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TKC Turkcell Iletisim Hizmetleri A.S.

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

Report on Form 6-K dated April 29, 2020

Commission File Number: 001-15092

 

TURKCELL ILETISIM HIZMETLERI A.S.

(Translation of registrant’s name in English)

 

Aydınevler Mahallesi İnönü Caddesi No:20

Küçükyalı Ofispark

34854 Maltepe
Istanbul, Turkey

 

(Address of Principal Executive Offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-Fx         Form 40-F¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes¨         No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes¨         No x

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes¨         No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________

Enclosure: A press release dated April 28, 2020 announcing Turkcell’s First Quarter 2020 results and Q1 2020 IFRS Report.

 

 
   

 

 

 

 

 

 

 

TURKCELL ILETISIM HIZMETLERI

FIRST QUARTER 2020 RESULTS

“STRONG START TO THE YEAR”

 

 

 

 

 

   

 

  

First Quarter 2020 Results

 

 

 

Contents

 HIGHLIGHTS  
 COMMENTS BY MURAT ERKAN, CEO  4
    
 FINANCIAL AND OPERATIONAL REVIEW  
 FINANCIAL REVIEW OF TURKCELL GROUP  6
 OPERATIONAL REVIEW OF TURKCELL TURKEY  9
    
 TURKCELL INTERNATIONAL  
 lifecell 10
 BeST11
 Kuzey Kıbrıs Turkcell 11
 FINTUR 11
 TURKCELL GROUP SUBSCRIBERS 12
    
 OVERVIEW OF THE MACROECONOMIC ENVIRONMENT13
    
 RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS  13
    
 Appendix A – Tables15

 

 

·Please note that all financial data is consolidated and comprises that of Turkcell Iletisim Hizmetleri A.S. (the “Company”, or “Turkcell”) and its subsidiaries and associates (together referred to as the “Group”), unless otherwise stated.

 

·We have three reporting segments:

 

o“Turkcell Turkey” which comprises all of our telecom related businesses in Turkey (as used in our previous releases in periods prior to Q115, this term covered only the mobile businesses). All non-financial data presented in this press release is unconsolidated and comprises Turkcell Turkey only figures, unless otherwise stated. The terms “we”, “us”, and “our” in this press release refer only to Turkcell Turkey, except in discussions of financial data, where such terms refer to the Group, and except where context otherwise requires.

 

o“Turkcell International” which comprises all of our telecom related businesses outside of Turkey.

 

o“Other subsidiaries” which is mainly comprised of our call center business revenues, financial services revenues, energy business revenues and inter-business eliminations.

 

·In this press release, a year-on-year comparison of our key indicators is provided and figures in parentheses following the operational and financial results for March 31, 2020 refer to the same item as at March 31, 2019. For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2020, which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

 

·Selected financial information presented in this press release for the first and fourth quarters of 2019 and the first quarter of 2020 is based on IFRS figures in TRY terms unless otherwise stated.

 

·In the tables used in this press release totals may not foot due to rounding differences. The same applies to the calculations in the text.

 

·Year-on-year and quarter-on-quarter percentage comparisons appearing in this press release reflect mathematical calculation.

 

   
  2 

 

  

First Quarter 2020 Results

 

FINANCIAL HIGHLIGHTS

 

TRY millionQ119Q419Q120y/y%q/q%
Revenue5,6756,6846,65817.3%(0.4%)
EBITDA12,2812,7542,80923.1%2.0%
   EBITDA Margin (%)40.2%41.2%42.2%2.0pp1.0pp
EBIT21,1031,3491,43730.3%6.5%
   EBIT Margin (%)19.4%20.2%21.6%2.2pp1.4pp
Net Income1,224756873(28.7%)15.5%
Net Income excluding Fintur transaction gain45275687393.1%15.5%

 

FIRST QUARTER HIGHLIGHTS

·Strong start to the year on sound financial performance:

 

oRevenues up 17% year-on-year on the back of the solid ARPU performance of Turkcell Turkey

 

oEBITDA up 23% year-on-year leading to an EBITDA margin of 42.2% on 2.0pp improvement

 

oEBIT up 30% year-on-year resulting in an EBIT margin of 21.6% on 2.2pp improvement

 

oStrong bottom line performance sustained on robust operations and prudent financial risk management; net income up 93% year-on-year excluding Fintur transaction gain of TRY772 million registered in Q119

 

oStrong balance sheet: leverage down to 0.9x, despite FX volatility; US$1.4 billion equivalent of cash on hand; long FX position of US$114 million

 

·Robust operational performance:

 

oTurkcell Turkey subscriber base up by 614 thousand quarterly net additions, reflecting our commitment to the target of 1 million net subscriber additions per year over the next three years

 

oStrong postpaid subscriber quarterly net additions of 679 thousand, best first quarter performance of the past 20 years; postpaid subscriber share at 63%

 

oSolid mobile ARPU3 growth of 21.5% year-on-year on larger postpaid subscriber base and upsell efforts

 

oDouble-digit residential fiber ARPU growth of 13.4% year-on-year

 

oSuperbox4 subscribers at 400 thousand on 76 thousand quarterly net additions

 

·Limited 2-week impact of COVID-19 pandemic on Q120 performance:

 

oRising demand for telco services driven by remote working and education as well as increased communication, and entertainment needs

 

oDownside risks on roaming revenues, prepaid top-ups, handset sales, consumer finance business revenues, and enterprise segment revenues due to limited mobility and economic slowdown

 

·2020 guidance5 is revised; still targeting a double-digit growth and stable margins. Revenue growth target of 10%-12%, EBITDA margin target of 40%-42%, EBIT margin target of 19%-21% and operational capex over sales ratio6 target of 17%-19% based on an assumption of COVID-19 impact to continue in Q220 with a gradual recovery thereafter.

 

(1) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

(2) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

(3) Excluding M2M

(4) Superbox subscribers are included in mobile subscribers.

(5) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2019 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(6) Excluding license fee

For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2020 which can be accessed via our website in the investor relations section (www.turkcell.com.tr).

 

   
  3 

 

  

First Quarter 2020 Results

 

COMMENTS BY MURAT ERKAN, CEO

 

We have an important message: “Life’s at home!”

We concluded the first quarter of 2020, having weathered numerous challenges. Just as we felt deep sorrow in the wake of earthquakes and other natural disasters in Turkey, we have begun to feel the consequences of the global COVID-19 pandemic. Right after the first case was identified in Turkey, we witnessed a series of economic and social preventive measures taken swiftly by related governmental bodies, and spearheaded by the Ministry of Health.

We are going through a period in which the vital importance of the telecom sector is being recognized through experience. As Turkcell, we reap the fruits of having consistently invested in our infrastructure over many years, having pioneered the digitalization of the sector. Emboldened by confidence in our infrastructure, we have deployed the resulting strengths to realize our current priority of supporting our country and people as we, as a nation, unite against the pandemic. Accordingly, we have provided additional data packages and benefits free of charge to subscribers who are health workers displaying amazing self-sacrifice, as well as the elderly (aged above 65) and students. Moreover, we have launched several campaigns with the caption #life’sathome in our digital services such as BiP, fizy, TV+, lifebox and Dergilik to entertain our subscribers and help them to be more productive during their time at home. Simultaneously, we have temporarily closed 167 exclusive stores, the majority of which are located at shopping malls, and also taken hygiene measures at, and limited the working hours of our remaining 1,148 exclusive stores. Meanwhile, we have been encouraging our subscribers to use our online platforms, confident in their operational readiness, having already prioritized increased online sales as part of our strategy.

We have taken all necessary measures for our employees’ health

With full confidence in our ICT infrastructure, over 5,000 Turkcell employees have been working from home since March 13th. We believe this to be the largest home office model in Turkey. Additionally, over 10,000 call center agents at our subsidiary Turkcell Global Bilgi are equipped with the technical tools and infrastructure required to continue serving from home. This transition has resulted in one of the fastest operations worldwide.

We have announced strong results and reviewed our targets

We have made a strong start to the year with the results of the first quarter, the last 15 days of which were impacted by the pandemic. Turkcell Group’s consolidated revenues increased by 17.3% year-on-year to TRY6.7 billion. Consolidated EBITDA1 was at TRY2.8 billion, resulting in an EBITDA margin of 42.2%. Net income was at TRY873 million, with an annual rise of 93% excluding the Fintur transaction gain in the first quarter of last year. Despite these strong results, which are also in line with the guidance we announced earlier this year, we have had to revisit our guidance for the year 2020 given the challenging and uncertain period we are currently in. We observe an increase in data usage with a heightened need for communication and connection among both individuals and the business world, as well as greater demand for our digital services and solutions. And yet, travel restrictions and limited mobility are expected to negatively impact several of our revenue lines, particularly roaming, corporate and consumer finance for smart devices. In the assumption that this challenging period will continue throughout the second quarter with a gradual normalization thereafter, we expect2 revenue growth of 10% - 12%, an EBITDA margin range of 40% - 42%, an EBIT3 margin of 19% - 21% and operational capex4 to revenue ratio of 17% - 19% in 2020. This notwithstanding, we aim to sustain double-digit topline growth throughout this critical period, also confident in our ability to monetize our quality and dependable service in the upcoming periods, not least in light of the accelerated digitalization that circumstances have resulted in, all to the benefit of our stakeholders.

We continued to strengthen our postpaid subscriber base with an additional 679 thousand net additions

We have given our best first quarter performance of the past 20 years by adding 679 thousand net postpaid subscribers, the number of which reached 21 million, rising to 63% of the total base. Mobile blended ARPU5 rose 21.5% to TRY46.3 on a higher postpaid subscriber base and with upsell to higher tariffs.

The demand for Superbox6, our pioneer product in Turkey that provides fiber-like speed over the mobile network, has accelerated amid heightened demand for fast home internet. We registered 76 thousand net Superbox subscribers, reaching 400 thousand in total. In addition, our fixed broadband subscribers increased to 2.3 million. We registered 34 thousand net fiber subscriber additions during this quarter. Residential fiber ARPU rose 13.4% year-on-year to TRY71.2 in this quarter.

   
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First Quarter 2020 Results

 

Having increased our total subscriber base by 614 thousand, we have shown that we are on track with our subscriber net additions target of 1 million per year.

Our digital services are expanding with innovative features

Digital services revenues on a stand-alone basis grew by 29% year-on-year on the back of increased subscription, inflationary pricing, and corporate customers. We support our customers who choose to stay at home during this period with our digital services enriched with various campaigns and attractive features. Video calls over BiP doubled in the last week of March compared to the last week of February, while TV+ sessions have lengthened; data usage has doubled. With Dergilik, where we have introduced AI-based vocalization, the number of articles read rose 75% for the same period. Also this quarter, we launched Turkcell Digital Security, a service that secures the internet experience of those individuals concerned about personal data theft and fraud.

Those who chose Turkcell have managed their business remotely

The revenues of Digital Business Solutions, which offers services for the digital transformation of both private and public sector companies, grew yearly by 42% this quarter. Our main focus has been to deliver seamless service to our customers with our strong infrastructure and advanced services and solutions. While doing so, we have also secured nearly 700 new projects during the quarter. Around 1,600 companies already use our data center services, and we trust that demand for our cloud and data security solutions will accelerate with the rising popularity of remote-working and education. Also this quarter, Ikitelli City Hospital was inaugurated earlier than scheduled, becoming the sixth hospital to use the Turkcell Hospital Information Management System.

March saw a record high transaction volume for Paycell

Our innovative techfin payment platform, Paycell, registered its all-time-high transaction volume growth of 146% in March on a yearly basis. The limitations on mobility and concurrent increase in digital content consumption was instrumental in this rise. This quarter, Istanbul Kart application users were introduced to the top-up through Paycell option, further enriching the Paycell service offering. Going forward, we expect the demand for Paycell to increase as user habits change to meet the new necessities of the time.

Our strong balance sheet and liquidity position emerged as our key strengths

Our TRY9.2 billion cash in hand, most of which is in foreign currency, and a manageable level of indebtedness have stood out as our key strengths in this fragile macroeconomic environment impacted by the pandemic. Thanks to these, and in line with our long-term financing strategy, we prepaid the last two principal payments of our club loan amounting to EUR148.4 million and US$166.7 million six months in advance. By doing so, we increased the average loan maturity at Turkcell İletişim to 5 years. Turkcell Group has a 0.9x Net Debt/EBITDA ratio, thus below the sector average.

Together, we will beat this pandemic that has altered the flow of history

I consider the COVID-19 pandemic to be a turning point in everyone’s lives, and one that has brought about different experiences. Indeed, history, from now on, will be defined as “before and after COVID-19”. I am confident that we will surmount these challenging days in a spirit of unity and support for each other. As Turkcell, we will continue to support the entire ecosystem. Meanwhile, I would like to express my gratitude to all those who work tirelessly while putting their lives at risk, in particular our healthcare workers.

This hectic period has enabled us to understand that the telecoms sector is a key component of all others. Digitalization has become inevitable on a comprehensive scale. Once this period is over, I believe we will enter a new era in which corporates swiftly transform their infrastructure and consumers use mobile internet and digital services more than ever. As Turkcell, with our robust infrastructure and innovative services, we are ready to stand by our customers in that new era.

We thank all our colleagues for the part they have played in our success, along with our Board of Directors for their unyielding trust and support. We also express gratitude to our customers and business partners, who have remained with us throughout our success story.

 

(1) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

(2) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2019 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

(4) Excluding license fee

(5) Excluding M2M

(6) Superbox subscribers are included in mobile subscribers

   
  5 

 

  

First Quarter 2020 Results

 

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

 

Profit & Loss Statement (million TRY)Q119Q419Q120y/y%q/q%
Revenue5,675.46,683.86,658.217.3%(0.4%)
Cost of revenue1(2,730.2)(3,206.3)(3,197.4)17.1%(0.3%)
Cost of revenue1/Revenue(48.1%)(48.0%)(48.0%)0.1pp-
Gross Margin151.9%52.0%52.0%0.1pp-
Administrative expenses(190.6)(217.4)(188.3)(1.2%)(13.4%)
Administrative expenses/Revenue(3.4%)(3.3%)(2.8%)0.6pp0.5pp
Selling and marketing expenses(403.2)(384.9)(348.7)(13.5%)(9.4%)
Selling and marketing expenses/Revenue(7.1%)(5.8%)(5.2%)1.9pp0.6pp
Net impairment losses on financial and contract assets(70.3)(121.3)(114.8)63.3%(5.4%)
EBITDA22,281.12,753.82,809.023.1%2.0%
EBITDA Margin40.2%41.2%42.2%2.0pp1.0pp
Depreciation and amortization(1,178.1)(1,404.9)(1,372.1)16.5%(2.3%)
EBIT31,103.01,348.91,437.030.3%6.5%
EBIT Margin19.4%20.2%21.6%2.2pp1.4pp
Net finance income / (costs)(420.4)(214.3)(221.4)(47.3%)3.3%
    Finance income4535.144.9621.516.1%n.m
    Finance costs4(955.5)(259.2)(842.9)(11.8%)225.2%
Other income / (expense)(51.8)(128.2)(94.0)81.5%(26.7%)
Non-controlling interests(19.8)2.0(1.2)(93.9%)(160.0%)
Share of profit of equity accounted investees0.8(19.1)(3.2)(500.0%)(83.2%)
Income tax expense(159.8)(233.7)(244.4)52.9%4.6%
Discontinued operations772.4--n.an.a
Net Income1,224.5755.6872.7(28.7%)15.5%

 

(1) Excluding depreciation and amortization expenses.

(2) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.

(4) Fair value loss and interest expense regarding derivative instruments and the respective fair value gain and interest income regarding derivative instruments are represented on a net basis. Starting from Q219, interest income on financial assets and interest expenses for financial liabilities, both measured at amortized cost, are represented on a net basis. Historical periods were restated to reflect this change.

 

Revenueof the Group rose 17.3% year-on-year in Q120. This resulted from the strong ARPU performance of Turkcell Turkey with a growing postpaid customer base, and continued upsell efforts supported by higher data consumption, as well as digital services usage.

 

Turkcell Turkey revenues, comprising 86% of Group revenues, rose 18.7% to TRY5,738 million (TRY4,833 million).

 

-Consumer segment revenues grew 16.2%on the back of rising postpaid subscriber share, increased data consumption and upsell efforts.

 

-Corporate segment revenues rose 28.8% driven mainly by the strong momentum of digital business solutions, which grew 42% year-on-year.

 

-Wholesale revenues rose 19.9% to TRY279 million (TRY233 million), mainly on increased international carrier traffic and the positive impact of currency movements.

 

Turkcell International revenues, comprising 8% of Group revenues, rose 31.7% to TRY560 million (TRY425 million), mainly with the contribution of our Ukrainian operations and the positive impact of currency movements.

 

Other subsidiaries’ revenues, at 5% of Group revenues, which includes call center revenues, revenues from financial services and energy business revenues were at TRY360 million (TRY417 million).

 

-Our consumer finance company’s revenues were at TRY163 million (TRY242 million) in Q120. Revenues were impacted by contraction in the consumer loan portfolio, which declined from TRY3.6 billion as of Q119 to TRY2.1 billion as of Q120, due mainly to the installment limitation on consumer loans for telecom devices.
   
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First Quarter 2020 Results

 

-Our contract with Spor Toto to carry out sports betting operations in Turkey ended as of August 28, 2019.

 

Excluding consumer finance business and sports betting operations, our consolidated revenue growth was 21% year-on-year in Q120.

 

Standalone digital services revenues grew 29% year-on-year in Q120 on the back of increasing number of standalone users and price adjustments.

 

Cost of revenue(excluding depreciation and amortization) declined to 48.0% (48.1%) as a percentage of revenues in Q120. The increase in radio expense (0.6pp) and cost of goods sold (0.4pp) was more than offset by the decline in cost of revenue of financial services (1.0pp) and other cost items (0.1pp) as a percentage of revenues.

 

Administrative Expensesdecreased to 2.8% (3.4%) as a percentage of revenues in Q120, driven mainly by effective cost management measures.

 

Selling and Marketing Expensesdecreased to 5.2% (7.1%) as a percentage of revenues in Q120. This was driven by the decline in selling expenses (0.9pp), marketing expenses (0.6pp), and other cost items (0.4pp) as a percentage of revenues.

 

Net impairment losses on financial and contract assetswas at 1.7% (1.2%) as a percentage of revenues in Q120.

 

EBITDA1rose by 23.1% year-on-year in Q120 leading to an EBITDA margin of 42.2% (40.2%), driven mainly by strong topline growth and disciplined cost controls.

 

-Turkcell Turkey’s EBITDA rose 26.9% year-on-year to TRY2,424 million (TRY1,910 million) leading to an EBITDA margin of 42.2% (39.5%) in Q120.

 

-Turkcell International EBITDA2 rose 29.0% year-on-year to TRY250 million (TRY194 million) with an EBITDA margin of 44.6% (45.6%) in Q120.

 

-The EBITDA of other subsidiaries stood at TRY135 million (TRY178 million) in Q120.

 

Depreciation and amortization expensesincreased 16.5% year-on-year in Q120.

 

Net finance expensedecreased to TRY221 million (TRY420 million) in Q120. This was due mainly to improving net FX impact registered after hedging in Q120, and lower interest expense on financial assets and liabilities, despite the lower interest income on time deposits. Excluding the impact of swap interest expense, we registered a TRY21 million FX gain in Q120.

 

Please note that the Group started to apply hedge accounting as of July 1, 2018 for existing participating cross currency swap and cross currency swap transactions, in accordance with the IFRS 9 hedge accounting requirement. Please see the IFRS report for details.

 

See Appendix A for the details of net foreign exchange gain and loss.

 

Income tax expenseincreased to TRY244 million (TRY160 million) in Q120,due mainly to a deferred tax expense incurred in Q120.

 

Net incomeof the Group was at TRY873 million (TRY1,224 million) in Q120. Excluding the Fintur transaction gain of TRY772 million recorded in Q119, net income rose 93% year-on-year in Q120. This was driven mainly by strong operating performance on the back of strong topline growth and effective cost management, as well as prudent financial risk management. Please also note that our net income was impacted by the TRY46 million payment we performed in relation to administrative fine imposed by the Competition Board. You may refer to our IFRS report for the details of the dispute with the Competition Board.

 

Total cash & debt:Consolidated cash as of March 31, 2020 had declined to TRY9,212 million from TRY10,239 million as of December 31, 2019, due mainly to debt repayments. Excluding FX swap transactions for TRY borrowing, 88% of our cash is in US$, 5% in EUR, and 7% in TRY.

 

Consolidated debt as of March 31, 2020 decreased to TRY19,500 million from TRY20,306 million as of December 31, 2019 on the back of debt repayments, despite the negative impact of currency movements. Please note that TRY1,482 million of our consolidated debt is comprised of lease obligations.

 

(1) EBITDA is a non-GAAP financial measure. See page 13 for the explanation of how we calculate adjusted EBITDA and its reconciliation to net income.

(2) We started to capitalize the frequency usage fees of BeST in Q219 in accordance with IFRS16. This change positively impacted Turkcell International EBITDA.

   
  7 

 

  

First Quarter 2020 Results

 

Consolidated debt breakdown excluding lease obligations:

 

-Turkcell Turkey’s debt was at TRY15,593 million, of which TRY8,946 million (US$1,373 million) was denominated in US$, TRY5,201 million (EUR721 million) in EUR, TRY220 million (CNY241 million) in CNY, and the remaining TRY1,226 million in TRY.

 

-Our consumer finance company had a debt balance of TRY1,494 million, of which TRY1,254 million (US$192 million) was denominated in US$, and TRY87 million (EUR12 million) in EUR with the remaining TRY154 million in TRY.

 

-The debt balance of lifecell was TRY929 million, fully denominated in UAH.

 

TRY766 million of lease obligations is denominated in TRY, TRY16 million (US$2 million) in US$, TRY152 million (EUR21 million) in EUR, and the remaining balance in other local currencies (please note that the figures in parentheses refer to US$ or EUR equivalents).

 

Net debt as of March 31, 2020 was at TRY10,288 million with a net debt to EBITDA ratio of 0.94 times. Excluding consumer finance company consumer loans, our telco only net debt was at TRY8,213 million with a leverage of 0.79 times.

 

Turkcell Group has a long FX position of US$114 million as per IFRS financial statements as of March 31, 2020.

 

Capital expenditures:Capital expenditures, including non-operational items, amounted to TRY1,560 million in Q120. In the same period operational capital expenditures (excluding license fees) at the Group level were at 12.6% of total revenues.

 

Capital expenditures (million TRY)Q119Q419Q120
     Operational Capex883.61,696.0836.7
     License and Related Costs0.70.128.1
     Non-operational Capex(Including IFRS15 & IFRS16)468.4749.2695.2
Total Capex1,352.62,445.41,560.0

 

 

 

 

 

   
  8 

 

  

First Quarter 2020 Results

 

Operational Review of Turkcell Turkey

 

Summary of Operational DataQ119Q419Q120y/y%q/q%
Number of subscribers(million)36.635.736.3(0.8%)1.7%
Mobile Postpaid(million)  18.720.421.012.3%2.9%
   Mobile M2M(million)2.42.62.712.5%3.8%
Mobile Prepaid(million)15.012.412.2(18.7%)(1.6%)
Fiber(thousand)1,411.11,484.71,518.47.6%2.3%
ADSL(thousand)861.7719.1695.6(19.3%)(3.3%)
Superbox(thousand)156.4323.2399.5608.3%23.6%
Cable(thousand)9.749.258.7505.2%19.3%
IPTV(thousand)632.0719.7747.318.2%3.8%
Churn (%)2     
Mobile Churn (%)31.9%4.5%2.0%0.1pp(2.5pp)
Fixed Churn (%)2.0%2.3%2.1%0.1pp(0.2pp)
ARPU(Average Monthly Revenue per User) (TRY)     
Mobile ARPU,blended35.742.843.020.4%0.5%
   Mobile ARPU,blended (excluding M2M)38.145.946.321.5%0.9%
Postpaid50.659.656.611.9%(5.0%)
   Postpaid(excluding M2M)57.467.764.211.8%(5.2%)
Prepaid17.218.819.915.7%5.9%
Fixed Residential ARPU,blended59.868.068.514.5%0.7%
   Residential Fiber ARPU62.870.471.213.4%1.1%
Average mobile data usage per user (GB/user)5.99.09.866.1%8.9%
Mobile MoU(Avg. Monthly Minutes of usage per subs) blended393.1431.4458.216.6%6.2%

(1) Superbox subscribers are included in mobile subscribers.

(2) Presentation of churn figures has been changed to demonstrate average monthly churn figures for the respective quarters.

(3) In Q117, our churn policy was revised to extend from 9 months to 12 months (the period at the end of which we disconnect prepaid subscribers who have not topped up above TRY10). Additionally, under our revised policy, prepaid customers who last topped up before March will be disconnected at the latest by year-end. As a regulatory requirement, we started to disconnect prepaid lines in accordance with new ICTA regulation, which requires deactivation of prepaid lines which lack residency documents by the 6th month of subscription.

 

We made a strong start to the year registering 614 thousand quarterly net additions to our subscriber base in Turkey. This robust performance confirms commitment to our 1 million subscriber additions target per year over the next three years.

 

Our mobile customer base rose to 33.3 million on 566 thousand quarterly net additions thanks to our micro segmented approach and regional focus, allowing us to provide customized offers. Our focus on growing postpaid subscriber base resulted in 679 thousand quarterly net additions. Accordingly, postpaid subscribers reached 63.2% (55.4%) of mobile subscriber base. In the meantime, our prepaid customers declined by 113 thousand during the quarter. We disconnected 289 thousand prepaid customers in accordance with the ICTA regulation requiring deactivation of prepaid lines lacking residency documents by the 6th month of subscription in Q120.

 

On the fixed front, we exceeded 1.5 million fiber subscribers on 34 thousand quarterly net additions. Superbox, our alternative offering to fiber in Turkey, reached 400 thousand subscribers on 76 thousand quarterly additions. The demand for Superbox ramped up particularly in the second half of March as people started to spend more time at home due to the COVID-19 pandemic. Our cable subscribers reached 59 thousand in Q120. And meanwhile, our IPTV customers rose to 747 thousand on 28 thousand quarterly net additions.

 

The average monthly mobile churn rate was at 2.0% in Q120. Excluding the impact of regulatory disconnections, the average monthly churn rate was 1.7% in Q120. The average monthly fixed churn rate stood at 2.1%.

 

We registered strong mobile ARPU (excluding M2M) growth of 21.5% year-on-year in Q120. This was driven by a rising postpaid subscriber base, as well as upsell efforts supported by increased data consumption.

 

We reported double-digit residential fiber ARPU growth of 13.4%, year-on-year in Q120, mainly on upsell efforts and the acquisition of higher revenue generating subscribers.

 

Average monthly mobile data usage per user reached 9.8 GB on a 66.1% year-on-year rise with increasing number and consumption of 4.5G users. Accordingly, average mobile data usage of 4.5G users reached 12.9 GB in March.

 

The number of 4.5G compatible smartphones on our network increased to 20.4 million on 1.2 million quarterly additions in Q120, comprising 89% of smartphones on our network. Total smartphone penetration reached 78%.

 

   
  9 

 

  

First Quarter 2020 Results

 

TURKCELL INTERNATIONAL

 

lifecell1 Financial DataQ119Q419Q120y/y%q/q%
Revenue(million UAH)1,415.51,557.91,580.111.6%1.4%
EBITDA(million UAH)815.5818.6798.2(2.1%)(2.5%)
EBITDA margin (%)57.6%52.5%50.5%(7.1pp)(2.0pp)
Net income / (loss)(million UAH)(267.2)(215.0)(150.9)(43.5%)(29.8%)
Capex(million UAH)357.8639.9635.377.6%(0.7%)
Revenue(million TRY)275.8369.4386.440.1%4.6%
EBITDA(million TRY)159.0194.2195.222.8%0.5%
EBITDA margin (%)57.7%52.6%50.5%(7.2pp)(2.1pp)
Net income / (loss)(million TRY)(52.1)(50.8)(37.0)(29.0%)(27.2%)

(1) Since July 10, 2015, we hold a 100% stake in lifecell.

 

lifecell (Ukraine)revenues rose 11.6% year-on-year in Q120 in local currency terms mainly on the back of increasing data consumption. EBITDA in local currency terms was UAH798.2 million, leading to an EBITDA margin of 50.5%.

 

lifecell revenues in TRY terms grew 40.1% year-on-year in Q120 positively impacted by currency movements, while EBITDA grew by 22.8% leading to an EBITDA margin of 50.5%.

 

 

lifecell Operational DataQ119Q419Q120y/y%q/q%
Number of subscribers(million)29.48.98.9(5.3%)-
    Active(3 months)36.97.47.58.7%1.4%
MOU(minutes) (12 months)141.4157.0162.815.1%3.7%
ARPU(Average Monthly Revenue per User), blended (UAH)49.058.359.220.8%1.5%
    Active(3 months) (UAH)66.773.369.54.2%(5.2%)

(2) We may occasionally offer campaigns and tariff schemes that have an active subscriber life differing from the one that we normally use to deactivate subscribers and calculate churn.

(3) Active subscribers are those who in the past three months made a revenue generating activity.

 

The three-month active subscriber base of lifecell reached 7.5 million on the back of attractive value propositions and customer retention focus. lifecell registered 3-month active ARPU of UAH69.5, driven mainly by increased data consumption.

 

lifecell continued to increase the penetration of 4.5G users within its customer base. 4.5G users reached 54% of total mobile data users by the end of Q120, driving increased data and digital services usage, as well as higher ARPU generation. Accordingly, average data consumption per user rose 64% year-on-year. Furthermore, lifecell acquired a new license, increasing its 900 MHz frequency band from 3.8 MHz to 5.6 MHz for UAH121 million. The new frequencies will be used to provide LTE services to rural regions, national and international highways. The respective license will be effective for five years as of July 1, 2020.

 

lifecell continued its focus on increasing digital services penetration within its customer base and enriching its digital product portfolio. As part these efforts, lifecell introduced its new lifestyle portal targeting its female subscribers in Q120.

 

As to the Covid-19 pandemic, quarantine rules are being applied in the country, which limits traffic to physical channels. While increased demand for data and voice services is observed, the market is prepaid subscriber dominated, and more vulnerable to limited mobility. Accordingly, lifecell is promoting its online sales channel to mitigate any potential risks to sales.

 

 

   
  10 

 

  

First Quarter 2020 Results

 

BeST1Q119Q419Q120y/y%q/q%
Number of subscribers(million)1.61.51.5(6.3%)-
    Active(3 months)1.21.11.0(16.7%)(9.1%)
Revenue (million BYN)31.933.932.51.9%(4.1%)
EBITDA (million BYN)7.47.48.413.5%13.5%
EBITDA margin (%)23.1%21.7%26.0%2.9pp4.3pp
Net loss (million BYN)(8.8)(8.0)(8.1)(8.0%)1.3%
Capex (million BYN)10.87.211.12.8%54.2%
Revenue (million TRY)79.593.889.112.1%(5.0%)
EBITDA (million TRY)18.420.323.125.5%13.8%
EBITDA margin (%)23.2%21.7%26.0%2.8pp4.3pp
Net loss (million TRY)(21.9)(22.1)(22.2)1.4%0.5%

 

(1) BeST, in which we hold an 80% stake, has operated in Belarus since July 2008.

 

BeST revenues grew 1.9% year-on-year in Q120 in local currency terms mainly on the back of rising data consumption and digital services usage. BeST’s EBITDA was at BYN8.4 million in Q120 with an EBITDA margin of 26.0%. BeST’s revenues in TRY terms rose 12.1% year-on-year in Q120, while the EBITDA margin stood at 26.0%.

 

BeST continued to increase the penetration of 4G users within its customer base. Accordingly, 4G users reached 58% of 3-month active users, driving further data and digital services usage. In Q120 the average monthly data consumption of subscribers rose 49% on the higher data consumption of 4G users. BeST continued its efforts to promote its digital services in Q120, as digital services usage leads to higher loyalty and increased ARPU generation. Music, Games, and TV+ were the main drivers of digital service revenues growth in Q120.

 

With regards to COVID-19, while there is no official quarantine in Belarus, the public is refraining from mobility, leading to lower traffic to stores. As the market is dominantly prepaid and more vulnerable to limited mobility, BeST encourages its online channels via several campaigns to mitigate the potential impact on sales.

 

Kuzey Kıbrıs Turkcell2 (million TRY)Q119Q419Q120y/y%q/q%
Number of subscribers(million)0.60.50.5(16.7%)-
Revenue47.967.154.513.8%(18.8%)
EBITDA16.721.220.321.6%(4.2%)
EBITDA margin (%)34.9%31.6%37.3%2.4pp5.7pp
Net income7.612.46.9(9.2%)(44.4%)
Capex10.623.916.353.8%(31.8%)

 

(2) Kuzey Kıbrıs Turkcell, in which we hold a 100% stake, has operated in Northern Cyprus since 1999

 

Kuzey Kıbrıs Turkcell revenues grew 13.8% year-on-year in Q120, driven mainly by increased data consumption. The EBITDA of Kuzey Kıbrıs Turkcell rose 21.6% year-on-year on the back of more profitable service revenues leading to an EBITDA margin of 37.3%.

 

The potential impact of COVID-19 on Kuzey Kıbrıs Turkcell operations mainly relates to declining student offerings, handset sales and roaming revenues.

 

Fintur: In accordance with our strategic approach and IFRS requirements, Fintur is classified as ‘held for sale’ and reported as discontinued operations as of October 2016.

 

On December 12, 2018, Turkcell signed a binding agreement, and on April 2, 2019 completed the transfer of its shares in Fintur to Sonera Holding B.V., the majority shareholder of Fintur. The final value of the transaction was EUR352.9 million. As the conditions precedent required for the share transfer were completed within Q119, TRY772 million profit generated from the transaction was reflected in the Q119 financial statements.

 

We booked a provision of TRY60 million in Q219 for the recognition of liability in relation to the Kcell Share Purchase Agreement regarding the past Kcell transaction, and made the respective payment in Q319.

   
  11 

 

  

First Quarter 2020 Results

 

Turkcell Group Subscribers

 

Turkcell Group subscribers amounted to approximately 47.3 million as of March 31, 2020. This figure is calculated by taking the number of subscribers of Turkcell Turkey, and of each of our subsidiaries. It includes the total number of mobile, fiber, ADSL, cable and IPTV subscribers of Turkcell Turkey, and the mobile subscribers of lifecell and BeST, as well as those of Kuzey Kıbrıs Turkcell, and lifecell Europe.

 

 

Turkcell Group SubscribersQ119Q419Q120y/y%q/q%
Mobile Postpaid(million)  18.720.421.012.3%2.9%
Mobile Prepaid(million)15.012.412.2(18.7%)(1.6%)
Fiber(thousand)1,411.11,484.71,518.47.6%2.3%
ADSL(thousand)861.7719.1695.6(19.3%)(3.3%)
Superbox(thousand)156.4323.2399.5608.3%23.6%
Cable(thousand)9.749.258.7505.2%19.3%
IPTV(thousand)632.0719.7747.318.2%3.8%
Turkcell Turkey subscribers(million)236.635.736.3(0.8%)1.7%
lifecell (Ukraine)9.48.98.9(5.3%)-
BeST (Belarus)1.61.51.5(6.3%)-
Kuzey Kıbrıs Turkcell 0.60.50.5(16.7%)-
lifecell Europe30.20.20.2--
Turkcell Group Subscribers (million)48.446.747.3(2.3%)1.3%

(1) Superbox subscribers are included in mobile subscribers.

(2) Subscribers to more than one service are counted separately for each service.

(3) The marketing partnership between Turkcell Europe and Telekom Deutschland Multibrand GmbH, the subsidiary of Deutsche Telekom, will end on April 30, 2020 pursuant to the respective agreement. Turkcell Europe was rebranded as lifecell Europe on January 15, 2018.

 

 

 

 

   
  12 

 

  

First Quarter 2020 Results

 

OVERVIEW OF THE MACROECONOMIC ENVIRONMENT

 

The foreign exchange rates used in our financial reporting, along with certain macroeconomic indicators, are set out below.

 

 Q119Q419Q120y/y%q/q%
GDP Growth (Turkey)(2.3%)6.0%n.an.an.a
Consumer Price Index (Turkey) (yoy)19.7%11.8%11.9%(7.8pp)0.1pp
US$ / TRY rate     
   Closing Rate5.62845.94026.516015.8%9.7%
   Average Rate5.33785.75886.141915.1%6.7%
EUR / TRY rate     
   Closing Rate6.31886.65067.215014.2%8.5%
   Average Rate6.07776.37066.790111.7%6.6%
US$ / UAH rate     
   Closing Rate27.2523.6928.063.0%18.4%
   Average Rate27.4124.3125.12(8.4%)3.3%
US$ / BYN rate     
   Closing Rate2.12852.10362.602322.3%23.7%
   Average Rate2.14702.08402.24334.5%7.6%

 

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS:We believe 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. 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 of tangible assets (affecting relative depreciation expense). We also present Adjusted EBITDA because we believe it 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.

 

Our Adjusted EBITDA definition includes Revenue, Cost of Revenue excluding depreciation and amortization, Selling and Marketing expenses, Administrative expenses and Net impairment losses on financial and contract assets, but excludes translation gain/(loss), finance income, finance expense, share of profit of equity accounted investees, gain on sale of investments, minority interest and other income/(expense).

 

Nevertheless, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of our results of operations, as reported under IFRS. The following table provides a reconciliation of Adjusted EBITDA, as calculated using financial data prepared in accordance with IFRS as issued by the IASB, to net profit, which we believe is the most directly comparable financial measure calculated and presented in accordance with IFRS as issued by the IASB.

 

Turkcell Group (million TRY)Q119Q419Q120y/y%q/q%
Adjusted EBITDA2,281.12,753.82,809.023.1%2.0%
Depreciation and amortization(1,178.1)(1,404.9)(1,372.1)16.5%(2.3%)
EBIT1,103.01,348.91,437.030.3%6.5%
Finance income535.144.9621.516.1%n.m
Finance costs(955.5)(259.2)(842.9)(11.8%)225.2%
Other income / (expense)(51.8)(128.2)(94.0)81.5%(26.7%)
Share of profit of equity accounted investees0.8(19.1)(3.2)(500.0%)(83.2%)
Consolidated profit from continued operations before income tax & minority interest631.6987.31,118.377.1%13.3%
Income tax expense(159.8)(233.7)(244.4)52.9%4.6%
Consolidated profit from continued operations before minority interest471.8753.6873.985.2%16.0%
Discontinued operations772.4--n.an.a
Consolidated profit before minority interest1,244.3753.6873.9(29.8%)16.0%

   
  13 

 

  

First Quarter 2020 Results

 

NOTICE:This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. This includes, in particular, our targets for revenue, EBITDA, EBIT and capex for 2020. More generally, all statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding the launch of new businesses, 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, among others, “will,” “expect,” “intend,” “estimate,” “believe”, “continue” and “guidance”.

Although Turkcell believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to be correct. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. For a discussion of certain factors that may affect the outcome of such forward looking statements, see our Annual Report on Form 20-F for 2019 filed with the U.S. Securities and Exchange Commission, and in particular the risk factor section therein. We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The Company makes no representation as to the accuracy or completeness of the information contained in this press release, which remains subject to verification, completion and change. No responsibility or liability is or will be accepted by the Company or any of its subsidiaries, board members, officers, employees or agents as to or in relation to the accuracy or completeness of the information contained in this press release or any other written or oral information made available to any interested party or its advisers.

 

ABOUT TURKCELL:Turkcell is a digital operator headquartered in Turkey, serving its customers with its unique portfolio of digital services along with voice, messaging, data and IPTV services on its mobile and fixed networks. Turkcell Group companies operate in 5 countries – Turkey, Ukraine, Belarus, Northern Cyprus, Germany. Turkcell launched LTE services in its home country on April 1st, 2016, employing LTE-Advanced and 3 carrier aggregation technologies in 81 cities. Turkcell offers up to 10 Gbps fiber internet speed with its FTTH services. Turkcell Group reported TRY6.7 billion revenue in Q120 with total assets of TRY45.3 billion as of March 31, 2020. It has been listed on the NYSE and the BIST since July 2000, and is the only NYSE-listed company in Turkey. Read more at www.turkcell.com.tr.

 

For further information please contact Turkcell

 

Investor Relations

Tel: + 90 212 313 1888

investor.relations@turkcell.com.tr

Corporate Communications:

Tel: + 90 212 313 2321

Turkcell-Kurumsal-Iletisim@turkcell.com.tr

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   
  14 

 

  

First Quarter 2020 Results

 

Appendix A – Tables

 

Table: Net foreign exchange gain and loss details

 

Million TRYQ119Q419Q120y/y%q/q%
Turkcell Turkey(558.5)(338.5)(538.9)(3.5%)59.2%
Turkcell International(25.8)(15.3)(31.3)21.3%104.6%
Other Subsidiaries(128.1)(78.6)(118.1)(7.8%)50.3%
Net FX loss before hedging(712.5)(432.4)(688.3)(3.4%)59.2%
Swap interest income/(expense)1(166.3)(144.7)(121.9)(26.7%)(15.8%)
Fair value gain on derivative financial instruments1618.6450.1709.114.6%57.5%
Net FX gain / (loss) after hedging(260.2)(127.0)(101.1)(61.1%)(20.4%)

(1) Swap interest income / (expense) which was included in fair value gain on derivative financial instruments line in previous quarters has been presented separately.

 

Table: Income tax expense details

 

Million TRYQ119Q419Q120y/y%q/q%
Current tax expense(153.8)(62.5)(161.5)5.0%158.4%
Deferred tax income / (expense)(6.0)(171.2)(82.8)n.m(51.6%)
Income Tax expense(159.8)(233.7)(244.4)52.9%4.6%

 

 

 

 

 

 

 

 

   
  15 

 

TURKCELL ILETISIM HIZMETLERI AS

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

As at 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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 March 2020 31 December 2019
Assets      
Property, plant and equipment  9   12,354,069   12,458,491 
Right-of-use assets  11   1,768,537   1,783,096 
Intangible assets  10   11,364,040   11,308,062 
Investment properties      12,926   16,283 
Trade receivables      177,719   148,159 
Receivables from financial services      80,267   123,136 
Contract assets      9,620   10,291 
Deferred tax assets      173,400   189,342 
Investments in equity accounted investees      77,403   41,701 
Other non-current assets      274,964   304,270 
Total non-current assets      26,292,945   26,382,831 
             
Inventories      255,838   178,399 
Trade receivables      3,505,285   3,133,975 
Due from related parties      2,236   4,477 
Receivables from financial services      2,021,951   2,319,122 
Contract assets      905,558   933,969 
Derivative financial instruments  15   928,602   845,513 
Financial asset at amortized cost      76,679   5,368 
Financial asset at fair value through other comprehensive income  12   613,578   345,602 
Cash and cash equivalents      9,212,165   10,238,715 
Other current assets      1,513,859   1,327,004 
Total current assets      19,035,751   19,332,144 
             
Total assets      45,328,696   45,714,975 
             
             
Equity            
Share capital      2,200,000   2,200,000 
Share premium      269   269 
Treasury shares      (154,146)  (144,152)
Additional paid-in capital      35,026   35,026 
Reserves      2,697,367   2,816,359 
Remeasurements of employee termination benefit      (63,539)  (63,539)
Retained earnings      13,957,830   13,202,526 
Total equity attributable to equity holders of
Turkcell Iletisim Hizmetleri AS (“the Company”)
      18,672,807   18,046,489 

 

Non-controlling interests

      4,786   36,455 
             
Total equity      18,677,593   18,082,944 

 

The above condensed consolidated interim statement of financial position should be read in conjunction with the accompanying notes.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION

As at 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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 March 2020 31 December 2019
Liabilities      
Borrowings  14   13,964,561   12,677,394 
Employee benefit obligations      312,169   294,331 
Provisions      329,696   337,404 
Deferred tax liabilities      1,071,522   1,165,630 
Contract liabilities      166,673   141,890 
Other non-current liabilities      357,346   359,857 
Total non-current liabilities      16,201,967   14,976,506 
             
Borrowings  14   5,535,336   7,628,333 
Current tax liabilities      129,329   121,258 
Trade and other payables      4,130,236   4,117,471 
Due to related parties      5,327   12,082 
Deferred revenue      58,724   56,544 
Provisions      136,175   342,812 
Contract liabilities      296,503   290,408 
Derivative financial instruments  15   157,506   86,617 
Total current liabilities      10,449,136   12,655,525 
             
Total liabilities      26,651,103   27,632,031 
             
Total equity and liabilities      45,328,696   45,714,975 

 

 

 

 

 

The above condensed consolidated interim statement of financial position should be read in conjunction with the accompanying notes.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS

For the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

    

 

Three months ended
31 March

  Note  2020   2019 
       
Revenue  8   6,438,517   5,380,040 
Revenue from financial services  8   219,680   295,319 
Total revenue      6,658,197   5,675,359 
             
Cost of revenue      (4,534,266)  (3,822,042)
Cost of revenue from financial services      (35,200)  (86,255)
Total cost of revenue      (4,569,466)  (3,908,297)
             
Gross profit      1,904,251   1,557,998 
Gross profit from financial services      184,480   209,064 
Total gross profit      2,088,731   1,767,062 
             
Other income      32,861   26,662 
Selling and marketing expenses      (348,697)  (403,153)
Administrative expenses      (188,286)  (190,569)
Net impairment losses on financial and contract assets      (114,767)  (70,335)
Other expenses      (126,883)  (78,481)
Operating profit      1,342,959   1,051,186 
             
Finance income  6   621,509   535,098 
Finance costs  6   (842,913)  (955,478)
Net finance costs      (221,404)  (420,380)
             
Share of profit of equity accounted investees      (3,248)  787 
Profit before income tax      1,118,307   631,593 
             
Income tax expense  7   (244,393)  (159,774)
Profit from continuing operations      873,914   471,819 
             
Profit from discontinued operations (attributable to owners of the Company)  19   —     772,436 
             
Profit for the year      873,914   1,244,255 
             
Profit for the year is attributable to:            
Owners of the Company      872,722   1,224,451 
Non-controlling interests      1,192   19,804 
Total      873,914   1,244,255 
             
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL)      0.40   0.56 
Basic and diluted earnings per share for profit from continuing operations attributable to owners of the Company (in full TL)      0.40   0.21 
Basic and diluted earnings per share for profit /(loss) from discontinued operations attributable to owners of the Company (in full TL)      —     0.35 
             

 

The above condensed consolidated interim statement of profit or loss should be read in conjunction with the accompanying notes.

  

 

 

TURKCELL ILETISIM HIZMETLERI AS

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER COMPREHENSIVE INCOME

For the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

  

 

Three months ended
31 March

   2020   2019 
     
Profit for the year  873,914   1,244,255 
         
Other comprehensive income/(expense):        
Items that may be reclassified to profit or loss:        
Exchange differences on translation of foreign operations  (76,878)  145,214 
Exchange differences arising from discontinued operations  —     104,986 
Fair value reserve  (6,568)  (979)
Cash flow hedges-effective portion of changes in fair value  420,282   271,667 
Cash flow hedges- reclassified to profit or loss  (443,546)  (221,367)
Cost of hedging reserve- changes in fair value  (263,277)  (124,838)
Cost of hedging reserve- reclassified to profit or loss  50,389   39,344 
Loss on hedges of net investments in foreign operations  (89,318)  —   
Income tax relating to these items  172,501   (31,424)
-Income tax relating to exchange differences  99,452   (39,167)
-Income tax relating to fair value reserve  1,445   —   
-Income tax relating to hedges of net investments  19,650   —   
-Income tax relating to cash flow hedges  5,118   (11,066)
- Income tax relating to cost of hedging reserve  46,836   18,809 
Other comprehensive income/(loss) for the  year, net of income tax  (236,415)  182,603 
Total comprehensive income for the year  637,499   1,426,858 
         
Total comprehensive income for the year is attributable to:        
Owners of the Company  636,312   1,407,788 
Non-controlling interests  1,187   19,070 
Total  637,499   1,426,858 
         
Total comprehensive income for the year attributable to owners of the Company arises from:        
Continuing operations  636,312   530,366 
Discontinued operations  —     877,422 
Total  636,312   1,407,788 

 

The above condensed consolidated interim statement of comprehensive income should be read in conjunction with the accompanying notes.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY

For the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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 (*) Foreign currency translation reserve (*) Remeasurements of employee
termination benefit
 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)  1,333,995   (34,871)  11,359,317   15,921,744   131,810   16,053,554 
Profit for the period  —     —     —     —     —     —     —     —     —     —     —     —     1,224,451   1,224,451   19,804   1,244,255 
Other comprehensive income, net of income tax  —     —     —     —     —     (979)  —     39,234   (66,685)  (66,675)  278,442   —     —     183,337   (734)  182,603 
Total comprehensive income/(loss)  —     —     —     —     —     (979)  —     39,234   (66,685)  (66,675)  278,442   —     1,224,451   1,407,788   19,070   1,426,858 
Acquisition of treasury shares (-)  —     (9,998)  —     —     —     —     —     —     —     —     —     —     —     (9,998)  —     (9,998)
Sale of investment  —     —     —     —     —     —     —     —     —     876,867   (1,388,905)  —     143,905   (368,133)  —     (368,133)
Balance at 31 March 2019  2,200,000   (151,532)  35,026   269   2,235,922   (979)  —     54,176   (337,815)  —     223,532   (34,871)  12,727,673   16,951,401   150,880   17,102,281 
                                                                 
                                                                 
Balance at 1 January 2020  2,200,000   (144,152)  35,026   269   2,773,105   3,472   (43,203)  (155,002)  (212,159)  —     450,146   (63,539)  13,202,526   18,046,489   36,455   18,082,944 
Profit for the period  —     —     —     —     —     —     —     —     —     —     —     —     872,722   872,722   1,192   873,914 
Other comprehensive income, net of income tax  —     —     —     —     —     (5,123)  (69,668)  (18,146)  (166,052)  —     22,579   —     —     (236,410)  (5)  (236,415)
Total comprehensive income/(loss)  —     —     —     —     —     (5,123)  (69,668)  (18,146)  (166,052)  —     22,579   —     872,722   636,312   1,187   637,499 
Transfer to legal reserves  —     —     —     —     117,418   —     —     —     —     —     —     —     (117,418)  —     —     —   
Acquisition of treasury shares (-)  —     (9,994)  —     —     —     —     —     —     —     —     —     —     —     (9,994)  —     (9,994)
Dividend paid (Note 13)  —     —     —     —     —     —     —     —     —     —     —     —     —     —     (32,856)  (32,856)
Balance at 31 March 2020  2,200,000   (154,146)  35,026   269   2,890,523   (1,651)  (112,871)  (173,148)  (378,211)  —     472,725   (63,539)  13,957,830   18,672,807   4,786   18,677,593 

 

(*) Included in Reserves in the condensed consolidated interim statement of financial position.

 

 

 

The above condensed consolidated interim statement of changes in equity should be read in conjunction with the accompanying notes.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS

For the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

     
    

Three months ended

31 March

  Note  2020   2019 
Cash flows from operating activities:            
Profit before income tax from            
Continuing operations      873,914   471,819 
Discontinued operations      —     772,436 
Profit before income tax including discontinued operations      873,914   1,244,255 
             
Adjustments for:            
Depreciation and impairment of property, plant and equipment and investment properties  9   537,997   519,797 
Amortization of intangible assets and right of use assets  10,11   834,053   658,300 
Net finance (income)/expense      253,669   398,807 
Fair value adjustments to derivatives  15   (709,059)  (618,583)
Income tax expense      244,393   159,774 
Gain on sale of property, plant and equipment      (15,738)  (9,266)
Unrealized foreign exchange losses on operating assets      1,255,213   771,395 
Provisions      245,324   160,283 
Share of equity accounted investees      3,248   (787)
Adjustments to losses (earnings) due to disposal of assets held for sale or to associates  19   —     (772,436)
Non-cash other adjustments      (3,567)  —   
       3,519,447   2,511,539 
Change in operating assets/liabilities            
Change in trade receivables      (456,910)  185,831 
Change in due from related parties      2,600   9,597 
Change in receivables from financial services      318,910   535,692 
Change in inventories      (77,439)  (55,301)
Change in other current assets      (183,855)  (926,799)
Change in other non-current assets      (1,192)  (4,359)
Change in due to related parties      (7,201)  (2,149)
Change in trade and other payables      (105,368)  (447,903)
Change in other non-current liabilities      (547)  (26,033)
Change in employee benefit obligations      (6,980)  (6,561)
Change in deferred revenue      6,291   49,054 
Change in short term contract asset      28,381   154,492 
Change in long term contract asset      671   (1,075)
Change in short term contract liability      6,095   35,900 
Change in long term contract liability      24,783   (8,356)
Changes in other working capital      (315,866)  (270,265)
Cash generated from operations      2,751,820   1,733,304 
             
Interest paid      (149,437)  (605,625)
Income tax paid      (133,627)  (137,257)
Net cash inflow from operating activities      2,468,756   990,422 

 

Cash flows from investing activities:

            
Acquisition of property, plant and equipment  9   (473,056)  (515,623)
Acquisition of intangible assets  10   (774,004)  (607,238)
Proceeds from sale of property, plant and equipment      27,466   16,034 
Proceeds from advances given for acquisition of property, plant and equipment      32,118   (524,508)
Contribution of increase of share capital in joint ventures/associates      (38,950)  (10,286)
Cash inflows from sale of shares or borrowing instruments of other enterprises or funds      2,111   30,335 
Cash outflows from sale of shares or borrowing instruments of other enterprises or funds      (219,735)  (124,602)
Payments for financial assets at amortized cost      (72,996)  —   
Interest received      101,545   167,343 
Net cash outflow from investing activities      (1,415,501)  (1,568,545)
             
Cash flows from financing activities:            
Proceeds from derivative instruments      546,914   114,709 
Repayments of derivative instruments      (239,269)  (19,910)
Proceeds from issues of loans and borrowings      11,044,824   8,163,348 
Proceeds from issues of bonds      175,000   100,000 
Repayment of borrowings      (13,287,568)  (6,297,565)
Repayment of bonds      (180,878)  (125,794)
Dividends paid to non-controlling interest      (32,856)  —   
(Increase)/decrease in cash collateral related to loans      —     11,078 
Payments of lease liabilities      (375,050)  (269,567)
Acquisition of treasury shares      (9,994)  (9,998)
Net cash (outflow)/inflow from financing activities      (2,358,877)  1,666,301 
             
Net (decrease)/increase in cash and cash equivalents      (1,305,622)  1,088,178 
             
Cash and cash equivalents at 1 January      10,238,715   7,419,239 
             
Effects of exchange rate changes on cash and cash equivalents      279,072   380,834 
             
Cash and cash equivalents at 31 March      9,212,165   8,888,251 
             

 

The above condensed consolidated interim statement of cash flows should be read in conjunction with the accompanying notes.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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 condensed consolidated interim financial statements
Page
1. Reporting entity8
2. Basis of preparation8
3. Significant accounting policies9
4. Segment information10
5. Seasonality of operations12
6. Finance income and costs13
7. Income tax expense13
8. Revenue14
9. Property, plant and equipment16
10. Intangible assets17
11. Right of use assets18
12. Financial assets19
13. Equity20
14. Loans and borrowings20
15. Derivative financial instruments23
16. Financial instruments30
17. Guarantees and purchase obligations36
18. Commitments and contingencies36
19. Related parties37
20. Subsidiaries39
21. Subsequent events40

 

 

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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” or “Turkcell”) was incorporated in Turkey on 5 October 1993 and commenced its operations in 1994. The address of the Company’s registered office is Maltepe Aydinevler Mahallesi Inonu Caddesi No: 20, Kucukyali Ofispark / Istanbul. The Company operates under a 25-year GSM license granted in and effective from April 1998, a 20-year 3G license granted in and effective from April 2009 and a 13-year 4.5G license granted in August 2016 and effective from April 2016. The Company’s shares are listed on Borsa Istanbul A.Ş. (“BIST”) and New York Stock Exchange (“NYSE”).

The condensed consolidated interim financial statements of the Company as at and for the three months ended 31 March 2020 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in an associate.

These condensed consolidated interim financial statements were approved for issue on 28 April 2020.

The Company’s parent is Turkcell Holding A.S., which holds 51% of the Company’s shares as of 31 March 2020. The main shareholders of Turkcell Holding A.S. are Telia Finland Oy (“Telia”), Cukurova Group and Alfa Telecom Turkey Limited (“Alfa”) according to the information obtained from public sources.

In order to ensure compliance with corporate governance principles of the Capital Markets Board (“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 3 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 3 years in 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. 3 new independent board members were appointed in lieu of existing 3 independent board members in Board of Directors with the CMB decision dated 5 March 2020. The Company’s Board of Directors consists of a total of seven non-executive members including three independent members as of 31 March 2020.

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. Management consider s that there is no material effect on the Group’s financial statements after evaluating the potential impact of this pandemic on the non-current assets. Financial assets are separately evaluated for any possible impairment regarding COVID-19 and reflected in the financial statements accordingly. Management will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

2.Basis of preparation

These condensed consolidated interim financial statements for the three months ended 31 March 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting.

These condensed consolidated interim financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual financial statements for the period ended 31 December 2019 and any public announcements made by the Company during the interim reporting period.

The accounting policies, presentation and methods of computation are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new accounting policies for transactions occurred during the three months ended 31 March 2020 as set out in Note 3 and also the reclassifications mentioned in the following paragraphs.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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 (continued)

As at 31 March 2020, interest income and expense on financial assets measured at amortized cost are shown netted of on consolidated statement of profit or loss (Note 6). The Company has presented financials of
31 March 2019 accordingly which amounted to TL 47,931.

As at 31 March 2019 revenue and cost of revenue from Turkcell Odeme Hizmetleri A.S. (“Turkcell Odeme”) has been classified under financial services which amounted to TL 53,431 and TL (7,687) respectively, and trade receivables from Turkcell Odeme has been classified under receivables from financial services which amounted to TL 37,396. This classification has no impact on operating profit, profit for the year and cash flow statement.

As at 31 March 2019, prepaid expenses related to frequency usage fee amounted to TL 354,769 has been classified under trade receivables from other current assets.

3.Significant changes in accounting policies

New standards and interpretations

i)Standards, amendments and interpretations applicable as at 31 March 2020
-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 of financial statements’, and IAS 8, ‘Accounting policies, changes in accounting estimates and errors’, and consequential amendments to other IFRSs:
·use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting;
·clarify the explanation of the definition of material; and
·incorporate some of the guidance in IAS 1 about immaterial information.
-Amendments to IFRS 3 - definition of a business;effective from Annual periods beginning on or after 1 January 2020. This amendment revises the definition of a business. According to feedback received by the IASB, application of the current guidance is commonly thought to be too complex, and it results in too many transactions qualifying as business combinations.
ii)Standards, amendments and interpretations that are issued but not effective as at 31 March 2020:
-IFRS 17, ‘Insurance contracts’;effective from annual periods beginning on or after 1 January 2022. 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 entities that issue insurance contracts and investment contracts with discretionary participation features.
-Amendments to IAS 1, ‘Presentation of financial statements’ on classification of liabilities;effective from 1 January 2022. These narrow-scope amendments to IAS 1, ‘Presentation of financial statements’, clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date (for example, the receipt of a waiver or a breach of covenant). The amendment also clarifies what IAS 1 means when it refers to the ‘settlement’ of a liability.

The Company does not expect material impact of new standards and interpretations on Company’s accounting policies.

  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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

In accordance with its integrated communication and technology services strategy, Group has reportable segments which are 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 Manager and other directors.

Turkcell Turkey reportable segment includes the operations of Turkcell, Turkcell Superonline Iletisim Hizmetleri A.S. (“Turkcell Superonline”), Turkcell Satis ve Dijital Is Servisleri Hizmetleri A.S. (“Turkcell Satis”), group call center operations of Global Bilgi Pazarlama Danismanlık ve Cagri Servisi Hizmetleri A.S. (“Turkcell Global Bilgi”), Turktell Bilisim Servisleri A.S. (“Turktell”), Turkcell Teknoloji Arastirma ve Gelistirme A.S. (“Turkcell Teknoloji”), Kule Hizmet ve Isletmecilik A.S. (“Global Tower”), Rehberlik Hizmetleri Servisi A.S. (“Rehberlik”), Turkcell Gayrimenkul Hizmetleri A.S. (“Turkcell Gayrimenkul”) and Lifecell Dijital Servisler ve Cozumler A.S. (“Lifecell Dijital Servisler”). Turkcell International reportable segment includes the operations of Kibris Mobile Telekomunikasyon Limited Sirketi (“Kibris Telekom”), East Asian Consortium B.V. (“Eastasia”), Lifecell LLC (“lifecell”), Lifecell Ventures Coöperatief U.A (“Lifecell Ventures”), Beltel Telekomunikasyon Hizmetleri A.S. (“Beltel”), CJSC Belarusian Telecommunications Network (“Belarusian Telecom”), LLC UkrTower (“UkrTower”), LLC Global Bilgi (“Global LLC”), Turkcell Europe GmbH (“Turkcell Europe”), Lifetech LLC (“Lifetech”), Beltower LLC (“Beltower”) and Lifecell Digital Limited (“Lifecell 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. Other reportable segment mainly comprises the information and entertainment services in Turkey and Azerbaijan, non-group call center operations of Turkcell Global Bilgi, Turkcell Finansman A.Ş.(“ Turkcell Finansman”), Turkcell Odeme, Turkcell Özel Finansman A.Ş. (“TÖFAŞ”), Turkcell Enerji Cozumleri ve Elektrik Satıs Ticaret A.S (“Turkcell Enerji”) Paycell LLC (“Paycell”), Turkcell Sigorta Aracılık Hizmetleri A.Ş (“Turkcell Sigorta”), Türkiye’nin Otomobili Girişim Grubu Sanayi ve Ticaret A.Ş.(“Türkiye’nin Otomobili”) and Sofra Kurumsal ve Ödüllendirme Hizmetleri A.Ş.(“Sofra”).

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.

 10  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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  5,738,460   4,833,274   559,569   424,794   514,674   546,919   (154,506)  (129,628)  6,658,197   5,675,359 
Inter-segment revenue  (19,245)  (16,403)  (21,159)  (18,917)  (114,102)  (94,308)  154,506   129,628   —     —   
Revenues from external customers  5,719,215   4,816,871   538,410   405,877   400,572   452,611   —     —     6,658,197   5,675,359 
Adjusted EBITDA  2,424,236   1,909,823   249,845   193,551   140,430   190,656   (5,480)  (12,928)  2,809,031   2,281,102 
                                         
                                         

 

 

 11  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim 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 
     
Profit for the period  873,914   1,244,255 

 

Add(Less):

        
 Profit/(loss) from discontinued operations
  —     (772,436)
Profit from continuing operations  873,914   471,819 
Income tax expense  244,393   159,774 
Finance income  (621,509)  (535,098)
Finance costs  842,913   955,478 
Other income  (32,861)  (26,662)
Other expenses  126,883   78,481 
Depreciation and amortization  1,372,050   1,178,097 
Share of loss of equity accounted investees  3,248   (787)
Consolidated adjusted EBITDA  2,809,031   2,281,102 

 

5.Seasonality of operations

The Turkish mobile communications market is affected by seasonal peaks and troughs. Historically, the effects of seasonality on mobile communications usage had positively influenced the Company’s results in the second and third quarters of the fiscal year and negatively influenced the results in the first and fourth quarters of the fiscal year. Recently, however, due to changing market dynamics, such as the Information Technologies and Communications Authority(“ICTA”)’s intervention in tariffs and increasing competition in the Turkish telecommunications market, the effects of seasonality on the Company’s subscribers’ mobile communications usage has decreased. National and religious holidays in Turkey also affect the Company’s operational results.

 12  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

6.Finance income and costs
   2020   2019 
Net fair value gains on derivative financial instruments and interest  193,976   270,290 
Cash flow hedges – reclassified to profit or loss  393,157   182,023 
Interest income  31,282   79,124 
Other  3,094   3,661 
Finance income  621,509   535,098 
         
Net foreign exchange losses  (688,278)  (712,507)
Net interest expenses for financial assets and liabilities
measured at amortized cost
  (149,413)  (238,491)
Other  (5,222)  (4,480)
Finance costs  (842,913)  (955,478)
Net finance costs  (221,404)  (420,380)

 

7.Income tax expense

Income tax expense is recognized based on management’s estimate of the weighted average effective annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the three months ended 31 March 2020 is 22%, compared to 11% for the three months ended 31 March 2019. The increase in the effective tax rate is mainly due to the gains arising from the sale of the shares of Fintur in 2019 were exempt from the corporate tax in accordance with the Article 10/13-h of the Law no. 7143.

 13  

 

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

8.Revenue

  31 March 2020
  Turkcell Turkey Turkcell International Other Intersegment eliminations Consolidated
   2020   2019   2020   2019   2020   2019   2020   2019   2020   2019 
Telecommunication services  5,077,689   4,320,157   510,352   380,176   —     —     (12,223)  (12,678)  5,575,818   4,687,655 
Equipment revenues  607,650   485,979   23,926   20,620   —     —     —     —     631,576   506,599 
Revenue from financial services  —     —     —     —     219,800   295,598   (120)  (279)  219,680   295,319 
Call center revenues  6,584   5,733   7,318   2,852   96,862   54,311   (10,780)  (5,738)  99,984   57,158 
Commission fees on betting business  —     —     —     —     —     56,629   —     —     —     56,629 
Other  46,537   21,405   17,973   21,146   198,012   140,381   (131,383)  (110,933)  131,139   71,999 
Total  5,738,460   4,833,274   559,569   424,794   514,674   546,919   (154,506)  (129,628)  6,658,197   5,675,359 
                                         

 

 

 14  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

8.Revenue (continued)

 

  31 March 2020
  Turkcell Turkey Turkcell International Other Intersegment eliminations Consolidated
Telecommunication Services  5,077,689   510,352   —     (12,223)  5,575,818 
At a point in time  71,942   2,754   —     —     74,696 
Over time  5,005,747   507,598   —     (12,223)  5,501,122 
Equipment Related  607,650   23,926   —     —     631,576 
At a point in time  589,448   23,926   —     —     613,374 
Over time  18,202   —     —     —     18,202 
Call Center  6,584   7,318   96,862   (10,780)  99,984 
At a point in time  —     —     —     —     —   
Over time  6,584   7,318   96,862   (10,780)  99,984 
Revenue from financial operations  —     —     219,800   (120)  219,680 
At a point in time  —     —     49,941   (120)  49,821 
Over time  —     —     169,859   —     169,859 
All other segments  46,537   17,973   198,012   (131,383)  131,139 
At a point in time  12,881   1,862   68   —     14,811 
Over time  33,656   16,111   197,944   (131,383)  116,328 
Total  5,738,460   559,569   514,674   (154,506)  6,658,197 
At a point in time  674,271   28,542   50,009   (120)  752,702 
Over time  5,064,189   531,027   464,665   (154,386)  5,905,495 
                     

 

  31 March 2019
  Turkcell Turkey Turkcell International Other Intersegment eliminations Consolidated
Telecommunication Services  4,320,157   380,176   —     (12,678)  4,687,655 
At a point in time  39,248   —     —     —     39,248 
Over time  4,280,909   380,176   —     (12,678)  4,648,407 
Equipment Related  485,979   20,620   —     —     506,599 
At a point in time  481,441   20,620   —     —     502,061 
Over time  4,538   —     —     —     4,538 
Call Center  5,733   2,852   54,311   (5,738)  57,158 
At a point in time  —     —     —     —     —   
Over time  5,733   2,852   54,311   (5,738)  57,158 
Commission fees on betting business  —     —     56,629   —     56,629 
At a point in time  —     —     —     —     —   
Over time  —     —     56,629   —     56,629 
Revenue from financial operations  —     —     295,598   (279)  295,319 
At a point in time  —     —     63,209   (279)  62,930 
Over time  —     —     232,389   —     232,389 
All other segments  21,405   21,146   140,381   (110,933)  71,999 
At a point in time  2,584   1,811   2,182   —     6,577 
Over time  18,821   19,335   138,199   (110,933)  65,422 
Total  4,833,274   424,794   546,919   (129,628)  5,675,359 
At a point in time  523,273   22,431   65,391   (279)  610,816 
Over time  4,310,001   402,363   481,528   (129,349)  5,064,543 
                     

 

 

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

9.Property, plant and equipment
Cost Balance as at 1 January 2020 Additions Disposals Transfers Impairment expenses/ (reversals) Effects of movements in exchange rates Balance as at
31 March 2020
Network infrastructure (All operational)  22,022,991   116,028   (112,340)  230,068   —     (401,282)  21,855,465 
Land and buildings  1,211,323   3,006   —     57   —     (2,992)  1,211,394 
Equipment, fixtures and fittings  866,409   14,115   (2,104)  293   —     (6,301)  872,412 
Motor vehicles  44,518   —     (886)  —     —     (808)  42,824 
Leasehold improvements  335,837   140   —     42   —     (847)  335,172 
Construction in progress  666,328   339,764   (139)  (231,349)  —     (6,551)  768,053 
Total  25,147,406   473,053   (115,469)  (889)  —     (418,781)  25,085,320 
                             
Accumulated depreciation                            
Network infrastructure (All operational)  11,382,813   496,391   (105,478)  —     2,290   (379,270)  11,396,746 
Land and buildings  285,626   17,488   —     —     —     (1,674)  301,440 
Equipment, fixtures and fittings  673,927   13,323   (1,495)  —     —     (5,340)  680,415 
Motor vehicles  37,840   916   (886)  —     —     (780)  37,090 
Leasehold improvements  308,709   7,396   —     —     —     (545)  315,560 
Total  12,688,915   535,514   (107,859)  —     2,290   (387,609)  12,731,251 
                             
Net book amount  12,458,491   (62,461)  (7,610)  (889)  (2,290)  (31,172)  12,354,069 

Depreciation expense for the three months ended 31 March 2020 amounting to TL 537,804 including impairment losses are recognized in cost of revenue.

The impaired networkinfrastructuremainly consists of damaged or technologically inadequate mobile and fixed line infrastructure investments.

Impairment losses on property, plant and equipment for the three months ended 31 March 2020 amounting to TL 2,290 are included in depreciation expense.

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

10.Intangible assets
Cost Balance at 1 January 2020 Additions Disposals Transfers Effects of movements in exchange rates 

Balance at

31 March 2020

Telecommunication licenses  9,132,617   1,868  ��(5,053)  —     (142,787)  8,986,645 
Computer software  10,133,924   383,539   (5,792)  20,520   (50,473)  10,481,718 
Transmission line software  74,379   148   —     —     —     74,527 
Central betting system operating right  12,426   —     —     —     —     12,426 
Indefeasible right of usage  117,618   —     —     —     —     117,618 
Brand name  7,740   820   —     —     58   8,618 
Customer base  15,512   —     —     —     —     15,512 
Goodwill  32,834   —     —     —     —     32,834 
Subscriber acquisition cost  3,248,859   340,028   —     —     (8,996)  3,579,891 
Other  93,942   497   —     —     (221)  94,218 
Construction in progress  13,452   47,104   —     (19,631)  (228)  40,697 
Total  22,883,303   774,004   (10,845)  889   (202,647)  23,444,704 
                         
Accumulated amortization                        
Telecommunication licenses  3,632,968   114,901   (4,211)  —     (33,061)  3,710,597 
Computer software  6,290,133   303,983   (5,680)  —     (35,575)  6,552,861 
Transmission line software  71,602   763   —     —     —     72,365 
Central betting system operating right  12,375   51   —     —     —     12,426 
Indefeasible right of usage  40,420   2,141   —     —     —     42,561 
Brand name  7,040   —     —     —     —     7,040 
Customer base  12,648   109   —     —     —     12,757 
Subscriber acquisition cost  1,447,606   160,044   —     —     (6,697)  1,600,953 
Other  60,449   8,655   —     —     —     69,104 
Total  11,575,241   590,647   (9,891)  —     (75,333)  12,080,664 
                         
Net book amount  11,308,062   183,357   (954)  889   (127,314)  11,364,040 

Amortization expense on intangible assets other than goodwill for the three months ended 31 March 2020 amounting to TL 590,647 are recognized in cost of revenues.

There is no impairment losses on intangible assets recognized for the three months ended 31 March 2020.

Computer software includes internally generated capitalized software development costs that meet the definition of an intangible asset. The amount of internally generated computer software is TL 48,266 for the three months ended 31 March 2020.

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

11.Right of use assets

Closing balances of right of use assets as of 31 March 2020 and depreciation and amortization expenses for the related period 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  (133,340)  (9,602)  (40,476)  (44,660)  (228,078)  (3,444)  (11,884)  (15,328)  (243,406)
Balance at 31 March 2020  1,099,930   92,944   51,606   182,762   1,427,242   22,697   318,598   341,295   1,768,537 

As at 31 March 2020, additions to right of use assets amount to TL 312,673, interest expense on lease liabilities is TL 68,383 and amortization expense is TL 243,406 recorded in the cost of revenue.

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

12.Financial Assets

Debt investments at fair value through other comprehensive income

Debt investments at fair value through other comprehensive income comprise the following investments in listed and unlisted securities:

   31 March   31 December 
Current Assets  2020   2019 
Listed debt securities  613,578   345,602 
   613,578   345,602 

 

   Fair values
               
   

31 March

2020

   

31 December

2019

   Fair value hierarchy  

Valuation technique  

Financial assets at fair value through other comprehensive income  613,578   345,602   Level 1  Pricing models based on quoted market prices at the end of the reporting period.
Total  613,578   345,602       

 

As of 31 March 2020 and 31 December 2019, the nominal and fair value amounts of financial assets are as follows:

31 March 2020
Currency  Nominal amount (original currency)  

 

Fair value

(in TL)

 

  Maturity 
       
EUR  17,990   131,667   29 May 2020 
EUR  10,000   73,001   5 February 2021 
EUR  20,000   140,735   12 March 2021 
EUR  20,000   147,437   17 December 2021 
EUR  2,000   13,472   16 February 2026 
USD  10,000   66,704   5 June 2020 
USD  5,000   32,423   30 March 2021 
USD  300   1,915   21 February 2022 
USD  1,000   6,224   10 August 2024 
Total financial assets      613,578     

 

 

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     

 

 

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

12.Financial Assets (continued)

During the year, the following losses were recognized in other comprehensive income.

   31 March   31 March 
   2020   2019 
Losses recognized in other comprehensive income        
Related to debt securities  (5,123)  (979)
   (5,123)  (979)

 

13.Equity

Dividends

Inteltek:

According to the resolution of the Ordinary General Assembly Meeting of Inteltek dated 13 March 2020, the shareholders resolved to pay a dividend amount equal to TL 38,029 out of profits for the year ended 31 December 2019 and a dividend out legal reserves amount equal to TL 34,985. The aggregate amount of dividends has been paid on 23 March 2020.

14.Loans and borrowings
   31 March
2020
   31 December
2019
 
Non-current liabilities        
Unsecured bank loans  6,883,756   6,092,170 
Secured bank loans  —     —   
Lease liabilities  1,005,148   1,101,303 
Debt securities issued  6,075,657   5,483,921 
   13,964,561   12,677,394 
Current liabilities        
Unsecured bank loans  4,517,814   6,712,297 
Secured bank loans  1,605   2,415 
Lease liabilities  476,961   431,752 
Debt securities issued  538,956   481,869 
   5,535,336   7,628,333 

As at 31 March 2020, the company signed a green loan agreement of EUR 50,000 with ING European Financial Services Plc. The respective loan has a maturity of 5 years and its annual interest cost is Euribor+1.95%. The loan facility will 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. The loan will be repaid at once at the end of the 5-year maturity term. The loan was fully utilized on 20 March 2020.

Within the scope of buy-back decisions on 27 July 2016 and 30 January 2017, the Company purchased their debt securities issued with a total nominal value of USD 5,000 as at 31 March 2020.

 

 20  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

14.Loans and borrowings (continued)

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 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.

On 16 May 2019, 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, on various dates and at various amounts without public offering, as private placement and/or to be sold to institutional investors within one year. As at 4 February 2020, the Company has issued management agreement based lease certificates through Halk Yatırım amounting TL 175,000 with the maturity of 23 June 2020.

 

 

 

 21  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

14.Loans and borrowings (continued)

Terms and conditions of outstanding loans are as follows:

     31 March 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+1.3%-Euribor+2.2%   2020-2026   5,287,741   Euribor+1.3%-Euribor+2.2%   2020-2026  5,638,726
Unsecured bank loans USD  Floating  Libor+1.5%-Libor+2.2%   2020-2028   3,763,047   Libor+1.5%-Libor+2.2%   2020-2028  4,478,457
Unsecured bank loans TL  Fixed  10.1%-11.3%   2020   1,202,448   9.5%-11.5%   2020  1,442,818
Unsecured bank loans UAH  Fixed  13.5%-15.0%   2020   928,672   11.5%-18.0%   2020  1,043,883
Unsecured bank loans RMB  Fixed  5.5%  2020-2026   219,662   5.5%  2020-2026  200,583
Secured bank loans (*) BYN  Fixed  10.5%  2020   1,605   11.5%  2020  2,415
Debt securities issued USD  Fixed  5.8%  2020-2028   6,437,063   5.8%  2020-2028  5,810,989
Debt securities issued TL  Fixed  9.6%  2020   177,550   14.0%  2020  154,801
Lease liabilities EUR  Fixed  1.0%-9.0%   2020-2029   151,749   1.0%-7.9%   2020-2031  162,786
Lease liabilities TL  Fixed  12.8%-45.0%   2020-2048   765,961   12.8%-45.0%   2020-2048  735,211
Lease liabilities USD  Fixed  4.0%-10.9%   2020-2028   16,197   3.9%-10.8%   2020-2027  18,564
Lease liabilities UAH  Fixed  16.6%-24.0%   2020-2067   465,445   16.6%-24.0%   2020-2067  521,496
Lease liabilities BYN  Fixed  11.7%-15.0%   2020-2028   82,757   11.7%-15.0%   2020-2028  94,998
                19,499,897          20,305,727

 

 

(*)Belarusian Telecom pledged its certain property, plant and equipment to secure these bank loans. Also, these bank loans are secured by the Government of the Republic of Belarus.

 

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.Derivative financial instruments

Fair value of derivative financial instruments at 31 March 2020 and 31 December 2019 are attributable to the following:

  31 March 2020 31 December 2019
         
   Assets   Liabilities   Assets   Liabilities 
                 
Held for trading  635,438   85,419   443,880   72,539 
Derivatives used for hedging  467,642   63,705   483,448   —   
Total  1,103,080   149,124   927,328   72,539 
                 

At 31 March 2020, the total held for trading derivative financial assets of TL 928,602 (31 December 2019: TL 845,513) also includes a net accrued interest expense of TL 174,478 (31 December 2019: TL 81,815) and the total held for trading derivative financial liabilities of TL 157,506 (31 December 2019: TL 86,617) also includes a net accrued interest expense of TL 8,382 (31 December 2019: TL 14,078).

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 March 2020 are as follows:

Sell Buy  
CurrencyNotional amount CurrencyNotional amountFair ValueMaturity
       
Participating cross currency swap contracts   
TL1,820,280 EUR433,400215,73723 October 2025
TL257,478 EUR56,00426,75922 April 2026
TL130,660 EUR20,00010,32622 April 2026
TL261,912 USD46,67034,04422 April 2026
TL256,685 USD46,67012,81122 April 2026
TL215,354 USD37,33624,87622 April 2026
TL186,050 USD32,66925,59922 April 2026
TL162,552 USD28,0021,76722 April 2026
TL135,051 USD23,33515,82022 April 2026
TL108,349 USD18,6688,12722 April 2026
TL85,593 USD18,66819,65722 April 2026
Cross currency swap contracts   
TL115,628 RMB189,10772,11922 April 2026
Derivatives used for hedge accounting financial assets467,642 

 

EUR 489,404 participating cross currency swap contracts includes TL 866,378 guarantees after CSA agreement (31 December 2019: 833,786 TL).

 23  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.Derivative financial instruments (continued)

Held for trading (continued)

Currency swap, cross currency swap and participating cross currency swap 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 March 2020 are as follows:

Sell Buy  
CurrencyNotional amount CurrencyNotional amountFair ValueMaturity
       
Cross currency swap contracts   
TL242,873 USD70,500218,877        16 September 2020
TL269,451 USD70,500191,60022 December 2020
TL118,245 USD20,57118,20320 March 2023
TL118,985 USD20,57117,73720 March 2023
TL135,600 EUR20,0008,7799 March 2021
TL68,256 EUR10,80010,53623 September 2021
TL35,818 RMB45,2596,57822 April 2026
Participating cross currency swap contracts   
TL77,520 EUR12,0008,21216 September 2020
TL227,750 EUR37,33621,44222 April 2026
TL172,772 EUR28,00221,02022 April 2026
TL171,092 EUR28,00233,33722 April 2026
TL86,023 EUR12,6694,59422 April 2026
TL87,000 USD15,0009,70715 June 2020
TL111,915 USD18,6685,07822 April 2026
FX swap contracts   
TL120,494 USD20,00011,67727 May 2020
TL120,552 USD20,00011,62027 May 2020
Held for trading derivative financial assets 598,997 
        

 

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.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 March 2020 are as follows:

Buy   
CurrencyNotional amount Fair ValueMaturity
USD1,516 72430 April 2020
USD1,514 77730 April 2020
USD1,656 81831 May 2020
USD7,500 4,217        29 June 2020
USD7,500 4,35229 June 2020
USD10,000 5,59229 June 2020
USD1,410 72230 June 2020
USD30,000 8,7191 July 2020
USD1,189 62831 July 2020
USD20,000 6,66412 August 2020
USD1,257 71031 August 2020
USD1,026 58130 September 2020
USD1,020 60131 October 2020
USD999 60930 November 2020
USD1,160 72731 December 2020
Held for trading derivative financial assets36,441 

Interest rate swap contracts

The notional amount and the fair value of interest rate swap contracts for hedging purposes at 31 March 2020 are as follows:

Sell Buy   
CurrencyNotional amountCurrencyNotional amountFair ValueMaturity
       
Interest rate swap contracts   
USD93,340 USD93,340(30,566)22 April 2026
USD46,670 USD46,670(14,444)22 April 2026
USD37,336 USD37,336(9,976)22 April 2026
USD32,669 USD32,669(8,719)22 April 2026
Derivatives used for hedge accounting financial liabilities    (63,705)  
           

 

 25  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.Derivative financial instruments (continued)

Held for trading (continued)

FX swap, interest rate swap and participating cross currency swap contracts

The notional amount and the fair value of FX swap, interest rate swap and participating cross currency swap contracts for hedging purposes at 31 March 2020 are as follows:

Sell Buy  
CurrencyNotional amount Currency

Notional

amount

Fair ValueMaturity
FX swap contracts   
TL36,921 USD5,600(432)01 April 2020
EUR160,000 USD176,188(7,138)15 April 2020
EUR85,000 USD93,808(2,839)28 April 2020
EUR50,000 USD54,186(8,146)28 April 2020
EUR50,000 USD54,171(8,244)28 April 2020
EUR85,000 USD92,134(13,766)29 April 2020
EUR50,000 USD54,186(8,162)29 April 2020
EUR50,000 USD54,268(7,629)29 April 2020
EUR80,000 USD87,552(7,530)30 April 2020
EUR70,000 USD76,566(6,862)30 April 2020
EUR50,000 USD54,749(4,519)30 April 2020
EUR50,000 USD54,731(4,638)30 April 2020
Interest rate swap contracts   
USD23,611 USD23,611(392)29 September 2028
Participating cross currency swap contracts   
TL105,848 USD18,668(5,122)22 April 2026
Total held for trading derivative financial liabilities(85,419) 

 

 

 26  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.Derivative financial instruments (continued)

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 classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level is as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

 

 Fair values
        
 31 March
 2020
 31 December
2019
 Fair Value hierarchy Valuation Techniques
        
a) Participating cross currency swap contracts (*)493,791 495,436 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 trading98,268 62,159    
-Derivatives used for hedging395,523 433,277    
        
        
b) FX swap and option contracts423,724 351,768 Level 2 Present value of the estimated future cash flows based on observable yield curves and end period FX rates
-Held for trading415,310 301,597    
-Derivatives used for hedging8,414 50,171    
        
        
        
c) Currency forward contracts36,441 7,585 Level 2 Forward exchange rates at the balance sheet date
-Held for trading36,441 7,585    
        

 

(*) Since the bid-ask spread is unobservable input; in the valuation of participating cross currency swap contracts, prices in the bid- ask price range that were considered the most appropriate were used instead of mid prices. If mid prices were used in the valuation the fair value of participating cross currency swap contracts would have been TL 133,235 lower as at 31 March 2020 (31 December 2019: TL 116,684).

There were no transfers between fair value hierarchy levels during the year.

 27  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.Derivative financial instruments (continued)

Fair value of derivative instruments and risk management (continued)

The following table presents the Group’s financial assets and financial liabilities measured and recognized at fair value at 31 March 2020 and 31 December 2019 on a hedge accounting basis:

  Fair values
Currency Nominal Value Maturity Date 31 March 2020 31 December 2019 Fair Value hierarchy Hedge Ratio
Participating cross currency swap contracts        
EUR Contracts 433,400 23 October 2025 215,737 148,066 Level 3 1:1
EUR Contracts 76,004 22 April 2026 37,085 7,675 Level 3 1:1
USD Contracts 252,018 22 April 2026 142,701 31,474 Level 3 1:1
USD Contracts - 16 September 2020 - 246,062 Level 3 1:1
             
Cross currency swap contracts        
CNY Contracts 189,107 22 April 2026 72,119 50,171 Level 2 1:1
             
Interest rate swap contracts        
USD Contracts 210,015 22 April 2026 (63,705) - Level 2 1:1

 

 28  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

15.Derivative financial instruments (continued)

Fair value of derivative instruments and risk management (continued)

Movements in the participating cross currency swap contracts for the periods ended 31 March 2020 and 2019 are stated below:

  31 March 2020 

31 December

2019

Opening balance  495,436   653,142 
Cash flow effect  (222,245)  (582,580)
Total gain/loss:        
Gains recognized in profit or loss  220,600   424,874 
Closing balance  493,791   495,436 

Net off / Offset

The Company signed a Credit Support Annex (CSA) against the default risk of parties in respect of a EUR 433,400 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 56,004 participating cross currency swap transaction. As per the CSA, the swap’s current (mark-to-market) value will be determined on the 10th and 24th calendar day of each calendar month and if the mark-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 the mark-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 the valuations on a bi-weekly basis, a transfer will take place between the parties only if the mark-to-market value changes by at least EUR 1,000. Following the execution of CSA, the bank transferred EUR 234,743 as collateral to the Company (31 March 2020: TL 1,693,670) which was the amount exceeding the threshold and the Company transferred EUR 114,663 as collateral to the bank (31 March 2020: TL 827,294) 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 866,378 (31 December 2019: TL 833,786) 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 March 2020, if this transaction was not conducted, derivative financial instruments assets would have been TL 1,794,980 and current borrowings would have been TL 6,401,713.

 29  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

16.Financial instruments

Impairment losses

Movements in the provision for impairment of trade receivables and due from related parties are as follows:

  

31 March 2020

Contract Asset

 31 March 2020
   Other Asset
Opening balance  4,690   627,578 
Provision for impairment recognized during the year  30   124,212 
Amounts collected  —     (30,605)
Receivables written off during the year as uncollectible  —     (73,321)
Exchange differences  —     (6,431)
Closing balance  4,720   641,433 

 

  

31 March 2019

Contract Asset

 31 March 2019
   Other Asset
Opening balance  7,370   730,811 
Provision for impairment recognized during the year  30   64,168 
Amounts collected  —     (25,805)
Receivables written off during the year as uncollectible  —     (29,841)
Transfer      (1,394)
Exchange differences  —     3,983 
Closing balance  7,400   741,922 

Movements in the provision for impairment of receivables from financial services are as follows:

  

31 March

2020

 

 

31 March

2019

Opening balance  163,500   200,273 
Provision for impairment recognized during the year  41,023   59,776 
Amounts collected  (19,893)  (27,834)
Transfer  —     1,394 
Exchange differences  (2)  —   
Closing balance  184,628   233,609 

 

 30  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

16.Financial instruments (continued)

Liquidity risk

The table below analyses the Group’s financial liabilities by considering relevant maturity groupings based on their contractual maturities for:

-all non-derivative financial liabilities, and
-gross settled derivative financial instruments for which contractual maturities are essential for an understanding of the timing of the cash flows,

 

  31 March 2020 31 December 2019
  Carrying Contractual 6 months 6-12 1-2 2-5 More than 5 Carrying Contractual 6 months 6-12 1-2 2-5 More than 5
  Amount cash flows or less Months years years Years Amount cash flows or less months years years Years
Non-derivative financial liabilities                                                        
Secured bank loans  1,605   (1,696)  (1,146)  (550)  —     —     —     2,415   (2,587)  (1,329)  (1,258)  —     —     —   
Unsecured bank
loans
  11,401,570   (12,199,840)  (3,351,881)  (1,203,795)  (1,358,343)  (4,313,067)  (1,972,754)  12,804,467   (13,688,718)  (4,246,288)  (2,586,232)  (1,338,152)  (3,684,289)  (1,833,757)
Debt securities issued  6,614,613   (9,234,517)  (364,800)  (184,288)  (368,576)  (1,105,728)  (7,211,125)  5,965,790   (8,446,514)  (318,861)  (168,861)  (337,723)  (1,013,168)  (6,607,901)
Lease liabilities  1,482,109   (2,515,861)  (410,163)  (276,902)  (388,421)  (713,840)  (726,535)  1,533,055   (2,456,542)  (382,558)  (261,285)  (406,413)  (662,767)  (743,519)
Trade and other
payables*
  2,571,571   (2,601,344)  (2,568,126)  (32,240)  (978)  —     —     2,728,485   (2,789,258)  (2,694,568)  (94,690)  —     —     —   
Due to related
parties
  5,327   (5,327)  (5,327)  —     —     —     —     12,082   (12,082)  (12,082)  —     —     —     —   
Consideration
payable in
relation to
acquisition of
Belarusian
Telecom (Note 28)
  352,932   (651,600)  —     —     —     —     (651,600)  359,554   (594,020)  —     —     —     —     (594,020)

Derivative financial

liabilities

Participating Cross Currency Swap and FX swap contracts

  157,506   (134,822)  (79,894)  (8,110)  (14,045)  (27,458)  (5,315)  86,617   (139,936)  (46,104)  (14,625)  (25,514)  (49,492)  (4,201)
   Buy      7,359,491   5,732,597   136,986   266,769   745,342   477,797       8,577,016   6,947,440   130,640   254,156   708,073   536,707 
   Sell      (7,494,313)  (5,812,491)  (145,096)  (280,814)  (772,800)  (483,112)      (8,716,952)  (6,993,544)  (145,265)  (279,670)  (757,565)  (540,908)
TOTAL  22,587,233   (27,345,007)  (6,781,337)  (1,705,885)  (2,130,363)  (6,160,093)  (10,567,329)  23,492,465   (28,129,657)  (7,701,790)  (3,126,951)  (2,107,802)  (5,409,716)  (9,783,398)

 

* Advances received, accruals, taxes and withholding taxes payable are excluded from trade and other payables.

 

 

 

 31  

 

16.Financial instruments (continued)

Foreign exchange risk

The Group’s exposure to foreign exchange risk at the end of the reporting period, based on notional amounts, was as follows:

  31 March 2020
  USD EUR RMB
Foreign currency denominated assets            
Other non-current assets  240   11   —   
Financial asset at fair value through other comprehensive income  17,678   77,453   —   
Due from related parties - current  169   365   —   
Trade receivables and contract assets  17,654   37,776   —   
Other current assets  13,339   4,196   —   
Cash and cash equivalents  268,411   842,146   —   
   317,491   961,947   —   
Foreign currency denominated liabilities            
Loans and borrowings - non-current  (345,086)  (617,750)  (195,031)
Debt securities issued - non-current  (932,421)  —     —   
Lease obligations - non-current  (1,941)  (15,011)  —   
Other non-current liabilities  (54,164)  —     —   
Loans and borrowings - current  (232,450)  (225,477)  (45,501)
Debt securities issued - current  (55,464)  —     —   
Lease obligations - current  (545)  (6,023)  —   
Trade and other payables - current  (176,225)  (24,923)  (12,696)
Due to related parties  (336)  (143)  —   
   (1,798,632)  (889,327)  (253,228)
             
Loans defined as hedging instruments (*)  —     163,615   —   
Exposure related to derivative instruments            
Participating cross currency swap and FX swap contracts  1,384,635   (121,787)  234,367 
Currency forward contracts  86,232   —     —   
Net exposure  (10,274)  114,448   (18,861)

(*) The Company designated EUR 163,615 of bank loan, as hedging instruments in order to hedge the foreign currency risk arising from the translation of net assets of the subsidiaries operating in Europe from EUR to Turkish Lira. Foreign exchange gains/losses of the related loans are recognized under equity as “gains/(losses) on net investment hedges” in order to offset the foreign exchange gains/(losses) arising from the translation of the net assets of investments in foreign operations to Turkish Lira.

 32  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

16.Financial instruments (continued)

Foreign exchange risk (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)

 

 33  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

16.Financial instruments (continued)

Exposure to currency risk (continued)

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.

10% strengthening/weakening of the TL, UAH and BYN against the following currencies at 31 March 2020 and 31 December 2019 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.

 

Sensitivity analysis
31 March 2020
 Profit/(Loss)Equity
 Appreciation of foreign currencyDepreciation of foreign currencyAppreciation of foreign currencyDepreciation of foreign currency
 
1- USD net asset/liability(6,695)6,695--
2- Hedged portion of USD risk (-)--(13,645)13,645
3- USD net effect (1+2)(6,695)6,695(13,645)13,645
 
4- EUR net asset/liability82,574(82,574)--
5- Hedged portion of EUR risk (-)--(55,833)55,833
6- EUR net effect (4+5)82,574(82,574)(55,833)55,833
 
7- Other foreign currency net asset/liability (RMB)(1,722)1,722--

8- Hedged portion of other foreign currency risk (-) (RMB)

--(466)466
9- Other foreign currency net effect (7+8)(1,722)1,722(466)466
Total (3+6+9)74,157(74,157)(69,944)69,944

 

 

 

Sensitivity analysis
31 December 2019
 Profit/(Loss)Equity
 Appreciation of foreign currencyDepreciation of foreign currencyAppreciation of foreign currencyDepreciation of foreign currency
 
1- USD net asset/liability47,527(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

 

 

 

 

 34  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

16.Financial instruments (continued)

Fair values

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 March 2020 31 December 2019 

Unobservable

Inputs

 31
March 2020
31 December 2019 Relationship of unobservable inputs to fair value
            
Contingent consideration 352,932 359,554 Risk-adjusted discount  rate %6.8-%7.75.2%-6.1% A change in the discount rate by 100 bps would increase/decrease FV by TL (26,884) and TL 29,436, respectively.
      Expected settlement date in instalments between 2026-2030in instalments between 2026-2030 If expected settlement date changes by 1 year FV would increase/decrease by TL (24,049) and TL 25,810, respectively.

 

Changes inthe consideration payable in relation to acquisition of Belarusian Telecom for the periods ended 31 March 2020 and 31 March 2019 is stated below:

  2020 2019
Opening balance  359,554   358,304 
Gains recognized in profit or loss  (6,622)  49,991 
Closing balance  352,932   408,295 

 

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 12.

Financial liabilities:

As at 31 March 2020 and 31 December 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:

As at 31 March 2020:

  Carrying amount 

Fair value

Bank loans  4,543,064   4,563,449 

As at 31 December 2019:

  Carrying amount 

Fair value

Bank loans  4,149,275   4,192,304 

 

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

16.Financial instruments (continued)

Fair values (continued)

Valuation inputs and relationships to fair value (continued)

Financial liabilities (continued):

As at 31 March 2020, the fair value of debt securities issued by the Company in 2015 with a nominal value of USD 500,000 and fixed interest rate (Note 14), is TL 3,055,951 (31 December 2019: TL 3,058,366).

As at 31 March 2020, 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 14), is TL 2,917,667 (31 December 2019: TL 2,961,300).

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.

17.Guarantees and purchase obligations

At 31 March 2020, outstanding purchase commitments with respect to property, plant and equipment, inventory, advertising and sponsorship amount to TL 731,384 (31 December 2019: TL 819,508). Payments for these commitments will be made within 3 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 4,685,180 at 31 March 2020 (31 December 2019: TL 4,842,015).

18.Commitments and contingencies

The following disclosures comprise of material legal lawsuits, investigations and in-depth investigations against the Company.

Disputes on Special Communication Tax and Value Added Tax

a)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 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. In 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. In the cases regarding the cancellation of the SCT assessment for the year 2011, Council of State accepted our appeal and decided to reverse the first instance court decision in favor of the Company, on the ground that; in the case filed for the cancellation of the rejection act regarding the 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 period ended 31 March 2020 (31 December 2019: None).

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

18.Commitments and contingencies (continued)

Disputes regarding the Law on the Protection of Competition

A lawsuit was filed by a third party, for the cancellation of the part of the Competition Board decision, regarding the rejection of the claims that the Company determined the resale price. The Council of State cancelled this part of the Competition Board decision. Therewith Competition Board launched a new investigation. As a result of the new investigation The Competition Board decided to apply administrative fine amounting to TL 91,942 on the Company. The Company has taken all legal actions by requesting the cancellation of the aforementioned decision and its withdrawal by the Competition Authority. Subsequently, the Competition Authority accepted some of the claims of the Company and reduced the administrative fine to TL 61,294 with its decision.

The aforementioned fine was paid with twenty five percent discount on 9 April 2020, in the amount of TL 45,971. Then, a lawsuit was filed for a stay of execution and cancellation of the aforementioned administrative fine. The amount of TL 45,971 has been recognized as due to the non-related parties in the consolidated financial statements as at and for the period ended 31 March 2020 (31 December 2019: None).

19.Related parties

Transactions with key management personnel

Key management personnel comprise of the Group’s members of the Board of Directors and chief officers.

There are no loans to key management personnel as of 31 March 2020 and 2019.

The Group provide additional benefits to key management personnel and contribution to retirement plans based on a pre-determined ratio of compensation.

  31 March
2020
 31 March
2019
Short-term benefits  19,187   22,843 
Share based payments  880   1,134 
Long-term benefits  168   150 
Termination and other benefits  44   49,471 
   20,279   73,598 

 

 37  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

19.Related parties (continued)

Transactions with related parties

The following transactions occurred with related parties:

  Three months ended
31 March
Revenue from related parties 2020  2019 
Sales to Telia Carrier Germany GmbH        
Telecommunications services  3,490   618 
Sales to Telia Carrier AB        
Telecommunications services  350   —   
Sales to Sofra        
Call center services  206   —   
Sales to Sonera Holding B.V. (*)        
Revenue from sales of discontinued operations  —     772,436 
Sales to Kyivstar GSM JSC (“Kyivstar”) (**)        
Telecommunications services  —     11,918 
Sales to Vimpelcom OJSC (“Vimpelcom”) (**)        
Telecommunications services  —     972 
Sales to other related parties  387   403 
   4,433   786,347 

 

  Three months ended
31 March
Related party expenses 2020  2019 
Charges from Sofra        
Meal coupons and cards  4,076   —   
Charges from Telia Carrier Germany GmbH        
Telecommunications services  1,828   430 
Charges from Kyivstar (**)        
Telecommunications services  —     18,064 
Charges from Vimpelcom (**)        
Telecommunications services  —     603 
Charges from other related parties  344   1,134 
   6,248   20,231 

(*) The share transfer of Fintur has been completed on 29 March 2019 to Sonera Holding, gain on sale of the associate, amounting to TL 772,436 has been recognized under profit from discounting operations in the consolidated financial statements.

(**) As of 18 June 2019 and thereafter, Kyivstar and Vimpelcom are not considered as related party.

 

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TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

20.Subsidiaries

The Group’s ultimate parent company is Turkcell Holding, Subsidiaries, associates and a joint venture of the Company as at 31 March 2020 and 31 December 2019 are as follows:

   Effective Ownership Interest
SubsidiariesCountry of 31 March31 December
NameIncorporationBusiness2020 (%)2019 (%)
Kibris TelekomTurkish Republic of Northern CyprusTelecommunications100100
Turkcell Global BilgiTurkeyCustomer relations and human resources management100100
TurktellTurkey

Information technology, value

added GSM services and entertainment investments

100100
Turkcell SuperonlineTurkeyTelecommunications, television services and content services100100
Turkcell SatisTurkeySales, delivery and digital sales services100100
EastasiaNetherlandsTelecommunications investments100100
Turkcell TeknolojiTurkeyResearch and development100100
Global TowerTurkey

Telecommunications infrastructure

business

100100
RehberlikTurkeyDirectory Assistance100100
Lifecell VenturesNetherlandsTelecommunications investments100100
BeltelTurkeyTelecommunications investments100100
Turkcell GayrimenkulTurkeyProperty investments100100
Global LLCUkraineCustomer relations management100100
UkrTowerUkraineTelecommunications infrastructure business100100
Turkcell EuropeGermanyTelecommunications100100
Turkcell OdemeTurkeyPayment services and e-money license100100
lifecellUkraineTelecommunications100100
Turkcell FinansmanTurkeyConsumer financing services100100
BeltowerRepublic of BelarusTelecommunications Infrastructure business100100
Turkcell EnerjiTurkeyElectricity energy trade and wholesale and retail electricity sales100100
PaycellUkraineConsumer financing services100100
Lifecell DigitalTurkish Republic of
Northern Cyprus
Telecommunications100100
TÖFAŞTurkeyInterest free consumer financing services100100
Turkcell SigortaTurkeyInsurance agency activities100100
Yaani Digital BV (2)NetherlandsInternet search engine and browser services100100
Belarusian TelecomRepublic of BelarusTelecommunications8080
LifetechRepublic of BelarusInformation technology, programming and technical support8080
InteltekTurkeyInformation and Entertainment Services5555
Lifecell Dijital Servisler(1)TurkeyDevelopment and providing of digital services and products100-
   Effective Ownership Interest
AssociatesCountry of 31 March31 December
NameIncorporationBusiness2020 (%)2019 (%)
Türkiye’nin OtomobiliTurkeyElectric passenger car development, production and trading activities1919
   Effective Ownership Interest
Joint VentureCountry of 31 March31 December
NameIncorporationBusiness2020 (%)2019 (%)
SofraTurkeyMeal coupons and cards3333
     

(1) On 28 February 2020,Lifecell Dijital Servisler, which will develop and provide digital services and products, was incorporated by Turktell, a subsidiary of the Group, under the laws of Republic of Turkey.

(2) On 13 May 2019, the Company signed a share purchase agreement to acquire 100% of the shares of Yaani Digital BV (formerly “NTENT Netherlands BV”). The transfer of legal shares was completed on 14 May 2019. The acquisition date on which all identifiable assets acquired and liabilities assumed is expected to be realized in 2020. As of 31 March 2020, TL 74,464 was paid. The outstanding payments are expected to be completed by the end of 2020, depending on the seller’s fulfillment of its obligations under the share purchase agreement.

 39  

 

TURKCELL ILETISIM HIZMETLERI AS

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

As at and for the three months ended 31 March 2020

(All amounts disclosed in the condensed consolidated interim financial statements and notes have been rounded off to the nearest thousand currency units and are expressed in Turkish Liras unless otherwise stated.)

21.Subsequent events

On 21 April 2020, Lifecell Bulut Çözümleri A.S., Lifecell TV Yayın ve İçerik Hizmetleri A.S. and Lifecell Müzik Yayın ve İletim A.S. were incorporated by Lifecell Dijital Servisler which is 100% owned by Turktell, a subsidiary of the Group.

 

 

 40  

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Turkcell Iletisim Hizmetleri A.S. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 TURKCELL ILETISIM HIZMETLERI A.S.
   
   
Date:  April 29, 2020By:/s/Zeynel Korhan Bilek
 Name:  Zeynel Korhan Bilek
 Title:Treasury & Capital Markets Management Director

 

 TURKCELL ILETISIM HIZMETLERI A.S.
   
   
Date:  April 29, 2020By:/s/Osman Yilmaz
 Name:  Osman Yilmaz
 Title:Finance - Chief Financial Officer

 

 

 TURKCELL ILETISIM HIZMETLERI A.S.
   
   
Date:  April 29, 2020By:/s/Kamil Kalyon
 Name:  Kamil Kalyon
 Title:Reporting Director