabilities not materially different to their carrying amounts since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short term nature.
As at2020 and 31 December 2019,2019; for the majority of the borrowings, the fair values are not materially different to their carrying amounts since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short term nature. Material differences are identified only for the following borrowings:
Carrying amount | Fair value | |||||||
Bank loans | 4,149,275 | 4,192,304 | ||||||
|
|
|
|
As at 31 December 2019,2020:
| Carrying amount | Fair value | |||||
---|---|---|---|---|---|---|---|
Bank loans | 4,615,559 | 4,646,152 | |||||
| | | | | | | |
As at 31 December 2019:
| Carrying amount | Fair value | |||||
---|---|---|---|---|---|---|---|
Bank loans | 4,149,275 | 4,192,304 | |||||
| | | | | | | |
As at 31 December 2020, the fair value of debt securities issued by the Company in 2015 and 2018 with a nominal value of USD 500,000 each and fixed interest rate (Note 29), is TL 3,058,366(313,976,852 (31 December 2018:2019: TL 2,380,855).3,058,366) and TL 3,972,232 (31 December 2019: TL 2,961,300), respectively.
As at 31 December 2019, the fair value of debt securities issued by the Company in 2018 with a nominal value of USD 500,000 and fixed interest rate (Note 29), is TL 2,961,300(31 December 2018: TL 2,329,011).
Fair value of cash and cash equivalents and debt securities issued are classified as level 1 and fair value of other financial assets and liabilities are classified as level 2.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at37. Guarantees and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)purchase obligations
|
At 31 December 2019,2020, outstanding purchase commitments with respect to property, plant and equipment, inventory, advertising and sponsorship amount to TL 819,508840,208 (31 December 2018:2019: TL 1,353,789)819,508). Payments for these commitments will be made within 4 years.
The Group is contingently liable in respect of letters of guarantee obtained from banks and given to public institutions and private entities, and financial guarantees provided to subsidiaries amounting to TL 4,842,0154,146,811 at 31 December 20192020 (31 December 2018:2019: TL 6,530,374)4,842,015).
|
License Agreements38. Commitments and Contingencies
Turkcell: The following disclosures comprise of material lawsuits and investigations against the Company.
On 27 April 1998, the Company signed the Agreement for grant of concession for the establishment and Operation of thePan-European Mobile Telephone System, GSM (hereinafter referred to as the “License Agreement”) with the Turkish Ministry. In accordance with the License Agreement, the Company was granted a25-year license for the provision of GSM services for a license fee of USD 500,000.
3G License
On 30 April 2009, the Company signed a separate License Agreement with ICTA which provides authorization for providing IMT 2000/UMTS services and establishment and operation of the required infrastructure. The Company acquired the A license providing the widest frequency band for a consideration of EUR 358,000 (excluding VAT). The license is effective for a duration of 20 years starting from 30 April 2009. According to the agreement, the Company has provided IMT 2000/UMTS services starting from 30 July 2009.
4.5G License
The 4.5G licensing process is finalized by the signing of the IMT License Commitments Document by the Company, whereby, ICTA granted the Company a 4.5G License on 27 October 2015. The 4.5G License is effective for 13 years until 30 April 2029. According to the License, the Company started to provide 4.5G services on 1 April 2016.
Belarusian Telecom:
Belarusian Telecom owns a license, issued on 28 August 2008, for a period of 10 years, which was valid till 28 August 2018. However, in accordance with the Edict of the President of the Republic of Belarus dated 26 November 2015, numbered 475, the license is issued without limitation of the period of validity. Starting from 1 March 2016 the license is valid from the date of the licensing authority’s decision on its issue and for an unlimited period. Under the terms of its license, Belarusian Telecom had been provided with additional time by the license authority to fulfill all 2G signal coverage requirements regarding the settlements until the end of 2019. As of 31 December 2019, the Group considers that terms and obligations of the license agreement has been met.
lifecell:
lifecell owns eleven activity licenses, for GSM 900, a technology neutral license, issued for 3G, one license for international and long-distance calls and eight PSTN licenses for eight regions in Ukraine. As of 31 December 2018, lifecell owned 27 frequency use licenses for IMT(LTE-2600,LTE-1800,IMT-2000 (UMTS),GSM-900,GSM-1800,CDMA-800.Wi-fi and microwave Radio relay and Broadband Radio
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
38. Commitments and Contingencies (Continued)
|
License Agreements (continued)
Access, which are regional and national. Licenses for IMT(LTE-2600,LTE-1800) andGSM-1800 were issued on 4G tenders, held in Q1’2018. Additionally, lifecell holds a specific number range- three NDC codes for mobile networks, twenty two permissions on a number resource for short numbers, eleven permissions on a number resource forSS-7 codes (7 regional and 4 international), one permission on a number resource for Mobile Network Code, nine permissions on a number resource for local ranges for PSTN licenses, two permissions on a service codes for alternative routing selection for international and long-distance fixed telephony and one permission on a code for global telecommunication service “800”.
Inteltek:
Our affiliate, Inteltek, on which the Company holds 55% of its shares, has been incorporated in order to establish and operate central system for games of chance through multi-access electronic platforms.
Inteltek operated games of chance and assigned mobile sub agencies to operate the fixed odds and paramutual betting games basing on the agreements executed with Spor Toto. The term of the agreement executed between Spor Toto and Inteltek has been expired on 29 August 2019. In this context, activities of Inteltek ceased on 29 August 2019.
As at 31 December 2019, Inteltek provided to Spor Toto letters of guarantee amounting TL 25,000 (31 December 2018: TL 184,752).
Subsequent to year end, the Company signed a binding termsheet on 14 January 2020 to transfer its shareholding of 55% in Inteltek (Note 42).
Kibris Telekom:
On 27 April 2007, Kibris Telekom signed the License Agreement for the Installation and Operation of a Digital, Cellular and, Mobile Telecommunication System (“Mobile Communication License Agreement”) with the Ministry of Communications and Public Works of the Turkish Republic of Northern Cyprus, effective from 1 August 2007, and replacing the previousGSM-Mobile Telephony System Agreement dated 25 March 1999. In accordance with the Mobile Communication License Agreement, Kibris Telekom was granted an18-year GSM 900, GSM 1800 and IMT 2000/UMTS license for GSM 900 and GSM 1800 frequencies while the usage of IMT 2000/UMTS frequency bands is subject to the fulfillment of certain conditions. On 14 March 2008, Kibris Telekom was awarded a 3G infrastructure license. In 2012, Kibris Telekom acquired Internet Service Provider and Infrastructure establishment and operation licenses.
Lifecell Digital:
In December 2018, Lifecell Digital acquired an infrastructure license in order to operate as an Internet Service Provider in Turkish Republic of Northern Cyprus.
The following disclosures comprise of material legal lawsuits, investigations andin-depth investigations against the Company.
Disputes on Special Communication Tax and Value Added Tax
Disputes on SCT for the year 2011
|
The Large Taxpayers Office levied Special Communication Tax (SCT) and tax penalty on the Company as a result of the Tax Investigation for the year 2011. The Company filed lawsuits for the cancellation of the notification regarding the aforementioned SCT assessment. The court partially accepted and partially rejected the cases and the parties appealed the decisions regarding the parts against them. The Large
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Taxpayers Office has collected TL 80,355 calculated for the parts against the Company for the assessment of the SCT for the year 2011 by offsetting the receivables of the Company from Public Administrations. While the cases are pending before the court of appeal the Company filed application for the restructuring as per Law no. 6736. The tax Office has rejected the application. The Company has also filed a case for the cancellation of aforementioned rejection act of the Tax Office. The hearing was held inIn this case, with the decision that notified to the Company on 14 April 2020, the Council of State decided to cancel the rejection act regarding the application for the restructuring. The Large Taxpayers Office and itMinistry of Treasury and Finance appealed the decision. The Company replied the appeal request in due time. The appeal process is expected that the court will grant a decision.pending.
In the cases regarding the cancellation of the SCT assessment for the year 2011, Council of State accepted ourthe appeal and decided to reverse the first instance court decisiondecisions in favor of the Company, on the ground that; in the case filed for the cancellation of the rejection act regarding our Company’sthe request to restructure the cases filed for the year 2011, the court decided in favor of the Company (decision has not been notified to the Company yet) and since the mentioned case will affect these cases, finalization of the respective decision should be waited.
Based on the management opinion, an outflow of resources embodying economic benefits is deemed as less than probable on aforementioned transactions, thus, no provision is recognized in the consolidated financial statements as at and for the year ended 31 December 2019 (31 December 2018: None).
|
Turkish telecom sector players including the Company have been subjected to a limited tax audit with respect of VAT and SCT for 2015 and 2016. At the end of the tax audit process for the Company no issues to be criticized were identified for 2015. However, certain bundle offers and services offered by the Company are subject to dispute by the tax authority for 2016.
As of 31 December 2019, respectively tax claims arising from SCT and VAT amounting to TL 134,537 and TL 113,367 including the principal and penalty amounts have been notified to the Company.
The Large Taxpayers Office levied Special Communication Tax (SCT) and tax penalty on the Company amounting to TL 85,125 in total, of which SCT amounting to TL 34,050 and penalty amounting to TL 51,075 based on the claim stated on Tax Investigation Reports preparedapplied for the year 2015, thatcorrection of the decisions. The Company should pay Special Communication Tax over the prepaid card sales made by the distributors.
Tax investigation closing minute has been signedreplied to application for the year 2016 and the Tax Investigation Reports delivered for the year 2016. Special Communication Tax (SCT) and tax penalty on the Company amounting to TL 61,733 in total, of which SCT amounting to TL 24,693 and penalty amounting to TL 37,040 based on the claim stated on Tax Investigation Reports prepared for the year 2016.
As a resultcorrection of the settlement made with Tax Authority, an amount included late payment interest was settled as TL 199,000 for assessments above. Settled amount has been paid withindecisions. The Council of State, rejected the legal term and assessments were closedcorrection of decision requests of the Large Taxpayers Office, in 2019.favor of the Company.
The investigation regarding SCT for prepaid card sales made by the distributors for the year 2017 is still ongoing.
Disputes regarding the Law on the Protection of Competition
The investigation initiated by the Competition Board with respect to the practices of the Company regarding the distributors and their dealers in the distribution network. With this decision TheAs a result of the investigation the Competition Board rejected the claims that the CompanyTurkcell determined the resale price. But with the same decision, The Competition Board decided to apply administrative fine on the Company amounting to TL 91,942, on the ground that the Company forced its sub dealers to actual exclusivity. The Company filed a lawsuit on 8 December 2011 for the stay of execution and cancellation of the aforementioned Board decisions regarding the parts against itself. The Court rejected the case. The Company appealed the decision, withbut the requestCouncil of State Plenary Session of the Chambers for Administrative Cases decided to approve the first instance court's decision. The Company made an individual application to the Constitutional Court, against the respective decision within due time. The Constitutional Court process is pending.
Also, the Large Taxpayers Office issued a payment order regarding the aforementioned administrative fine. The Company has not made any payments and filed a lawsuit for the stay of execution and cancellation of the execution.payment order. The Court accepted the case. The Large Taxpayers
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
38. Commitments and Contingencies (Continued)
Office appealed the decision. As a result of the appeal process, due to the reverse decision of the Council of State about the first instance court decision, the case file was sent to the first instance court and the trial of the case is ongoing.pending before the same.
Three private companies filed a lawsuits against the Company in relation with this case claiming in total of TL 112,084 together with up to 3 times of the loss amount to be determined by the court for its material
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Disputes regarding the Law on the Protection of Competition (continued)
damages by reserving its rights for surpluses allegedly. Among these cases, in the case filed for the compensation of total TL 110,484 material damages together with compensation amounting to 3three times of the damage and interest, the court decided to reject the case in favor of the Company, at the hearing on 12 June 2019. The reasoned decision was notified to the Company. The plaintiff appealed the case before Regional Administrative Court. The Company replied to plaintiff’s appeal request in due time. The appeal process, before Regional Administrative Court, is pending. The other cases are also pending.
On the other hand, a lawsuit was filed by a third party, for the cancellation of the part of the aforementioned Competition Board decision, regarding the rejection of the claims that the CompanyTurkcell determined the resale price. The Council of State cancelled this part of the aforementioned Competition Board decision. TherewithThereafter Competition Board launched a new investigation. Asinvestigation and as a result of it the new investigation The Competition Board decided to apply administrative fine amounting to TL 91,942 on the Company. The reasoned decision was received to the Company on 12 June 2019. The Company has taken all legal actions by requesting the cancellation of the aforementioned decision and its withdrawal by the Competition Authority. Subsequently, theThe Competition Authority accepted some of the claimsobjections of the Company and reduced the administrative fine to TL 61,294 TL with its decision. Short decision
The aforementioned fine that amount of TL 61,294 was notifiedpaid with twenty five percent discount on 9 April 2020, in the amount of TL 45,971. Then, a lawsuit was filed on 10 April 2020 for cancellation of the aforementioned administrative fine. The hearing was held on 19 January 2021 in this case and it is expected that the court will grant a decision.
Ministry of Commerce Administrative Fine
As a result of the investigation conducted by the Ministry of Commerce for the year 2015, against the Company due to the Company. The reasoned decision was also notified to the Company. All necessary legal actions shall be taken against this decision in legal term. Following this decision,alleged violation on distance contracts, hire purchase agreements and subscriber agreements, Ministry of Commerce imposed an administrative fine in the caseamount of TL 138,173. The Company filed a lawsuit for the cancellation of the Competition Boardrelated transactions. The Court accepted the case in favor of the Company and cancelled the administrative fine. Istanbul Governorship appealed the decision before Regional Administrative Court. Regional Administrative Court rejected the appeal request in favor of the Company. Istanbul Governorship appealed the decision before the Council of State. The Company replied this request in due time. As a result of the appeal process, the Council of State decided to reverse the Regional Administrative Court's decision and decided to send the case file to the Regional Administrative Court to redecide after having an expert examination.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
38. Commitments and Contingencies (Continued)
ICTA Investigation Regarding the R&D Obligations (Period of 2013-2016)
ICTA initiated an investigation on the obligation of investing to products in electronic communication network and communication services, partly from suppliers which have a R&D center in Turkey; partly from the products manufactured in Turkey by SME suppliers which are established to develop products or systems in Turkey; and partly from products that are certified to be domestic goods within the framework of the relevant legislation. As a result of the investigation ICTA has decided to imposed an administrative fine of 91,942 TL 18,031 to Turkcell. The administrative fine notified to Turkcell on 29 January 2021 and was paid on 26 February 2021 as TL 13,523 with taking on the court decided that there is no need to render a decision becauseaccount the early payment discount (1/4). The Company filed totally ten different lawsuits for the cancellation of devoid of essence.the administrative fines. There has not been any progress in the cases yet.
Based on the management opinion, the probability of an outflow of resources embodying economic benefits is lessmore than probable, thus, no provisionthe amount of TL 13,523 that will be paid in February 2021 is recognized as liability in the consolidated financial statements as at and for the yearperiod ended 31 December 20192020 (31 December 2018:2019: None).
MinistryICTA Investigation Regarding the R&D Obligations (Period of Trade Administrative Fine2016-2017)
The Ministry ICTA initiated an investigation on the obligation of Trade preparedinvesting to products in electronic communication network and communication services, partly from suppliers which have a report uponR&D center in Turkey; partly from the products manufactured in Turkey by SME suppliers which are established to develop products or systems in Turkey; and partly from products that are certified to be domestic goods within the framework of the relevant legislation. As a result of the investigation initiated againstICTA has decided to imposed an administrative fine of TL 31,139 to Turkcell. The administrative fine notified to Turkcell on 29 January 2021 and was paid on 26 February 2021 as TL 23,354 with taking on the Company regarding subscriber agreements, distance contracts, value added services and commitment campaigns including device procurement foraccount the year 2015.early payment discount (1/4). The Company filed a lawsuittotally seven different lawsuits for a stay of execution andthe cancellation of the Notice of Administrative Fine imposed by Istanbul Governorship Directorate of Commerce basedadministrative fines. There has not been any progress in the cases yet.
Based on the aforementioned Ministry report, amounting to TL 138,173 and the Decision of Administrative Fine of Istanbul Governorship Directorate of Commerce. The Court rejected the stay of execution request of the Company. The Company objected to the decision, objection was rejected. The hearing was held on 17 September 2019. The Court accepted the case in favor of the Company and cancelled the administrative fine. İstanbul Governorship appealed the case before Regional Administrative Court. The Company replied to the appeal request in due time.
Based on management opinion, the probability of an outflow of resources embodying economic benefits is lessmore than probable, and thus, no provisionthe amount of TL 23,354 that will be paid in February 2021 is recognized as liability in the consolidated financial statements as at and for the yearperiod ended 31 December 20192020 (31 December 2018:2019: None).
Other ongoing lawsuits and tax investigations
In addition to the aforementioned SCT investigation for prepaid card sales, the following tax and treasury share investigations in the Company have commenced: (i) for 2017 fiscal year regarding SCT for other transactions, (ii) 2018 fiscal year regarding SCT, Corporate Income Tax and Value Added Tax and, (iii) treasury share investigation regarding July-August-September 2019 period.
| ||||||||||||||||
|
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 DecemberIn 2019,
(All amounts disclosed in the consolidated financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
|
Other ongoing lawsuits and tax investigations (continued)
JSC Kazakhtelecom initiated arbitration proceedings against the Company related to its acquisition of JSC Kcell shares, which was subsidiary of the Fintur. JSC Kazakhtelecom presented its claim.The total claim against Turkcell and other shareholder Telia Company A.B. amounts to TL 484 million (USD 66 million) plus interest, of which Turkcell's share amounts to TL 137 million (USD 19 million) under the scope of agreements signed by parties. The arbitration proceeding continues.
On the other hand, JSC Kazakhtelecom has initiated another arbitration case against the Company and Telia Company A.B with the claim of indemnification due to revocation of a frequency license. At
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
38. Commitments and Contingencies (Continued)
Other ongoing lawsuits and tax investigations (Continued)
the current stage, the total claim has not been specified by JSC Kazakhtelecom. The arbitration proceeding continues.
Probability of an outflow of resources embodying economic benefits for 2018 and 2019 fiscal years with regards to notification of Information and Communication Technologies Authority for radio fee related to 2018 fiscal year was considered by the Company management. In this respect, TL 128,429 was paid in November 2019 by reserving our right to take legal actions and legal actions were taken for 2018 fiscal year. The lawsuits are pending. On the other hand, additional TL 13,465 for 2018/December was paid with reservation on 29 January 2021 with regards to notification of Information and Communication Technologies Authority for the same reason. Treasury share investigation related with the periods of July, August and September of 2020 fiscal year is an ongoing process.
In addition, following tax investigations which were started previous periods (i) prepaid card sales and other transactions for 2017 fiscal year regarding SCT, (ii) 2018 fiscal year transactions regarding SCT, Corporate Income Tax and Value Added Tax closing minutes have been signed and Central Commission of Report Consideration meeting has been held. Evaluation of Commission is still going on.
In addition, in accordance with the "Contract for the Establishment and Operation of Mobile Communication Infrastructure Service in Settlements Without Mobile Coverage" signed with the Ministry of Transport and Infrastructure, since the fees reflected to the Ministry should be subject to special communication tax and assessment has been made for the 2015 and 2016 periods. Application has been made for the assessment on 11 December 2020 to benefit for the structuring provisions of the Law No.7256 and the application has been approved. In this context, 51,174 TL was paid in March 2021 in advance.
On the other hand, mobile payment services provided by Turkcell Odeme were investigated within the scope of the Law No. 6493 and secondary legislation issued pursuant to this Law. As a very early stage.result of the investigation, an administrative fine was imposed on Turkcell Odeme in the amount of TL 18,763. Turkcell Odeme filed a lawsuit for the cancellation of the aforementioned administrative fine. The hearing was held on 30 December 2020 in this case. The Court decided to accept the case in favor of the Company and cancelled the administrative fine subject to the case.
While this case was ongoing, the Tax Office sent a payment order for collection of the aforementioned administrative fine. Turkcell Odeme filed a lawsuit for the cancellation of the payment order. The Court accepted the case and cancelled the payment order. Tax office appealed the decision before the Regional Administrative Court. The Company replied this appeal request in due time. The Regional Administrative Court, rejected the appeal request of the Tax Office in favor of the Company.
Based on the management opinion, an outflow of resources embodying economic benefits for the cases above mentioned is deemed to be less thanas probable on some of the aforementioned lawsuits and investigations, thus, noTL 242,521 provision is recognized in the consolidated financial statements as at and for the year ended 31 December 20192020 (31 December 2018:2019: None).
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
39. Related parties
Due to probabilitythe change of an outflow of resources embodying economic benefits with regards to notification of Informationthe ultimate parent, the Group reevaluated the related party entities and Communication Technologies Authority for wireless fee related to 2018 fiscal year; basedreflected the transactions on management opinion in accordance with the relevant legislation while reserving right to take legal action, totally TL 128,429 paid in November 2019 with reservation for 2018 and 2019 fiscal years and legal actions has been taken. This payment is reflected in current year income statement.31 December 2020 financial statements.
Key management personnel comprise the Group’sGroup's members of the Board of Directors, chief officers and chief officers.other directors.
There are no loans to key management personnel as of 31 December 20192020 and 2018.2019.
The Group provides additional benefits to key management personnel and contributions to retirement plans based on apre-determined ratio of compensation.
| 31 December 2020 | 31 December 2019 | 31 December 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Short-term benefits | 86,478 | 78,775 | 80,868 | |||||||
Termination benefits | 6,548 | 56,720 | 121 | |||||||
Share based payments | 5,760 | 6,247 | 11,473 | |||||||
Long-term benefits | 1,085 | 653 | 755 | |||||||
| | | | | | | | | | |
99,871 | 142,395 | 93,217 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
31 December 2019 | 31 December 2018 | 31 December 2017 | ||||||||||
Short-term benefits | 78,775 | 80,868 | 62,187 | |||||||||
Termination benefits | 56,720 | 121 | 604 | |||||||||
Share based payments | 6,247 | 11,473 | 12,509 | |||||||||
Long-term benefits | 653 | 755 | 548 | |||||||||
|
|
|
|
|
| |||||||
142,395 | 93,217 | 75,848 | ||||||||||
|
|
|
|
|
|
The following balances are outstanding at the endTable of the reporting period in relation to transactions with related parties:Contents
31 December 2019 | 31 December 2018 | |||||||
Due from related parties | ||||||||
Telia Carrier Germany GmbH (“Telia Carrier”) | 3,588 | 1,741 | ||||||
Emt Estonia (“Emt”) | 110 | 99 | ||||||
Vimpelcom OJSC (“Vimpelcom”) | — | 9,138 | ||||||
Kyivstar GSM JSC (“Kyivstar”) | — | 210 | ||||||
Other | 779 | 2,345 | ||||||
|
|
|
| |||||
4,477 | 13,533 | |||||||
|
|
|
|
There is no net of allowance for doubtful receivables of due from related parties at 31 December 2019 (31 December 2018: None).
Due from Telia Carrier, Emt, Vimpelcom and Kyivstar are resulting from telecommunications services.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
39. Related parties (Continued)
|
31 December 2019 | 31 December 2018 | |||||||
Due to related parties | ||||||||
Turkcell Vakfı | 9,145 | 39,544 | ||||||
Sofra | 1,942 | — | ||||||
Telia | 331 | 469 | ||||||
Kyivstar GSM JSC (“Kyivstar”) | — | 3,591 | ||||||
Wind Telecomunicazioni S.P.A. (“Wind”) | — | 886 | ||||||
Teliasonera International Carrier Switzerland Ag | — | 523 | ||||||
Other | 664 | 318 | ||||||
|
|
|
| |||||
12,082 | 45,331 | |||||||
|
|
|
|
Due to Sofra mainly resulting from meal coupon and card services received.
Due to Telia, Kyivstar and Wind mainly resulting from telecommunications services received.
The Group’s exposure to currency risk related to outstanding balances with related parties is disclosed in Note 36.
The following transactions occurred with related parties:
Revenue from related parties | 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Enerji Piyasalari Isletme A.S. ("EPIAS")(**) | 23,737 | — | — | |||||||
Turk Hava Yollari A.S. ("THY")(**) | 14,374 | — | — | |||||||
Turksat Uydu Haberlesme Kablo TV ve Isletme A.S. ("Turksat")(**) | 10,408 | — | — | |||||||
Ziraat Bankasi(**) | 10,285 | — | — | |||||||
Turkiye Vakiflar Bankasi TAO ("Vakifbank")(**) | 6,234 | — | — | |||||||
Borsa Istanbul A.S. ("BIST")(**) | 3,458 | — | — | |||||||
Gunes Express Havacilik A.S. ("Sun Express")(**) | 2,867 | — | — | |||||||
Turkiye Halk Bankasi A.S. ("Halkbank")(**) | 2,296 | — | — | |||||||
Sofra Kurumsal ve Odullendirme Hizmetleri A.S. ("Sofra") | 1,221 | — | — | |||||||
Posta ve Telgraf Teskilati A.S. ("PTT")(**) | 870 | — | — | |||||||
Kredi Kayit Burosu A.S. ("KKB")(**) | 657 | — | — | |||||||
Sonera Holding | — | 772,436 | — | |||||||
Kyivstar GSM JSC ("Kyivstar")(*) | — | 27,050 | 52,946 | |||||||
Telia Carrier Germany GmbH ("Telia Carrier") | — | 12,934 | 7,941 | |||||||
Vimpelcom OJSC ("Vimpelcom")(*) | — | 6,191 | 5,418 | |||||||
Other | 6,206 | 7,004 | 8,176 | |||||||
| | | | | | | | | | |
82,613 | 825,615 | 74,481 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2019 | 2018 | 2017 | ||||||||||
Revenue from related parties | ||||||||||||
Sales to Sonera Holding | ||||||||||||
Revenue from sales of discontinued operations (Note 16) | 772,436 | — | — | |||||||||
Sales to Kyivstar (*) | ||||||||||||
Telecommunications services | 27,050 | 52,946 | 30,875 | |||||||||
Sales to Telia Carrier | ||||||||||||
Telecommunications services | 12,934 | 7,941 | 10,020 | |||||||||
Sales to Vimpelcom (*) | ||||||||||||
Telecommunications services | 6,191 | 5,418 | 7,230 | |||||||||
Sales to Azercell Telecom LLC (“Azercell”) (**) | ||||||||||||
Telecommunication services | — | 256 | 1,583 | |||||||||
Sales to other related parties | 7,004 | 7,920 | 11,324 | |||||||||
|
|
|
|
|
| |||||||
825,615 | 74,481 | 61,032 | ||||||||||
|
|
|
|
|
|
Related party expenses | 2020 | 2019 | 2018 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
EPIAS(**) | 80,689 | — | — | |||||||
Sofra | 25,477 | 8,874 | — | |||||||
Turksat(**) | 14,023 | — | — | |||||||
Boru Hatlari Ile Petrol Tasima A.S. ("BOTAS")(**) | 3,654 | — | — | |||||||
PTT(**) | 1,682 | — | — | |||||||
Kyivstar(*) | — | 40,210 | 77,174 | |||||||
Telia Carrier | — | 7,503 | 6,047 | |||||||
Vimpelcom(*) | — | 1,228 | 2,751 | |||||||
Wind Telecomunicazioni S.P.A. ("Wind")(*) | — | 274 | 4,812 | |||||||
Turkcell Vakfi | — | — | 44,247 | |||||||
Other | 2,071 | 2,000 | 9,878 | |||||||
| | | | | | | | | | |
127,596 | 60,089 | 144,909 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
39. Related parties (Continued)
Details of the financial assets and liabilities with related parties as of 31 December 2020 and 2019 are as follows:
31 December 2020 | 31 December 2019 | ||||||
---|---|---|---|---|---|---|---|
|
2019 | 2018 | 2017 | ||||||||||
Related party expenses | ||||||||||||
Charges from Kyivstar (*) | ||||||||||||
Telecommunications services | 40,210 | 77,174 | 49,178 | |||||||||
Charges from Sofra | ||||||||||||
Meal coupons and cards | 8,874 | — | — | |||||||||
Charges from Telia Carrier | ||||||||||||
Telecommunications services | 7,503 | 6,047 | 3,120 | |||||||||
Charges from Vimpelcom (*) | ||||||||||||
Telecommunications services | 1,228 | 2,751 | 10,853 | |||||||||
Charges from Wind (*) | ||||||||||||
Telecommunications services | 274 | 4,812 | — | |||||||||
Charges from Turkcell Vakfı | ||||||||||||
Donation | — | 44,247 | — | |||||||||
Charges from Azercell (**) | ||||||||||||
Telecommunications services | — | 79 | 734 | |||||||||
Charges from Hobim (***) | ||||||||||||
Invoicing and archiving services | — | — | 16,993 | |||||||||
Charges from other related parties | 2,000 | 9,799 | 17,001 | |||||||||
|
|
|
|
|
| |||||||
60,089 | 144,909 | 97,879 | ||||||||||
|
|
|
|
|
|
|
— | |||
|
106,799 | — | ||||||
Other cash and cash equivalents | 8,354 | — | |||||
Bank borrowings | (55,902 | ) | — | ||||
| (50,866 | ) | — | ||||
Lease liabilities | (65,577 | ) | — | ||||
| | | | | | | |
6,656,292 | — | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Transactions with Kyivstar: As of 31 December 2020, the amount of letters of guarantee given to the related parties is TL 67,455 (31 December 2019: None).
Kyivstar, an entity under common control with Alfa, is rendering and receiving telecommunications services such as interconnection and roaming.
Transactions with Hobim:
The Company had entered into invoice printing and archiving agreements with Hobim under which Hobim provided the Company with monthly invoice printing services, managed the archiving of invoices and subscription documents. Prices Details of the agreements were determined throughtime deposits at related parties as of 31 December 2020 are as follows:
31 December 2020 | 31 December 2019 | ||||||
---|---|---|---|---|---|---|---|
Ziraat Bankasi | 2,338,812 | — | |||||
Vakifbank | 2,307,202 | — | |||||
Halkbank | 1,904,505 | — | |||||
Ziraat Katilim Bankasi A.S. | 162,965 | — | |||||
| | | | | | | |
6,713,484 | — | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Amount | Currency | Effective Interest Rate | Maturity | 31 December 2020 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
796,073 | USD | 2.9 | % | January 2021 | 5,843,574 | |||||||
610,140 | TRY | 17.4 | % | January 2021 | 610,140 | |||||||
28,838 | EUR | 1.5 | % | January 2021 | 259,770 | |||||||
| | | | | | | | | | | | |
6,713,484 | ||||||||||||
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Details of the evaluationbank borrowings at related parties as of alternative proposals.31 December 2020 are as follows:
Amount | Currency | Effective Interest Rate | Maturity | 31 December 2020 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
49,993 | RMB | 5.2 | % | June 2021 | 55,902 | |||||||
| | | | | | | | | | | | |
55,902 | ||||||||||||
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Transactions with Vimpelcom:
Vimpelcom, an entity under common control with Alfa, is rendering and receiving telecommunications services such as interconnection and roaming.
Transactions with Telia Carrier:
Telia Carrier, a subsidiary of Telia, is rendering and receiving telecommunications services such as interconnection and roaming.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
39. Related parties (Continued)
Details of the debt securities issued at related parties as of 31 December 2020 are as follows:
Amount | Currency | Effective Interest Rate | Maturity | 31 December 2020 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
50,000 | TRY | 15.0 | % | March 2021 | 50,866 | |||||||
| | | | | | | | | | | | |
50,866 | ||||||||||||
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Details of the lease liabilities at related parties as of 31 December 2020 are as follows:
Currency | Effective Interest Rate | Payment Period | 31 December 2020 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
EUR | 0.2% - 3.7% | 2021 - 2024 | 65,202 | ||||||||
TRY | 12.8% - 26.8% | 2021 | 341 | ||||||||
USD | 4.0% | 2023 | 34 | ||||||||
| | | | | | | | | | | |
65,577 | |||||||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest income from related parties:
2020 | 2019 | 2018 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 33,838 | — | — | |||||||
Halkbank | 32,762 | — | — | |||||||
Vakifbank | 27,509 | — | — | |||||||
Other | 1,611 | — | — | |||||||
| | | | | | | | | | |
95,720 | — | — | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Interest expense to related parties:
2020 | 2019 | 2018 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Halkbank | 1,968 | — | — | |||||||
Ziraat Bankasi | 1,736 | — | — | |||||||
Ziraat Yatirim Menkul Degerler A.S. | 506 | — | — | |||||||
Other | 65 | — | — | |||||||
| | | | | | | | | | |
4,275 | — | — | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Revenue from related parties are generally related to telecommunication, call center and other miscellaneous services. Transactions between the Group and EPIAS are related to the energy services; transactions between the Group and Sofra are related to meal coupon services; transactions between the Group and BOTAS are related to infrastructure services; transactions between the Group and Halkbank, Ziraat Bankasi and Vakifbank are related to banking services; transactions between the Group and PTT are related to cargo transportation; transactions between the Group and Turksat are related to telecommunication services and transactions between the Group and BIST are related to stock market services. Receivables from related parties are not collateralized.
Transactions with Azercell:Table of Contents
Azercell, a subsidiary of Telia, is rendering and receiving telecommunications services such as interconnection and roaming.
Transactions with Turkcell Vakfı:
On 11 October 2018, Turkcell Vakfı, was incorporated for rendering social responsibility and donation transactions.
Transactions with Wind:
Wind, an entity under common control with Alfa, is rendering and receiving telecommunications services such as interconnection and roaming.
Transactions with Sofra:
Sofra, a joint venture entity of Turkcell Odeme, BELBİM Elektronik Para ve Ödeme Hizmetleri A.Ş. and Posta ve Telgraf Teşkilatı A.Ş. (“PTT”) is providing services via various means such as service coupons, meal coupons, meal card, electronic coupon and/or smart card in vehicle payment.
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2019
2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
40. Subsidiaries
|
The Group’sGroup's ultimate parent company is Turkcell Holding,TVF, while subsidiaries, associates and a joint venture of the Company as at 31 December 20192020 and 31 December 20182019 are as follows:
| | | Effective Ownership Interest | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Subsidiaries Name | Country of Incorporation | Business | 31 December 2020 (%) | 31 December 2019 (%) | |||||||
Turktell | Turkey | Information technology, value added GSM services and entertainment investments | 100 | 100 | |||||||
Turkcell Superonline | Turkey | Telecommunications, television services and content services | 100 | 100 | |||||||
Turkcell Satis | Turkey | Sales, delivery and digital sales services | 100 | 100 | |||||||
Turkcell Teknoloji | Turkey | Research and development | 100 | 100 | |||||||
Turkcell Gayrimenkul | Turkey | Property investments | 100 | 100 | |||||||
Turkcell Enerji | Turkey | Electricity energy trade and wholesale and retail electricity sales | 100 | 100 | |||||||
Turkcell Finansman | Turkey | Consumer financing services | 100 | 100 | |||||||
Turkcell Sigorta | Turkey | Insurance agency activities | 100 | 100 | |||||||
Turkcell Odeme | Turkey | Payment services and e-money license | 100 | 100 | |||||||
Lifecell Dijital Servisler(1) | Turkey | Development and providing of digital services and products | 100 | — | |||||||
Lifecell Bulut(1) | Turkey | Cloud solutions services | 100 | — | |||||||
Lifecell TV(1) | Turkey | Online radio, television and on-demand streaming services | 100 | — | |||||||
Lifecell Muzik(1) | Turkey | Radio, television and on-demand streaming services | 100 | — | |||||||
Global Tower | Turkey | Telecommunications infrastructure business | 100 | 100 | |||||||
UkrTower | Ukraine | Telecommunications infrastructure business | 100 | 100 | |||||||
Beltower | Republic of Belarus | Telecommunications infrastructure business | 100 | 100 | |||||||
Eastasia | Netherlands | Telecommunications investments | 100 | 100 | |||||||
Kibris Telekom | Turkish Republic of Northern Cyprus | Telecommunications | 100 | 100 | |||||||
Lifecell Digital | Turkish Republic of Northern Cyprus | Telecommunications | 100 | 100 | |||||||
Turkcell Global Bilgi | Turkey | Customer relations and human resources management | 100 | 100 | |||||||
Global LLC | Ukraine | Customer relations management | 100 | 100 | |||||||
Rehberlik | Turkey | Directory assistance | 100 | 100 | |||||||
Lifecell Ventures | Netherlands | Telecommunications investments | 100 | 100 | |||||||
Lifecell | Ukraine | Telecommunications | 100 | 100 | |||||||
Paycell LLC | Ukraine | Consumer financing services | 100 | 100 | |||||||
Turkcell Europe | Germany | Telecommunications | 100 | 100 | |||||||
Yaani | Netherlands | Internet search engine and browser services | 100 | 100 | |||||||
BiP Digital(2) | Netherlands | Providing digital services and products | 100 | — | |||||||
BiP Iletisim(2) | Turkey | Providing digital services and products | 100 | 100 | |||||||
Beltel | Turkey | Telecommunications investments | 100 | 100 | |||||||
Belarusian Telecom | Republic of Belarus | Telecommunications | 80 | 80 | |||||||
Lifetech | Republic of Belarus | Information technology, programming and technical support | 80 | 80 | |||||||
Inteltek(3) | Turkey | Information and entertainment services | — | 55 |
Effective Ownership Interest | ||||||||||||
Subsidiaries | Country of | Business | 31 December 2019 (%) | 31 December 2018 (%) | ||||||||
Kibris Telekom | Turkish Republic of Northern Cyprus | Telecommunications | 100 | 100 | ||||||||
Turkcell Global Bilgi | Turkey | Customer relations and human resources management | 100 | 100 | ||||||||
Turktell | Turkey | Information technology, value added GSM services and entertainment investments | 100 | 100 | ||||||||
Turkcell Superonline | Turkey | Telecommunications, television services and content services | 100 | 100 | ||||||||
Turkcell Satis | Turkey | Sales, delivery and digital sales services | 100 | 100 | ||||||||
Eastasia | Netherlands | Telecommunications investments | 100 | 100 | ||||||||
Turkcell Teknoloji | Turkey | Research and development | 100 | 100 | ||||||||
Global Tower | Turkey | Telecommunications infrastructure business | 100 | 100 | ||||||||
Rehberlik | Turkey | Directory Assistance | 100 | 100 | ||||||||
Lifecell Ventures | Netherlands | Telecommunications investments | 100 | 100 | ||||||||
Beltel | Turkey | Telecommunications investments | 100 | 100 | ||||||||
Turkcell Gayrimenkul | Turkey | Property investments | 100 | 100 | ||||||||
Global LLC | Ukraine | Customer relations management | 100 | 100 | ||||||||
UkrTower | Ukraine | Telecommunications infrastructure business | 100 | 100 | ||||||||
Turkcell Europe | Germany | Telecommunications | 100 | 100 | ||||||||
Turkcell Odeme | Turkey | Payment services ande-money license | 100 | 100 | ||||||||
lifecell | Ukraine | Telecommunications | 100 | 100 | ||||||||
Turkcell Finansman | Turkey | Consumer financing services | 100 | 100 | ||||||||
Beltower | Republic of Belarus | Telecommunications Infrastructure business | 100 | 100 | ||||||||
Turkcell Enerji | Turkey | Electricity energy trade and wholesale and retail electricity sales | 100 | 100 | ||||||||
Paycell LLC | Ukraine | Consumer financing services | 100 | 100 | ||||||||
Lifecell Digital | Turkish Republic of Northern Cyprus | Telecommunications | 100 | 100 | ||||||||
TÖFAŞ | Turkey | Interest free consumer financing services | 100 | 100 | ||||||||
Turkcell Sigorta | Turkey | Insurance agency activities | 100 | 100 | ||||||||
Yaani Digital BV (*) | Netherlands | Internet search engine and browser services | 100 | — | ||||||||
Belarusian Telecom | Republic of Belarus | Telecommunications | 80 | 80 | ||||||||
Lifetech | Republic of Belarus | Information technology, programming and technical support | 80 | 80 | ||||||||
Inteltek | Turkey | Information and Entertainment Services | 55 | 55 |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
40. Subsidiaries (Continued)
| | | Effective Ownership Interest | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Associates Name | Country of Incorporation | Business | 31 December 2020 (%) | 31 December 2019 (%) | |||||||
TOGG | Turkey | Electric passenger car development, production and trading activities | 19 | 19 |
| | | Effective Ownership Interest | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Joint Venture Name | Country of Incorporation | Business | 31 December 2020 (%) | 31 December 2019 (%) | |||||||
Sofra | Turkey | Meal coupons and cards | 33 | 33 |
TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 2020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
40. Subsidiaries (Continued)
|
Effective Ownership Interest | ||||||||
Associates | Country of | Business | 31 December 2019 (%) | 31 December 2018 (%) | ||||
Fintur (Note 16) | Netherlands | Telecommunications investments | — | 41 | ||||
Türkiye’nin Otomobili | Turkey | Electric passenger car development, production and trading activities | 19 | 19 | ||||
Effective Ownership Interest | ||||||||
Joint Venture Name | Country of | Business | 31 December 2019 (%) | 31 December 2018 (%) | ||||
Sofra | Turkey | Meal coupons and cards | 33 | 33 |
|
Details ofnon-wholly owned subsidiaries that have materialnon-controlling interests in the Company are disclosed below:
| | Proportion of ownership interests and voting rights held by non-controlling interest | | | | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Profit/(loss) allocated to non-controlling interests | Accumulated non-controlling interests | ||||||||||||||||||
| Place of incorporation and principal place of business | ||||||||||||||||||||
Name of subsidiary | 31 December 2020 | 31 December 2019 | 31 December 2020 | 31 December 2019 | 31 December 2020 | 31 December 2019 | |||||||||||||||
Individually immaterial subsidiaries with non—controlling interest | 2,534 | 21 | 171 | 148 | |||||||||||||||||
Inteltek | Turkey | — | 45.00 | % | — | 30,182 | — | 36,307 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
2,534 | 30,203 | 171 | 36,455 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Name of subsidiary | Place of incorporation and principal place of business | Proportion of ownership interests and voting rights held bynon-controlling interest | Profit/(loss) allocated to non-controlling interests | Accumulated non-controlling interests | ||||||||||||||||||||||||
31 December 2019 | 31 December 2018 | 31 December 2019 | 31 December 2018 | 31 December 2019 | 31 December 2018 | |||||||||||||||||||||||
Inteltek | Turkey | 45.00 | % | 45.00 | % | 30,182 | 105,112 | 36,307 | 131,506 | |||||||||||||||||||
Individually immaterial subsidiaries with non –controlling interest | 21 | 51,158 | 148 | 304 | ||||||||||||||||||||||||
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30,203 | 156,270 | 36,455 | 131,810 | |||||||||||||||||||||||||
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Summarized financial information in respect of Inteltek is set out below. The summarized financial information below represents amounts before intragroup eliminations.
31 December 2020 | 31 December 2019 | ||||||
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Inteltek | |||||||
Current assets | — | 84,896 | |||||
Non-current assets | — | 6,516 | |||||
Current liabilities | — | 6,286 | |||||
Non-current liabilities | — | 4,444 | |||||
Equity attributable to owners | — | 80,682 | |||||
2020 | 2019 | ||||||
Revenue | — | 141,783 | |||||
(Expenses) / Income (net) | — | (74,711 | ) | ||||
Gain on Sale of Investments | — | — | |||||
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Profit for the year | — | 67,072 | |||||
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Other comprehensive income/(loss) for the year | — | 640 | |||||
Dividend paid to non-controlling interests | — | (125,027 | ) | ||||
Net cash (outflow)/inflow from operating activities | — | (63,238 | ) | ||||
Net cash inflow from investing activities | — | 20,001 | |||||
Net cash outflow from financing activities | — | (277,837 | ) | ||||
Effects of foreign exchange rate fluctuations on cash and cash equivalents | — | 14,979 | |||||
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Net cash (outflow)/inflow | — | (306,095 | ) | ||||
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TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the year ended 31 December 20192020
(All amounts disclosed in the consolidated financial statements and notes have been rounded off
to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
40. Subsidiaries (Continued)
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Inteltek
31 December 2019 | 31 December 2018 | |||||||
Current assets | 84,896 | 403,427 | ||||||
Non-current assets | 6,516 | 9,043 | ||||||
Current liabilities | 6,286 | 115,080 | ||||||
Non-current liabilities | 4,444 | 5,154 | ||||||
Equity attributable to owners | 80,682 | 292,236 | ||||||
2019 | 2018 | |||||||
Revenue | 141,783 | 208,239 | ||||||
(Expenses) / Income (net) | (74,711 | ) | (93,133 | ) | ||||
Gain on Sale of Investments | — | 118,476 | ||||||
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Profit for the year | 67,072 | 233,582 | ||||||
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Other comprehensive income/(loss) for the year | 640 | 179 | ||||||
Dividend paid tonon-controlling interests | (125,027 | ) | (31,283 | ) | ||||
Net cash (outflow)/inflow from operating activities | (63,238 | ) | 31,380 | |||||
Net cash inflow from investing activities | 20,001 | 158,946 | ||||||
Net cash outflow from financing activities | (277,837 | ) | (69,518 | ) | ||||
Effects of foreign exchange rate fluctuations on cash and cash equivalents | 14,979 | 56,949 | ||||||
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Net cash (outflow)/inflow | (306,095 | ) | 177,757 | |||||
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operated games of chance and assigned mobile sub agencies to operate the fixed odds and paramutual betting games basing on the agreements executed with Spor Toto. The term of the agreement executed between Spor Toto and Inteltek has been expired on 29 August 2019. In this context, activities of Inteltek ceased on 29 August 2019. The Company has signed a binding term sheetdefinitive agreement on 14 January29 July 2020 to transfer its total shareholding of 55% in Inteltek to other shareholder of aforementioned, Intralot Iberia Holding SAU. The transfer of shares and proceeds were completed on 30 September 2020 (Note 42)40).
41. Cash flow information
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Net financial liabilities reconciliation:
| Debt securities issued | Loans | Lease liabilities | Total | Derivative Assets, net | Total | |||||||||||||
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Balance at 1 January 2020 | (5,965,790 | ) | (12,806,882 | ) | (1,533,055 | ) | (20,305,727 | ) | 758,896 | (19,546,831 | ) | ||||||||
Cash inflows | (494,987 | ) | (22,983,201 | ) | — | (23,478,188 | ) | 2,085,585 | (21,392,603 | ) | |||||||||
Cash outflows | 885,647 | 26,817,471 | 1,302,335 | 29,005,453 | (866,650 | ) | 28,138,803 | ||||||||||||
Other non-cash movements | (1,787,424 | ) | (3,152,370 | ) | (1,868,166 | ) | (6,807,960 | ) | (1,179,505 | ) | (7,987,465 | ) | |||||||
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Balance at 31 December 2020 | (7,362,554 | ) | (12,124,982 | ) | (2,098,886 | ) | (21,586,422 | ) | 798,326 | (20,788,096 | ) | ||||||||
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| Debt securities issued | Loans | Lease liabilities | Total | Derivative Assets, net | Total | |||||||||||||
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Balance at 1 January 2019 | (5,210,562 | ) | (13,531,027 | ) | (1,413,956 | ) | (20,155,545 | ) | 1,190,797 | (18,964,748 | ) | ||||||||
Cash inflows | (311,649 | ) | (29,060,490 | ) | — | (29,372,139 | ) | 1,924,363 | (27,447,776 | ) | |||||||||
Cash outflows | 563,241 | 32,003,647 | 1,215,320 | 33,782,208 | (1,101,876 | ) | 32,680,332 | ||||||||||||
Other non-cash movements | (1,006,820 | ) | (2,219,012 | ) | (1,334,419 | ) | (4,560,251 | ) | (1,254,388 | ) | (5,814,639 | ) | |||||||
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Balance at 31 December 2019 | (5,965,790 | ) | (12,806,882 | ) | (1,533,055 | ) | (20,305,727 | ) | 758,896 | (19,546,831 | ) | ||||||||
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42. Subsequent events
On 8 January 2021, the Group announced that its subsidiary, Turkcell Odeme, shall issue management agreement based lease certificates in accordance with capital markets legislation through an asset leasing company at an amount of up to TL 200,000, with maturities up to 12 months, in the domestic market, in one or more tranches, without public offering, as private placement and/or to be sold to institutional investors.
Debt securities issued | Loans | Lease liabilities | Total | Derivative Assets, net | Total | |||||||||||||||||||
Balance at 1 January 2019 | (5,210,562 | ) | (13,531,027 | ) | (1,413,956 | ) | (20,155,545 | ) | 1,190,797 | (18,964,748 | ) | |||||||||||||
Cash inflows | (311,649 | ) | (29,060,490 | ) | — | (29,372,139 | ) | 1,924,363 | (27,447,776 | ) | ||||||||||||||
Cash outflows | 563,241 | 32,003,647 | 1,215,320 | 33,782,208 | (1,101,876 | ) | 32,680,332 | |||||||||||||||||
Othernon-cash movements | (1,006,820 | ) | (2,219,012 | ) | (1,334,419 | ) | (4,560,251 | ) | (1,254,388 | ) | (5,814,639 | ) | ||||||||||||
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Balance at 31 December 2019 | (5,965,790 | ) | (12,806,882 | ) | (1,533,055 | ) | (20,305,727 | ) | 758,896 | (19,546,831 | ) | |||||||||||||
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Debt securities issued | Loans | Lease liabilities | Total | Derivative Assets, net | Total | |||||||||||||||||||
Balance at 1 January 2018 | (1,875,521 | ) | (10,537,908 | ) | (122,720 | ) | (12,536,149 | ) | 871,288 | (11,664,861 | ) | |||||||||||||
Increase in lease obligations (IFRS 16) | — | — | (1,036,380 | ) | (1,036,380 | ) | — | (1,036,380 | ) | |||||||||||||||
Cash inflows | (2,188,313 | ) | (43,728,604 | ) | — | (45,916,917 | ) | 1,054,345 | (44,862,572 | ) | ||||||||||||||
Cash outflows | 432,140 | 44,339,377 | 1,164,879 | 45,936,396 | (710,522 | ) | 45,225,874 | |||||||||||||||||
Othernon-cash movements | (1,578,868 | ) | (3,603,892 | ) | (1,419,735 | ) | (6,602,495 | ) | (24,314 | ) | (6,626,809 | ) | ||||||||||||
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Balance at 31 December 2018 | (5,210,562 | ) | (13,531,027 | ) | (1,413,956 | ) | (20,155,545 | ) | 1,190,797 | (18,964,748 | ) | |||||||||||||
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TURKCELL ILETISIM HIZMETLERI AS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and On 15 April 2021, the Company's General Assembly has approved a dividend distribution for the year ended 31 December 20192020 amounting to TL 2,585,787; this represents a gross cash dividend of full TL 1.17536 per share. The dividend will be paid to the shareholders in three instalments on 30 April, 30 July and 27 October 2021.
(All amounts disclosed On 22 April 2021, a temporary article is added to the Turkey's Corporate Tax Law No. 5220 which was published in the consolidated financial statementsOfficial Gazette. The Law increases the corporate tax rate under Corporate Tax Law from the current 20% rate to 25% for the tax year 2021 and notes have been rounded off to 23% rate for the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)
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The Company signed a binding term sheettax year 2022; the change took effect on 14 January 2020 to transfer its shareholdingthe Law's date of 55% in Inteltek including all rights and liabilities to the other shareholder of Inteltek, Intralot Iberia Holding SAU. The respective transactionpublication. It is expected to be completed within the first half of 2020, once the final share sale and purchase agreement (“SPA”) is signed and necessary legal approvals are obtained. The final value of the transaction will be determined based on IFRS net book value of Inteltek and no material impact is expected on our financial statements.
The Company has decided to prepay the loan, which was utilized under the credit agreement disclosed on 17 September 2015 and which is to mature on 16 September 2020. Accordingly, the last two principal payments of the loan, which are due in June 2020 and September 2020 as per the credit agreement and which in total amount to EUR 148.4 million and USD 166.7 million, were performed on 23 March 2020.
Lifecell Dijital Servisler ve Çözümler A.Ş., which is 100% owned by Company’s subsidiary Turktell
Bilişim Servisleri A.Ş., has been incorporatedcontinue with a capital of TL 100. The company was registered on20% afterwards.
28 February 2020 and its announcement was completed on the same day. The company will develop
digital services, solutions and products.
As per the resolution issued by CMB dated 5 March 2020, Nail Olpak, Afif Demirkĺran and Tahsin Yazar
have been appointed to the Company’s Board as independent board members to replace Ahmet Akça,
Atilla Koç and Mehmet Hilmi Güler, who have been serving as independent board members at the
Company since 11 March 2013. Those newly appointed board members will serve until new independent
members are selected by the Company’s general assembly in accordance with the relevant legislation or
other members are appointed by Capital Markets Board.
The marketing partnership between Turkcell Europe, the Company’s subsidiary operating in Germany, and Telekom Deutschland Multibrand GmbH, the subsidiary of Deutsche Telekom, will end on 30 April 2020 pursuant to the respective agreement.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to be spread throughout Turkey and the world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain and will impact our business, consolidated results of operations, and financial condition in the future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our clients and other factors. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.
F-111