REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Report on Form 6-K dated May 10, 2006
--------------------
TURKCELL ILETISIM HIZMETLERI A.S.
Turkcell Plaza
Mesrutiyet Caddesi No.153
34430 Tepebasi
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-F: |X| 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|
Enclosures: Turkcell Iletisim Hizmetleri A.S. Reports Q1 2006 Results
[GRAPHIC OMITTED]
FOR IMMEDIATE RELEASE
TURKCELL ILETISIM HIZMETLERI A.S. REPORTS Q1 2006 RESULTS
"Sustained margins in an increasingly competitive environment"
Istanbul, Turkey, May 10, 2006 - Turkcell (NYSE:TKC, ISE:TCELL),
(www.turkcell.com.tr), the leading provider of mobile communications services in
Turkey, today announced results for the quarter ended March 31, 2006. All
financial results in this press release are unaudited, prepared in accordance
with International Financial Reporting Standards ("IFRS") and expressed in US$.
Figures in parentheses following the operational and financial results for the
first quarter of 2006 refer to the same item in the fourth quarter of 2005. For
further details, please see the consolidated interim financial statements and
notes for the quarter ended March 31, 2006.
Please note that all financial data are consolidated and comprise Turkcell
Iletisim Hizmetleri A.S., (the "Company", "Turkcell") and its subsidiaries and
its associates (together referred to as the "Group") whereas non-financial data
are unconsolidated. The terms "we", "us", and "our" in this press release refer
only to the Company, except in discussions of financial data, where such terms
refer to the Group, and where context otherwise requires.
Highlights of the Quarter
o Turkcell added approximately 843,000 (1,157,000) net new subscribers in the
first quarter of 2006. The subscriber base grew by 3% to 28.7 million (27.9
million) as of March 31, 2006
o Minutes of usage per subscriber ("MoU") in the first quarter of 2006
decreased by 17% to 57.9 minutes (70.1 minutes) mainly due to seasonality
and the effect of community offers
o Turkcell's quarterly churn increased to 3.5% (2.9%) in the first quarter of
2006 mainly due to low priced acquisition packages and seasonal increase in
subscriber base in previous quarters
o Average revenue per user ("ARPU") remained almost flat at US$12.2 (US$12.3)
in the first quarter of 2006 mainly due to the tariff increase in January
and the appreciation of TRY on average basis despite seasonally lower MoU
and the dilutive impact of prepaid subscribers
o Revenue increased 5% to US$1,132 million (US$1,080 million) in the first
quarter of 2006 mainly due to the increasing subscriber base, the 3.4%
average tariff increase in January, the appreciation of TRY on an average
basis, despite seasonally lower MoU
o EBITDA* increased to US$414 million (US$344 million) in the first quarter
of 2006 due to sustained strong operational performance
o Net income decreased 15% to US$187 million (US$221 million) in the first
quarter of 2006 mainly due to increase in taxation charges
o As disclosed previously on March 23, 2006, Turkcell's Board of Directors
proposed a dividend distribution in the form of both cash and bonus shares
to be submitted for approval at the Annual General Assembly of Shareholders
planned for May 22, 2006
* EBITDA is a non-GAAP financial measure. See page 16 for the reconciliation of
EBITDA to net cash used for operating activities.
Comments from the CEO, Muzaffer Akpinar
--------------------------------------------------------------------------------
We continued to demonstrate strong performance during the first quarter of 2006
despite the increasingly aggressive competitive environment in Turkey. We
maintained our leadership in gross additions in the market during the quarter
and increased our subscriber base in Turkey to 28.7 million and our Turkcell
Group subscriber base to 33.7(1) million as of the end of the first quarter
2006.
Although a majority of the uncertainties in the Turkish GSM market in terms of
ownership structures of the sector players has lifted, we believe the
transitional period in the Turkish GSM market is still continuing as we have not
seen a change towards more rational play in our market. Meanwhile, the
continuation of aggressive price competition of our competitors especially for
communities and the youth segments, as well as low priced acquisition packages,
acted as a catalyst in the market resulting in increasing growth of subscribers
and mobile line penetration.
_________________
(1) See page 10 for the breakdown of the Turkcell Group subscriber numbers
2
We believe our leading position in the Turkish market in terms of growth,
availability and quality remained strong during the quarter. We will continue to
develop and modify incentive and loyalty programs for different customer groups,
to keep our competitive edge in dynamic market conditions and remain the
preferred operator in Turkey. Our aim still is to deal with competition by
maintaining our leadership position through our better value for money approach
while monitoring changing market conditions carefully.
BUSINESS REVIEW
The Competitive Landscape and Our Offerings
-------------------------------------------
The continued stability in the macro-economic environment and positive consumer
sentiment during the first quarter of 2006, coupled with efforts of the
operators led to an overall market growth above our expectations. Meanwhile, we
continued to lead the new acquisition market, growing our subscriber base to
28.7 million (27.9 million). Minutes of usage decreased to 57.9 minutes (70.1
minutes) mainly due to seasonality as well as community offers. Revenue, on the
other hand, increased 5% to US$1,132 million (US$1,080 million) mainly due to
the increase in subscriber base, a 3.4% average tariff increase in January and
the appreciation of TRY against US$ on average basis.
As far as the transition stage in the Turkish market is concerned, the price
emphasis of the competition on community tariffs remained strong and these
tariffs were extended to wider communities, while low priced acquisition
packages were introduced. Although we have recorded relatively higher Subscriber
Acquition Costs ("SAC") during the quarter, we are pleased with the average
contribution of our post and prepaid subscribers, ensuring reasonable pay back
periods. Additionally we may conclude that the majority of subscriber churn from
our network is involuntary, consisting mainly of prepaid subscribers who had
generated lower than average revenues.
During the first quarter of 2006, we kept monitoring the Turkish market dynamics
and made an average tariff increase of 3.4% in January as well as introducing
new initiatives as necessary.
We also maintained our customer focused approach through offers, campaigns and
tariff options with a segment-based approach to better meet the needs and
expectations of our subscribers. We made offers to our subscribers on segmented
basis using our Customer Relationship Management ("CRM") infrastructure
consistently.
Some of our actions and campaigns offered to the mass market during the quarter
were as follows:
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Counter Bank (Konbara) - A renewed loyalty program enabling prepaid subscribers
to use their counter incentives in denominations of 50 counters up to twice a
month.
"Options" enabled our prepaid subscribers to talk at special rates with selected
numbers.
"Packages" enabled our postpaid subscribers to purchase 45, 90 or 300 minute
bundles.
"Win as you go" enabled our corporate subscribers to earn staggered free minutes
and availability of advantageous tariff options with daily minute packages and
advantages per call.
On the products and services front, our value added services revenue constituted
approximately 14% (14%) of our total net revenue in the first quarter of 2006.
SMS, content services and data applications were widely used by our subscribers
during the first quarter.
All in all, we may assume that the competition in our market will continue at
these levels, until there is further clarity regarding the positioning of the
competitors. In this environment, our aim is to remain the leading GSM operator,
along with our continued focus on "better value for money" approach.
We believe that we are well positioned to meet upcoming challenges in the
Turkish market, although always repositioning on an as needed basis, to achieve
our revenue goals while satisfying the needs and expectations of our
subscribers.
Regulatory Environment and Legal Developments
---------------------------------------------
There were no major developments in the regulatory environment regarding the
issuance of any 3G license, and regulations on MVNO (Mobile Virtual Network
Operators) or MNP (Mobile Number Portability), however our understanding is that
these items remain on the Telecommunications Authority's agenda for 2006.
Revision of pricing terms of interconnection agreements:
The Telecommunications Authority is expected to issue temporary prices for call
terminations between Turkcell and the two other GSM operators however there is
no clarity regarding the timing. Meanwhile, our discussions with the two other
GSM operators continue. As of December 31, 2005, the Telecommunications
Authority had designated the two other GSM operators in Turkey as `'operators
holding significant market power'' in the GSM mobile call termination services
market along with us. We believe that current call termination rates are already
below European averages, and our aim is to maintain current levels of pricing as
much as possible. However, we foresee that a decline in current price levels is
likely, but that the impact of a possible decline in call termination charges
should be limited, given the percentage of our revenue derived from
interconnection revenues.
4
Revision of the gross revenue definition to be used for the 15% Treasury Share
calculation:
We announced in March 2006 that our license agreement was revised, as per the
law numbered 5398 that was introduced on July 21, 2005 regarding the gross
revenue definition used in the calculation of the 15% treasury fee (the ongoing
license fee and universal fund paid to the Turkish Treasury and the Ministry of
Transportation, respectively), following the completion of the studies with the
related ministries and authorities. According to the revision, Turkcell will
continue to pay 15% treasury fee, based on the new gross revenue definition
which excludes interest charges for late collections from subscribers and
indirect taxes, such as 18% Value Added Taxes (VAT), and few other expenses as
well as the accrued revenues. The revised definition is effective as of March
10, 2006. Prior to this revision, the gross revenue definition included indirect
taxes, such as 18% VAT.
Even though the law has given the right to us not to include the obligations
listed above in the calculation of the treasury fee payment, we made payments
including such items with reservation between July 21, 2005 when the law
numbered 5398 became effective and March 10, 2006 when the amendment in our
license agreement became effective, in order not to incur default interest,
interest late payment, and the enforcements under the law numbered 406 of the
license agreement.
In April 2006, we initiated a lawsuit against the Turkish Treasury for the
difference between the payments that were made starting from July 21, 2005 until
March 10, 2006 and the required payments based on Article 15 of the law numbered
5398, totaling to TRY111.3 million (approximately US$82.9 million as of March
31, 2006) as of the date of the lawsuit, which consists of the principal and
interest. In May 2006, we initiated another lawsuit, in principle, regarding the
same dispute with a claim totaling to TRY112.3 million (approximately US$83.7
million as of March 31, 2006) including principal and interest against the
Telecommunications Authority.
International Operations
------------------------
Fintur:
We hold a 41.45% stake in Fintur, which currently holds our entire interest in
our international GSM investments other than our Turkish Republic of Northern
Cyprus and Ukraine operations.
Fintur continued its strong performance in the first quarter of 2006. The GSM
businesses in Azerbaijan, Kazakhstan, Georgia and Moldova added approximately
263,000 net new subscribers, raising the total number of subscribers to
approximately 6.4 million (6.1 million) as of March 31, 2006. Furthermore, in
the first quarter of 2006 consolidated revenue of Fintur decreased to US$238
million (US$252 million) mainly due to seasonality.
5
We own 41.45% of Fintur and account for this investment using the equity method,
which totaled US$15.8 million (US$22.0 million) in income in the first quarter
of 2006.
Ukraine - Life:)
In Ukraine, we operate through our indirect subsidiary, Astelit, under the brand
"life:)". We hold our interest in Astelit through our subsidiary, Turktell
Uluslararasi Yatirim Holding A.S. ("Turktell Uluslararasi"), which holds an
interest in Astelit's immediate parent, Euroasia Telecommunications Holdings
B.V. ("Euroasia"). Euroasia currently holds a 100% interest in Astelit. Prior to
April 2006, Euroasia held its interest in Astelit through JSC Digital Cellular
Communications ("DCC"). In April 2006, Astelit announced the merger of DCC with
Astelit in order to optimize the internal business processes of both companies.
In Ukraine, Astelit has been operational since February 2005 under the new brand
"life:)". The life:) brand is effectively implemented as an energetic, young and
innovative brand. Astelit launched new philosophy of using value-added services
in one convenient access in interactive package of innovative services via brand
"lifebox". Astelit was the first on market to introduce EDGE technology which
provides data transfer speed up to five times faster than GPRS. Today, Astelit
offers the widest EDGE coverage on the market, in all of the 25 oblast centers
of Ukraine and the city of Sevastopol. In general, Astelit currently offers more
than 120 new services, out of which 42 are totally unique for the Ukraine mobile
market. Astelit was the first operator in Ukraine to introduce a unique
convergent system allowing pre-paid subscribers to shift to contract while
keeping their numbers and providing flexible payment channels for all
subscribers. Astelit introduced ring-back tone to the market, Voice SMS, and
many other innovative services never present on the market before.
The subscriber base of Astelit reached approximately to 3.3 million (2.5
million) excluding approximately 45,000 (43,000) TDMA subscribers, by the end of
first quarter 2006, which represents 32% quarterly growth.
During the first quarter of 2006, Euroasia recorded net revenue of US$17.1
million (US$18.0 million), gross loss of US$22.1 million (US$21.8 million)
including depreciation and amortisation of US$22.0 million (US$19.5 million) and
net loss of US$55.9 million (US$56.3 million). Also during this quarter, US$55.6
million of (US$90.0 million) in capital expenditure was recorded for the
Ukrainian operations.
Please note that all financial and operational results include the TDMA business
in Ukraine unless otherwise specified.
In December 2005, Astelit signed an agreement amounting to US$540 million long
term financing. The total financing package consists of a syndicated loan and a
junior loan. The long term syndicated loan in the amount of US$390 million has a
term of six years of which US$270 million is guaranteed by Export Credit Agency
(ECA) and US$90 million has no guarantees. Nokia Corporation and Ericsson Credit
AB, the two
6
major suppliers of Astelit's GSM network also took part in the
financing with US$30 million. The junior loan in the amount of US$150 million
has a term of six years and is fully guaranteed by Turkcell. The proceeds from
these facilities have been used to refinance Astelit's existing vendor loans and
local bank loans and finance additional capital expenditures and working capital
requirements. In addition to this financing package, we intend to participate in
the US$40 milllion capital increase of Astelit, proportionate to our
shareholding, which is expected to occur in second quarter of 2006.
Based on Astelit's separate interim financial statements as at and for the three
months ended 31 March 2006, Astelit is in breach of its covenants contained in
its syndicated long term project financing. Therefore, the Group have
reclassified Astelit's total long term debt amounting US$382 million (including
its junior loan) as short term debt payable as at March 31, 2006. Astelit
requested that the facility agent, the senior creditors and ECA to waive the
requirement in order to make further drawings under the syndicated long term
financing. And as main shareholders of Astelit, Turkcell and System Capital
Management Limited (SCM) have agreed, subject to the approval of board of
directors of each to be obtained on or before May 31, 2006, to contribute their
respective share of a total amount of approximately US$150 million required by
the facility agent to Astelit. As at May 10, 2006Astelit has obtained the waiver
letter from the lenders enabling Astelit to draw loans under the syndicated long
term financing.
Investment plans
----------------
Purchase of A-Tel
Pursuant to the Board of Directors' decision dated March 22, 2006, an option to
purchase the 50% shares of A-Tel Pazarlama ve Servis Hizmetleri A.S. owned by
Yapy ve Kredi Bankasy A.S. will be exercised by us. The transaction is expected
to be completed in the second quarter of 2006.
Egypt
In line with our strategy to evaluate potential investment opportunities in the
international GSM arena, our Board of Directors took a decision regarding our
intention to conduct the required studies for the pre-qualification stage and
submit a prequalification application in accordance with the relevant provisions
of the Request For Proposals for the tender of the third GSM license in the Arab
Republic of Egypt. In this respect, we signed a Memorandum of Understanding
("MOU") with Amwal El Khaleej and Banque Misr in order to form a consortium to
apply for the pre-qualification of the third GSM license. Under the MOU we will
have a 60% stake in the consortium where the remaining stake will be equally
divided between the other consortium members. As of May 4, 2006, we submitted
necessary pre-qualification documentation to the Authorities in Egypt.
7
Dividend Distribution Proposal
------------------------------
Our Board of Directors has decided to recommend payment of a total net cash
dividend of TRY509.1 million (approximately US$379 million as of March 23, 2006)
which corresponds to a net cash dividend of TRY0.274451 (approximately US$0.2044
as of March 23, 2006) per ordinary share with a nominal value of TRY1 and
approximately TRY0.6861275 (approximately US$0.5110 as of March 23, 2006) per
ADR and a total stock dividend in the form of bonus shares amounting to TRY345.1
million (approximately US$257 million as of March 23, 2006), representing an
18.605586% stock dividend per share with a nominal value of TRY1 to be approved
at the Annual General Meeting planned to be held on May 22, 2006. The Annual
General Meeting on April 28, 2006 was postponed to May 22, 2006 due to lack of
quorum. The Board of Directors also resolved to amend and propose that the cash
dividend payment to our shareholders shall commence as of May 29, 2006. For the
details of the dividend proposal please refer to our press releases dated March
23, 2006 and May 5, 2006.
Transition to IFRS
------------------
We have historically prepared and presented our financial statements on a
consolidated basis in accordance with US GAAP in US dollars for purposes of
reporting to the Securities and Exchange Commission ("SEC") of USA and in New
Turkish Lira ("TRY") in accordance with Turkish GAAP and Turkish Capital Market
Board ("CMB") requirements in Turkey. As announced earlier, beginning from the
2006 fiscal year, we are preparing our interim and annual consolidated financial
statements in accordance with International Financial Reporting Standards
(IFRS). Consequently, starting from the first quarter of 2006, we are reporting
our financial results in accordance with IFRS in US dollars to international
markets for the convenience of investors and in SEC filings and in accordance
with IFRS in TRY in Turkey in line with the requirements of CMB.
For a discussion of the major differences between US GAAP reporting and IFRS
reporting please refer to our press release dated April 26, 2006.
Operational and Financial Review of First Quarter of 2006
--------------------------------------------------------------------------------
The following discussion focuses principally on the developments and trends in
our business in the first quarter of 2006. For your information, selected
financial information for the fourth quarter of 2005, year end 2005 and first
quarter of 2006 are included at the end of this press release.
8
Macro Environment Information
US$1.00 equaled TRY1.3427 as of March 31, 2006, which implies a quarterly 0.1%
depreciation of TRY against US$ in the first quarter of 2006. The consumer price
index and producer price index in Turkey increased by 1.25% and 2.48%,
respectively, in the first quarter of 2006. In the first quarter of 2006, there
was approximately 1% appreciation of TRY against US$ on average basis.
OPERATIONAL REVIEW
Q1 Q4 Q1 Q4 05-Q1 06
Summary of Operational Data 2005 2005 2006 % Chg
Number of total subscribers (million) 24.3 27.9 28.7 3%
Number of post-paid subscribers (million) 5.2 5.4 5.5 2%
Number of pre-paid subscribers (million) 19.1 22.5 23.2 3%
ARPU (Average Monthly Revenue per User)
ARPU, blended (US$) 12.2 12.3 12.2 (1%)
ARPU, postpaid (US$) 28.1 29.1 30.5 5%
ARPU, prepaid (US$) 7.9 8.2 7.9 (4%)
Churn (%) 2.5 2.9 3.5 NA
MOU (Average Monthly Minutes of usage per
subscriber), blended 59.6 70.1 57.9 (17%)
Subscribers
Turkcell's total number of subscribers reached 28.7 million as of March 31, 2006
in a stable macroeconomic environment. This is an increase of 2.9% compared to
27.9 million as of December 31, 2005.
Turkcell added approximately 843,000 net new subscribers in the first quarter of
2006. Our subscriber base consists of 5.5 million postpaid and 23.2 million
prepaid subscribers. New gross subscribers acquired in the first quarter of 2006
consisted of 89% prepaid and 11% postpaid subscribers.
The growth in the Turkish market continued in 2006 and during the quarter. This
overall growth has been above our expectations mainly due to continuation of
price based community offers of competitors and lower countered acquisition
packages introduced in the market.
Turkcell Group Subscribers
9
We have approximately 33.7 million proportionate GSM subscribers, which is
calculated by taking the number of GSM subscribers in Turkcell and each of our
subsidiaries and multiplying such numbers by our percentage ownership interest
in each subsidiary. This figure includes the proportionate rather than total
number of Fintur's GSM subscribers of 1.5 million subscribers. However, it
includes the total number of GSM subscribers in Ukraine (we have a 54% direct
and indirect stake in the Ukranian subsidiary) and in our operations in Turkish
Republic of Northern Cyprus ("Northern Cyprus") (we have a 100% stake in
Northern Cyprus) amounting to 3.3 million and 0.2 million subscribers
respectively, because the financials of our subsidiaries in Ukraine and Northern
Cyprus are consolidated with Turkcell's financial statements.
Q1 Q4 Q1 Q4 05-Q1 06
Turkcell Group Subscribers (million) 2005 2005 2006 % Chg
Turkcell 24.3 27.9 28.7 3%
Ukraine* 0.2 2.5 3.3 32%
Fintur (pro rata) 1.03 1.47 1.54 5%
Northern Cyprus 0.15 0.19 0.21 11%
TURKCELL GROUP 25.7 32.1 33.7 5%
* including TDMA
Churn Rate
Churn refers to disconnected subscribers, whether disconnected voluntarily or
involuntarily. Turkcell's churn rate increased to 3.5% (2.9%) in the first
quarter of 2006 mainly due to low priced acquisition packages, a seasonal
increase in subscriber base in previous quarters and intensified competition in
the market. This led to an increase in the churn rate in this quarter, primarily
involuntary churn of subscribers at the lower-value end of the subscriber base.
While the competition's mainly price focused approach to increase market share
through new acquisitions remains, we will continue with our segmented retention
and mass loyalty programs as well as proactive churn prevention activities.
MoU
Our blended MoU in the first quarter of 2006 decreased to 57.9 minutes (70.1)
minutes mainly due to the effect of seasonality and the effect of community
offers. Although, price based competition and particularly community offers
expanded in the market have not helped our path towards more rational play
during the quarter, we aim to increase MoU through various incentive and loyalty
programs throughout the year. We will continue to monitor impacts of irrational
play and its effect on usage levels, carefully.
10
ARPU
ARPU remained almost flat at US$12.2 (US$12.3) mainly due to the 3.4% tariff
increase in January and appreciation of TRY against US$ on average basis,
despite seasonally lower MoU, the dilutive impact of prepaid subscribers, as
well as retention campaigns and incentives provided during the quarter.
FINANCIAL REVIEW
Profit and Loss Statement Analysis
----------------------------------
Profit & Loss Statement
Q4 05-Q1 06
(million US$) Q1 2005 Q4 2005 Q1 2006 % Chg
Total revenues 914.9 1,079.9 1,132.2 5%
Direct cost of revenues (576.6) (673.5) (667.4) (1%)
Administrative expenses (34.5) (41.4) (41.3) 0%
Selling and marketing expenses (134.4) (215.2) (206.1) (4%)
EBITDA 339.9 344.4 414.3 20%
Financial expense (78.3) (15.5) (20.2) 30%
Financial income 38.6 35.3 53.6 51%
Share of profit of associates 13.3 22.0 15.8 (28%)
Income tax expense (61.5) (13.1) (87.4) 567%
Net income 86.1 220.7 187.2 (15%)
Revenue
Our revenues increased to US$1,132.2 million (US$1,079.9 million) in the first
quarter of 2006 mainly due to the increase in the subscriber base, 3.4% average
tariff increase in January, and appreciation of TRY against US$ on average basis
despite seasonally lower MoU.
Direct cost of revenue
The direct cost of revenue, including depreciation and amortization remained
almost flat at US$667.4 million (US$673.5 million) in the first quarter of 2006.
The proportion
11
of direct cost of revenues in total revenue decreased to 59% (62%) in the first
quarter of 2006. This improvement was mainly due to the decrease in
interconnection costs and in treasury fee as a percentage of revenue as per the
amendment effective as of March 10, 2006. Treasury fee increased 3% to US$198.5
million (US$ 193.3 million) in the first quarter of 2006 due to impact of
increase in revenues partially offsetted by the effect of amendment made in
gross revenue definition.
Depreciation and amortization remained almost flat at US$196.8 million (US$194.6
million) in the first quarter of 2006.
Interconnection costs decreased 21% to US$89.9 million (US$113.9 million) in the
first quarter of 2006 mainly due to decrease in outgoing MOU.
Selling and marketing expenses
Our selling and marketing expenses decreased by 4% to US$206.1 million (US$215.2
million) in the first quarter of 2006 mainly due to the absence of expenses in
2006 that were incurred during the legalization process of unregistered handsets
in the last quarter of 2005, which was partially offset by the increase in
subscriber acquisition cost and increasing frequency usage payment in line with
increasing fees and number of subscribers. Consequently, the proportion of
selling and marketing expenses to revenue decreased to 18% (20%) during the
first quarter of 2006. We expect proportion of sales and marketing expenses as a
percentage of revenue to increase in 2006 though in a controlled manner, as we
take actions to strengthen loyalty.
Subscriber acquisition costs ("SAC")
Turkcell's subscriber acquisition costs per subscriber ("SAC") increased to
US$37.1 (US$ 26.9) in the first quarter of 2006. This was mainly due to the
price decrease of acquisition packages and an increase in dealer activities and
campaigns during the quarter. Under the current circumstances, we do not expect
the year end average SAC to be higher than first quarter 2006 SAC level.
Administrative expenses
Our administrative expenses remained stable at US$41.3 million (US$41.4
million). The proportion of administrative expenses to revenue also stayed flat
at 4% (4%) in the first quarter of 2006.
Share of profit of associates
In the first quarter of 2006, we recorded US$15.8 million (US$22.0 million) of
equity in net income of unconsolidated investees mainly due to Fintur's
continued strong
12
performance. Please note that the decrease in income from Fintur operations
compared to the previous quarter is mainly due to seasonality and the tax charge
of Kcell in Kazakhstan due to the end of its tax holiday.
Net financing costs
Financial income increased in the first quarter of 2006 to US$53.6 million
(US$35.3 million) mainly due to increase in interest income on deposits in line
with the increase in TRY deposits and positive effect of foreign exchange gains
realized in the first quarter of 2006.
Financial expense, on the other hand, increased to US$20.2 million (US$15.5
million) in the first quarter of 2006 mainly due to the increase in the Ukranian
indebtedness.
Overall, net interest income increased to US$33.4 million (US$19.8 million) in
the first quarter of 2006.
Income tax expense
Q4 05-Q1 06
Q1 2005 Q4 2005 Q1 2006 % Chg
Current Tax benefit /(charge) (28.1) 48.8 (69.5) 242%
Deferred Tax benefit
/(expense) (33.4) (61.8) (17.9) (71%)
Income Tax benefit /(expense) (61.5) (13.1) (87.4) 567%
The total taxation charge in the first quarter of 2006 was US$87.4 million
(US$13.1 million). The lower tax base in the fourth quarter of 2005 stemmed from
the early payment made to Turk Telekom in December 2005, which was not foreseen
until the last quarter of 2005, in the context of the settlement agreements with
Turk Telekom and the Treasury.
Please note that since our investment incentive certificates provide tax benefit
in the form of deductions for corporate tax purposes, we are exempt from 30%
corporate tax; instead, such deductions are subject to withholding tax at the
rate of 19.8%.
The corporate tax rate is 30% for the fiscal year ended December 31, 2005.
However the Prime Minister of Turkey has announced in December 2005 that the
corporate tax rate will be reduced to 20% starting from January 1, 2006. The
issue is still debated by the government and the change in tax rate is not
effective today. Therefore, the tax rate of 30% is used in the calculation of
deferred tax.
EBITDA
13
EBITDA(2) in the first quarter of 2006 increased by 20% to US$414.3 million
(US$344.4 million) mainly due to increasing revenues along with 3.4% average
tariff increase in January, increase in subscriber base and the appreciation of
TRY against US$ on average basis while direct cost of revenues declined as a
percentage of revenue as a result of effect of interconnection costs and this
coupled with the decrease in proportion of the administrative expenses and
selling and marketing expenses in revenues led to an increase in EBITDA margin.
Consequently, EBITDA margin increased to 37% (32%) in the first quarter of 2006.
Q4 05-Q1 06
EBITDA Q1 2005 Q4 2005 Q1 2006 % Chg
Net revenues 914.9 1,079.9 1,132.2 5%
Direct cost of revenues 576.6 673.5 667.4 (1%)
Depreciation and amortization 170.4 194.6 196.8 1%
Selling and marketing expenses 134.4 215.2 206.1 (4%)
Administrative expenses 34.5 41.4 41.3 0%
EBITDA 339.9 344.4 414.3 20%
EBITDA Magrin 37% 32% 37% NA
Net income
We recorded US$187.2 million (US$220.7 million) net income in the first quarter
of 2006. The decrease was mainly due to increase in taxation charge and the
decrease in other income. The positive impact of other income incurred during
the legalization process of unregistered handsets improved net income in the
fourth quarter of 2005.
Balance Sheet Analysis
----------------------
Total Debt:
___________________
(2) Beginning from the 2006 fiscal year, we have revised the definition of
EBITDA which we use and we report EBITDA using this new definition starting from
the first quarter of 2006 results announcement to provide a new measure to
reflect solely cash flow from operations.
The EBITDA definition used in our previous releases had included Revenues,
Direct Cost of Revenues excluding depreciation and amortization, Selling and
Marketing expenses, Administrative expenses, translation gain/(loss), interest
income, income on unconsolidated subsidiaries, gain on sale of investments,
income/(loss) from related parties, minority interest and other
income/(expense). The new EBITDA definition, includes Revenues, Direct Cost of
Revenues excluding depreciation and amortization, Selling and Marketing
expenses, Administrative expenses, but excludes translation gain/(loss),
interest income, income on unconsolidated subsidiaries, gain on sale of
investments, income/(loss) from related parties, minority interest and other
income/(expense).
Differences between previously reported EBITDA amounts and the EBITDA amounts we
now report are due to adjustments made in the EBITDA definition we use and do
not constitute a change in operational or financial performance of the company.
14
Our consolidated indebtedness including indebtedness from our Ukraine operation
amounted to US$830.6 million (US$657.3 million) as of March 31, 2006. Of this
total amount, US$394.2 million (US$377.2 million) was related to our Ukraine
operations.
Total assets:
As of March 31, 2006, our total assets increased to US$5,576.7 million
(US$5,215.1 million.)
Cash Flow Analysis
------------------
Consolidated Cash Flow
(million) Q1 2005 Q4 2005 Q1 2006
Net cash provided by operating activities 265.3 212.6 125.3
Net cash used for investing activities (176.8) (161.3) (113.4)
Net cash provided by/(used for) financing
activities 38.7 112.7 169.2
Cash Balance 874.8 808.2 1,000.3
Our net cash flow from operating activities decreased by 41% to US$125.3million
(US$212.6 million) in the first quarter of 2006. Increase in EBITDA line was
offset by the cash out flows due to increasing trading marketable securities and
payment made in February 2006 for frequency usage fee for prepaid subscribers.
Capital expenditures in the first quarter of 2006 amounted to US$137.7 million
(US$196.5 million) of which US$55.6 million (US$90.0 million) was related to
Ukrainian operations.
The change in debt in the first quarter of 2006 was mainly due to the increase
in the short-term indebtness of Turkcell due to utilization of short tem
facilities for making advantageous long term returns on deposits while being
able to fund operations with relatively lower costs.
Consequently, our cash position at the end of first quarter of 2006 reached
US$1,000.3 million (US$808.2 million).
15
Reconciliation of Non-GAAP Financial Measures
We believe that EBITDA is a measure commonly used by companies, analysts and
investors in the telecommunications industry, which enhances the understanding
of our operating results and assists in the evaluation of our capacity to meet
our financial obligations. We also use EBITDA as an internal measurement tool
and, accordingly, we believe that the presentation of EBITDA provides useful and
relevant information to analysts and investors.
The EBITDA definition used in our previous releases had included Revenues,
Direct Cost of Revenues excluding depreciation and amortization, Selling and
Marketing expenses, Administrative expenses, translation gain/(loss), financial
income, income on unconsolidated subsidiaries, gain on sale of investments,
income/(loss) from related parties, minority interest and other
income/(expense). Our new EBITDA definition includes Revenues, Direct Cost of
Revenues excluding depreciation and amortization, Selling and Marketing
expenses, Administrative expenses, but excludes translation gain/(lossfinancial
income, income on unconsolidated subsidiaries, gain on sale of investments,
income/(loss) from related parties, minority interest and other
income/(expense).
EBITDA is not a measure of financial performance under IFRS and should not be
construed as a substitute for net earnings (loss) as a measure of performance or
cash flow from operations as a measure of liquidity
The following table provides a reconciliation of EBITDA, which is a non-GAAP
financial measure, to net cash provided by operating activities, which we
believe is the most directly comparable financial measure calculated and
presented in accordance with IFRS.
US$ million Q1 2005 Q4 2005 FY 2005 Q1 2006
EBITDA 339.9 344.4 1,722.2 414.3
Other operating income/(expense) 1.2 4.5 10.5 (2.1)
Financial income 38.6 35.3 142.7 53.6
Financial expense (78.3) (15.5) (166.3) (20.2)
Loss/gain on net monetary position, net 1.6 19.1 11.0 0.0
Net increase (decrease) in assets and
liabilities (37.6) (175.1) (726.1) (320.2)
Net cash provided by operating activities 265.3 212.6 994.0 125.3
Forward Looking Statements
This release may include 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. All statements
16
other than statements of historical facts included in this press release,
including, without limitation, certain statements regarding our operations,
financial position and business strategy may constitute forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as, among others, "may," "will,"
"expect," "intend," "plan," "estimate," "anticipate," "believe" or "continue."
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. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements. All subsequent written and oral forward-looking statements
attributable to us are expressly qualified in their entirety by reference to
these cautionary statements.
www.turkcell.com.tr
-------------------
ABOUT TURKCELL
Turkcell is the leading GSM operator in Turkey with 28.7 million post-paid and
pre-paid customers as of March 31, 2006 operating in a three player market with
a market share of approximately 64% as of year end 2005 (Source:
Telecommunication Authority). In addition to the high-quality wireless telephone
services, Turkcell currently offers General Packet Radio Service (GPRS)
countrywide and Enhanced Data Rates for GSM Evolution (EDGE) in dense areas,
which provide for both improved data and voice services. Turkcell provides
roaming with 501 operators in 191countries as of May 5, 2006. Serving a large
subscriber base in Turkey with its high-quality wireless telephone network,
Turkcell reported US$4,528 million net revenues as of December 31, 2005 and
US$1,132 million net revenue as of March 31, 2006 as per IFRS financial
statements. Turkcell has interests in international GSM operations in
Azerbaijan, Georgia, Kazakhstan, Moldova, Northern Cyprus and Ukraine. Turkcell
has been listed on the NYSE (New York Stock Exchange) and the ISE (Istanbul
Stock Exchange) since July 2000 and is the only NYSE listed company in Turkey.
51.00% of Turkcell's share capital is held by Turkcell Holding, 13.29% by
Cukurova Group, 13.07% by Sonera Holding, 5.07% by M.V. Group and 0.01% by
others while the remaining 17.56% is free float.
For further information please contact:
17
Contact:
Turkcell: Citigate Dewe Rogerson:
Investors: Europe:
Koray Ozturkler, Investor Relations Sandra Novakov
Tel: +90-212-313-1500 Tel: +44-207282-1089
Email: koray.ozturkler@turkcell.com.tr Email:
sandra.novakov@citigatedr.co.uk
Ferda Atabek, Investor Relations or
Tel: + 90-212-313-1275 United States:
Email: ferda.atabek@turkcell.com.tr Victoria Hofstad
Tel: +1-212-687-8080
investor.relations@turkcell.com.tr Email: vhofstad@sardverb.com
Media:
Bahar Erbengi, Corporate Communications
Tel: + 90-212-313-2309
Email: bahar.erbengi@turkcell.com.tr
18
TURKCELL ILETISIM HIZMETLERI A.S.
SELECTED FINANCIALS
-------------- ------------- ------------ --------------
Quarter Ended Quarter Ended Year Ended Quarter Ended
March 31, December 31, December 31, March 31,
2005 2005 2005 2006
Consolidated Statement of Operations Data
Revenues
Communication fees 865,3 1.013,9 4.295,9 1.047,6
Commission income 22,5 34,7 112,5 60,0
Monthly fixed fees 13,2 12,5 54,9 13,9
SIM card sales 11,3 13,7 50,3 5,8
Call center revenues 2,0 0,7 10,1 2,4
Other revenues 0,6 4,4 4,3 2,5
Total revenues 914,9 1.079,9 4.528,0 1.132,2
Direct cost of revenues (576,6) (673,5) (2.701,6) (667,4)
------------- -------------- -------------- --------------
Gross profit 338,3 406,4 1.826,4 464,8
Administrative expenses (34,5) (41,4) (154,0) (41,3)
Selling & marketing expenses (134,4) (215,2) (700,5) (206,1)
Other Operating Income / (Expense) 1,2 4,6 10,5 (2,0)
------------- -------------- -------------- --------------
Operating profit before financing costs 170,6 154,4 982,4 215,4
Financial expense (78,3) (15,5) (166,4) (20,2)
Financial income 38,6 35,3 142,7 53,6
Share of profit of associates 13,3 22,0 68,2 15,8
Loss/gain on net monetary position, net 1,5 19,2 11,0 -
------------- -------------- -------------- --------------
Income before taxes and minority interest 145,7 215,4 1.037,9 264,6
Income tax benefit / (expense) (61,5) (13,1) (290,5) (87,4)
------------- -------------- -------------- --------------
Income before minority interest 84,2 202,3 747,4 177,2
Minority interest 1,9 18,4 24,8 10,0
------------- -------------- -------------- --------------
Net income 86,1 220,7 772,2 187,2
============= ============== ============== ==============
Net income per share 0,046425 0,118960 0,416330 0,100915
Other Financial Data
Gross margin 37% 38% 40% 41%
EBITDA(*) 339,9 344,4 1.722,2 414,3
Capital expenditures 210,9 196,5 773,7 137,7
Consolidated Balance Sheet Data (at period
end)
Cash and cash equivalents 874,8 808,2 808,2 1.000,3
Total assets 5.082,1 5.215,1 5.215,1 5.576,7
Long term debt 148,9 79,2 79,2 16,2
Total debt 885,2 657,3 657,3 830,6
Total liabilities 2.038,3 1.524,8 1.524,8 1.696,2
Total shareholders' equity / Net Assets 3.043,8 3.690,3 3.690,3 3.880,6
Consolidated Cash Flow Information
Net cash provided by operating activities 265,3 212,6 994,0 125,3
Net cash used in investing activities (176,8) (161,3) (601,2) (113,4)
Net cash provided by / (used in) financing 38,7 112,7 (348,9) 169,2
activities
* Please refer to the notes on reconciliation of Non-GAAP Financial measures
on page 16.
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: May 10, 2006 By: /s/ MUZAFFER AKPINAR
----------------------------------------
Name: Muzaffer Akpinar
Title: Chief Executive Officer