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 October 25, 2018
 
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-F           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 
 
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 
 
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 
 
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 October 24, 2018 announcing Turkcell’s Third Quarter 2018 results and Q3 2018 IFRS Report.
 


 

 
 

 
TURKCELL ILETISIM HIZMETLERI
THIRD QUARTER 2018 RESULTS
“OUR DIGITAL BUSINESS MODEL HAS SUSTAINED PROFITABLE GROWTH”
 
 

 

 
Third Quarter 2018 Results

 
Contents
 
 
HIGHLIGHTS
 
 
COMMENTS BY KAAN TERZIOGLU, CEO
  4
     
 
FINANCIAL AND OPERATIONAL REVIEW
 
 
FINANCIAL REVIEW OF TURKCELL GROUP
  6
 
OPERATIONAL REVIEW OF TURKCELL TURKEY
  9
     
 
TURKCELL INTERNATIONAL
 
 
lifecell
 10
 
BeST
 11
 
Kuzey Kıbrıs Turkcell
 11
 
FINTUR
 12
 
TURKCELL GROUP SUBSCRIBERS
 12
     
 
OVERVIEW OF THE MACROECONOMIC ENVIRONMENT
 12
     
  RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS 13
     
  Appendix A – Tables 15

 
·
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 information and entertainment services, call center business revenues, financial services 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 September 30, 2018 refer to the same item as at September 30, 2017. For further details, please refer to our consolidated financial statements and notes as at and for September 30, 2018, 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 third quarter and nine months of 2017 and 2018 is based on IFRS figures in TRY terms unless otherwise stated.
 
 

2

 
Third Quarter 2018 Results

·
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. Certain operating data that we previously presented with Fintur included has been restated without Fintur.
 
·
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.
 
 
FINANCIAL HIGHLIGHTS

TRY million
Q317
Q318
y/y %
9M17
9M18
y/y %
Revenue
4,597
5,799
26.1%
12,966
15,666
20.8%
EBITDA1
1,632
2,393
46.6%
4,489
6,549
45.9%
EBITDA Margin (%)
35.5%
41.3%
5.8pp
34.6%
41.8%
7.2pp
Net Income
 601
241
(59.8%)
 1,763
1,157
(34.4%)

THIRD QUARTER HIGHLIGHTS
 

·
Strong set of results achieved in a challenging macro environment:
 
o
All-time high quarterly revenue and EBITDA at the Group level
 
o
Group revenues up 26% year-over-year, 59% on two-year cumulative basis
 
o
Resilience at operating profitability level; Group EBITDA including the impact of new IFRS standards up 47% year-over-year, 97% on two-year cumulative basis, EBITDA margin at 41.3%
 
o
Net Profitability despite high volatility in financial markets thanks to prudent financial risk management
 
o
Operational Capex/Sales at 16%, in line with our plan
 
·
Operational performance continued with solid results:
 
o
Record-high mobile ARPU2 growth of 18% on the back of successful execution of digital services-focused strategy and upsell performance
 
o
Strong customer loyalty reflected by mobile churn rate of 2.2%3, and leading NPS in the sector
 
o
Mobile triple play subscriber ratio4 at 63.9%, up 13.5pp year-over-year; multiplay with TV subscribers ratio5 at 47.5%, up 5.2pp year-over-year
 
o
Data usage of 4.5G users at 7.0GB in Q318
 
o
18.2 million 4.5G compatible smartphones on our network, up 0.5 million quarter-on-quarter
 
·
Second installment of dividend distributed on September 17
 
·
We upgrade our guidance6 for 2018. Accordingly, we are targeting revenue growth of 20%-22% up from 16%-18% range and EBITDA margin of 39%-41% up from 37%-40% range. We keep our target operational capex over sales ratio7 of 19%-18% unchanged.
 


3

 
Third Quarter 2018 Results
 
(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) Excluding M2M
(3) Average monthly churn rate for the respective quarter
(4) Share of mobile voice line users which excludes subscribers who have not used their line in the last 3 months. Triple play refers to mobile customers who use voice, data and one of core digital services.
(5) Multiplay subscribers with TV: Fiber internet + IPTV users & fiber internet + IPTV + fixed voice users
(6) 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 2017 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein
(7) Excluding license fee
For further details, please refer to our consolidated financial statements and notes as at and for September 30, 2018 which can be accessed via our website in the investor relations section (www.turkcell.com.tr).
 
COMMENTS BY KAAN TERZIOGLU, CEO

Our digital business model has sustained profitable growth; we once again raise our guidance
 
Our business model developed over the past 3.5 years has successfully weathered the tough macro-environment of the third quarter of 2018. Our digital services, which aim to create value for every one of 1440 minutes each day, was downloaded nearly 130 million times. The data usage of 4.5G users reached 7GB per month on average this quarter. Even more customers have promoted us, reflecting higher satisfaction. Such strong operational performance coupled with prudent financial risk management has led to continued growth in revenues and EBITDA1, despite strong macro headwinds.
 
Our revenues rose 26.1% to TRY5.8 billion with EBITDA reaching TRY2.4 billion on 46.6% year-on-year growth in the third quarter. The EBITDA margin reached 41.3%. In the first nine months, Turkcell Group grew 20.8% printing revenues of TRY15.7 billion with EBITDA of TRY6.5 billion on a 45.9% rise.
 
Considering the strong nine-month performance, we raise our full year revenue growth and EBITDA margin guidance2 to 20-22% and 39-41%, respectively. Our capital expenditure, monitored for efficiency at all times, remains on track at 18-19% operational capex3 over sales ratio guidance.
 
Our postpaid subscribers have reached 19 million
 
Our postpaid base reached 19 million with 191 thousand quarterly net additions, bringing total mobile subscribers to 34.9 million. Nearly 64% of our mobile customers have opted for multi-play4 and actively used our voice, data and at least one digital service, marking a 13.5pp yearly increase. In the fixed segment, total fiber subscribers exceeded 1.3 million on a 43 thousand quarterly increase, while multiplay with TV+ users5 rose to 47.5% of fiber residential subscribers.
 
Our customers’ higher data and digital services usage, upsell to higher tariffs, and the rising share of postpaid subscribers have led to higher ARPU. Mobile ARPU6 grew by 18% year-on-year to TRY38.7, while fixed residential ARPU reached TRY55.3.
 
Lifecell customer base expanded with freedom of choice
 
We introduced a unique curation model for our subscribers using Lifecell tariffs, namely our data-only offering built on the digital services and mobile data platform, in the last quarter. With this model, Lifecell tariff users are free to choose services other than Turkcell’s as part of their tariffs. Fueled by this new model, Lifecell subscribers have almost doubled this quarter too, reaching 1.6 million by October.
 
Digital exports on track with BiP
 
Total downloads of our digital services that enrich our customers’ lives have reached 130 million this quarter. We will continue to work towards expanding and improving our portfolio with the ultimate aim of reaching one billion downloads within three years.
 
 

4

 
Third Quarter 2018 Results

Our communication and experience platform, BiP was proudly developed through internal resources in Turkey to provide an enriched messaging service. And now, it allows the use of two numbers on a single handset, and money transfer in addition to its multiuser video and voice call capability, and subscription to service provider channels. With a significant hike this quarter, total BiP downloads reached 30.3 million with 9.7 million active users7. BiP’s first ads abroad were broadcast on digital screens in New York’s Times Square during the week of the UN General Assembly in September, accelerating the global communication of our flagship service.
 
Total downloads of our digital music platform fizy reached 19.2 million where more than 7.8 million songs are streamed daily on average. 36 live concerts were broadcasted this quarter on fizy. Moreover, fizy is now equipped with “voice over” capability for the visually-impaired. Turkey’s most popular digital publishing platform, Dergilik, with its rich content that includes international magazines has 13 million active users. Over 43 million magazines and newspapers were read in the first nine months. Launched a year ago, Turkey’s search engine, Yaani has been downloaded 6.5 million times to date, with around 1.8 million searches conducted daily on average.
 
Meanwhile, we have achieved significant milestones in providing a digital infrastructure to other service providers. Our “Fast Log-in” app, which enables safe and fast entry to mobile applications and online websites, has 12.2 million registered users. Fast Log-in is integrated to some 31 services through which around 23 million logins were facilitated during the quarter. With this application, Turkey became the first market in the world to meet the commercial sustainability criteria set by the GSMA (Global Mobile Operators Association). Live-contest application, Hadi is one of those applications integrated to Fast Log-in. Making use of Turkcell e-commerce competences and infrastructure, it is a new media and entertainment platform for mobile internet users. Hadi takes place every evening for 25 minutes where to date, some 700 thousand people have attended in a single session.
 
We continue to invest in our future, the younger generation
 
We have continued to invest in our human capital with a view to enlarging our economy though digitization. 232 new graduates have now joined the Turkcell family through our innovative recruitment program GNÇYTNK.
 
We have already announced our agenda of helping children to avoid cyber risks and thrive in the digital world, and our partnership with the DQ Institute for this purpose. DQ Institute practices were set as global standards for digital literacy and capability by the OECD and IEEE at the World Economic Forum in September. We are proud to offer this valuable service to children and their families over the coming months.
 
If Turkey wins, Turkcell wins
 
As Turkey’s Turkcell, we have fully supported the “All-Out War Program Against Inflation” unveiled by the Turkish Government, doubling the data quota assigned to each tariff and our digital services. We believe that Turkey will emerge from this period of volatile macro conditions with an economy stronger than before, and fully support this effort with our digital capacities.
 
We thank all our colleagues for the role they have played in the successful exceeding of our targets, along with our Board of Directors for their unyielding trust and support. We also express our gratitude to our customers, who have remained with us throughout our success story.
 


5

 
Third Quarter 2018 Results

(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 2017 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein
(3) Excluding license fee
(4) Share of mobile voice line users which excludes subscribers who have not used their line in the last 3 months. Triple Play refers to mobile customers who use voice, data and one of core digital services.
(5) Multiplay subscribers with TV: Fiber internet + IPTV users & fiber internet + IPTV + fixed voice users
(6) Excluding M2M
(7) 3-month active users
 
FINANCIAL AND OPERATIONAL REVIEW


Financial Review of Turkcell Group

Profit & Loss Statement (million TRY)
Quarter
Nine Months
Q317
Q318
y/y %
9M17
9M18
y/y %
Revenue
4,597.4
5,799.2
26.1%
12,966.0
15,666.2
20.8%
Cost of revenue1
(2,282.3)
(2,769.8)
21.4%
(6,437.5)
(7,250.4)
12.6%
Cost of revenue1/Revenue
(49.6%)
(47.8%)
1.8pp
(49.6%)
(46.3%)
3.3pp
Gross Margin1
50.4%
52.2%
1.8pp
50.4%
53.7%
3.3pp
Administrative expenses
(194.3)
(226.8)
16.7%
(577.9)
(635.5)
10.0%
Administrative expenses/Revenue
(4.2%)
(3.9%)
0.3pp
(4.5%)
(4.1%)
0.4pp
Selling and marketing expenses
(488.4)
(409.8)
(16.1%)
(1,461.3)
(1,231.1)
(15.8%)
Selling and marketing expenses/Revenue
(10.6%)
(7.1%)
3.5pp
(11.3%)
(7.9%)
3.4pp
EBITDA2
1,632.4
2,392.8
46.6%
4,489.3
6,549.0
45.9%
EBITDA Margin
35.5%
41.3%
5.8pp
34.6%
41.8%
7.2pp
Depreciation and amortization
(651.0)
(975.1)
49.8%
(1,896.4)
(3,001.0)
58.2%
EBIT3
981.4
1,417.7
44.5%
2,592.9
3,548.0
36.8%
Net finance income / (costs)
(165.4)
(868.7)
425.2%
(216.2)
(1,668.5)
671.7%
    Finance income
175.7
1,911.3
987.8%
619.1
3,158.0
410.1%
    Finance costs
(341.1)
(2,779.9)
715.0%
(835.3)
(4,826.5)
477.8%
Other income / (expense)
(39.9)
(123.0)
208.3%
(73.0)
(186.6)
155.6%
Non-controlling interests
(14.4)
(39.9)
177.1%
(38.2)
(78.5)
105.5%
Share of profit of equity accounted investees
-
(0.4)
n.m
-
(0.4)
n.m
Income tax expense
(161.1)
(144.4)
(10.4%)
(502.2)
(456.8)
(9.0%)
Discontinued operations
-
-
-
-
-
-
Net Income
600.6
241.3
(59.8%)
1,763.2
1,157.2
(34.4%)
 
(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.
 

Revenue of the Group grew by 26.1% year-on-year in Q318. This was mainly driven by the robust ARPU performance of Turkcell Turkey on the back of successful execution of our digital services-focused strategy and upsell performance.

Turkcell Turkey revenues, comprising 86% of Group revenues, rose by 22.6% to TRY4,959 million (TRY4,044 million).

-
Data and digital services revenues grew by 17.7% to TRY3,179 million (TRY2,702 million).
 

6

 
Third Quarter 2018 Results


o
Larger number of data users, higher 4.5G smartphone penetration leading to higher data consumption per user and increased penetration of digital services were the main drivers on the mobile front.
 
o
On the fixed front, a larger subscriber base and increased ratio of multiplay subscribers with TV were the main drivers.
 
-
Wholesale revenues grew by 75.0% to TRY319 million (TRY182 million) on the back of increased carrier traffic and the positive impact of TRY depreciation on FX based revenues.
 
Turkcell International revenues, at 7% of Group revenues, increased 55.4% to TRY424 million (TRY273 million), mainly with the rise in lifecell and BeST revenues.

Other subsidiaries’ revenues, at 7% of Group revenues, and which includes information and entertainment services, call center revenues and revenues from financial services rose by 48.2% to TRY416 million (TRY280 million). This was mainly driven by the increase in the consumer finance company’s revenues to TRY252 million (TRY166 million) in Q318.

Cost of revenue (excluding depreciation and amortization) declined to 47.8% (49.6%) as a percentage of revenues in Q318. This was mainly due to the decline in radio expenses (2.7pp), personnel expenses (1.1pp) and other cost items (0.5pp), despite the rise in TRX expenses (1.3pp) and cost of goods sold (1.2pp) as a percentage of revenues.

The impact of new IFRS standards is TRY216 million positive in cost of revenue items.

Administrative expenses declined to 3.9% (4.2%) as a percentage of revenues in Q318. The impact of new IFRS standards is TRY18 million positive.

Selling and marketing expenses declined to 7.1% (10.6%) as a percentage of revenues in Q318. This was driven by the decline in marketing expenses (1.0pp) and selling expenses (2.7pp) despite the increase in other cost items (0.2pp) as a percentage of revenues.

The impact of new IFRS standards is TRY162 million positive.

EBITDA1 rose by 46.6% year-on-year in Q318 leading to a 5.8pp increase in EBITDA margin to 41.3% (35.5%).
The impact of new IFRS standards on EBITDA is TRY382 million positive. Excluding IFRS impacts, EBITDA rose 23.2% on the back of strong revenue growth and effective cost management.

-
Turkcell Turkey’s EBITDA grew by 43.0% to TRY2,089 million (TRY1,461 million) with an EBITDA margin of 42.1% (36.1%) on a 6pp increase. The impact of new IFRS standards is TRY331 million positive.
 

-
Turkcell International EBITDA rose by 104.8% to TRY151 million (TRY74 million) leading to an EBITDA margin of 35.5% (26.9%). The impact of new IFRS standards is TRY40 million positive.
 

-
The EBITDA of other subsidiaries rose by 56.3% to TRY154 million (TRY98 million) with the increasing contribution of our consumer finance company. The impact of new IFRS standards is TRY10 million positive.
 

Depreciation and amortization expenses increased 49.8% in Q318. The impact of new IFRS standards is TRY246 million negative in depreciation and amortization expenses.

Net finance expense rose to TRY869 million (TRY165 million) in Q318, mainly due to higher net foreign exchange losses on FX volatility, and to higher interest expenses resulting from a larger loan portfolio. Our net foreign exchange loss after the positive impact of the hedging instruments this quarter was TRY716 million. Please note that the Group has 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. Furthermore, the impact of new IFRS standards was TRY52 million negative on net finance expense.
 


7

 
Third Quarter 2018 Results

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

Income tax expense declined 10.4% year-on-year in Q318. Please see Appendix A for details.

Net income of the Group was at TRY241 million (TRY601 million) in Q318, mainly due to higher net foreign exchange loss, and increased interest expenses on loans, despite the robust operational performance.

Total cash & debt: Consolidated cash as of September 30, 2018 rose to TRY8,749 million from TRY7,081 million as of June 30, 2018. Excluding the FX swap transactions for TRY borrowing, 77% of our cash is in US$ and 23% is in EUR.

Consolidated debt as of September 30, 2018 rose to TRY23,055 million from TRY18,449 million as of June 30, 2018. This increase was mainly due to the FX impact on foreign currency denominated debt. Moreover, TRY1,086 million of our consolidated debt is comprised of lease obligations resulting from the implementation of IFRS 16.

·
Consolidated debt breakdown excluding lease obligations resulting from the implementation of IFRS 16:
 
-
Turkcell Turkey’s debt was TRY15,776 million, of which TRY8,690 million (US$1,451 million) was denominated in US$, TRY6,667 million (EUR959 million) in EUR, TRY180 million (CNY208 million) in CNY and the remaining TRY239 million in TRY.
 
-
The debt balance of lifecell was TRY1,027 million denominated in UAH.
 
-
Our consumer finance company had a debt balance of TRY5,161 million, of which TRY2,353 million (US$393 million) was denominated in US$, and TRY1,637 million (EUR236 million) in EUR with the remaining TRY1,171 million in TRY.
 
 
(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.
 
·
TRY753.7 million of IFRS 16 lease obligations is denominated in TRY, TRY115.2 million (US$19.2 million) in US$, TRY66.6 million (EUR9.6 million) in EUR and the remaining balance in other local currencies (please note that the figures in parentheses refer to US$ or EUR equivalents).
 
TRY13,249 million of our consolidated debt is set at a floating rate. Excluding the consumer finance business borrowings, TRY4,385 million of consolidated debt will mature within less than a year.

Net debt as of September 30, 2018 was at TRY14,306 million. Excluding lease obligations resulting from the implementation of IFRS 16, net debt was at TRY13,220 million with a net debt to EBITDA ratio of 1.8 times. Excluding consumer finance company consumer loans, our telco only net debt was at TRY8,430 million with a leverage of 1.2 times.

Turkcell Group’s short FX position was at US$255 million as at the end of Q318. This is below the US$500 million level advised by our Board considering the size of our operations and balance sheet.  (Please note that this figure takes into account advance payments and hedging but excludes FX swap transactions for TL borrowing).

Capital expenditures: Capital expenditures, including non-operational items, amounted to TRY1,083.7 million (excluding the impact of new IFRS standards) in Q318.

In Q318 and 9M18, operational capital expenditures (excluding license fees) at the Group level were at 16.1% and 16.0% of total revenues, respectively.

Capital expenditures (million TRY)
Quarter
Nine Months
Q317
Q318
9M17
9M18
     Turkcell Turkey
(873.1)
(780.0)
(2,104.6)
(2,309.8)
     Turkcell International1
(60.5)
(301.6)
(163.1)
(712.2)
     Other Subsidiaries1
(4.5)
(2.0)
(15.1)
(11.8)
Capex and License
(938.1)
(1,083.7)
(2,282.8)
(3,033.8)
 (1) The impact from the movement of reporting currency (TRY) against local currencies of subsidiaries in other countries is included in these lines.



8

 
Third Quarter 2018 Results

Operational Review of Turkcell Turkey

Summary of Operational Data
Q317
Q218
Q318
y/y %
q/q %
Number of subscribers (million)
37.2
37.6
37.8
1.6%
0.5%
Mobile Postpaid (million)
18.4
18.8
19.0
3.3%
1.1%
   Mobile M2M (million)
2.3
2.5
2.5
8.7%
-
Mobile Prepaid (million)
16.3
16.0
15.9
(2.5%)
(0.6%)
Fiber (thousand)
1,156.5
1,288.5
1,331.3
15.1%
3.3%
ADSL (thousand)
917.4
916.7
917.6
-
0.1%
IPTV (thousand)
466.6
559.9
581.5
24.6%
3.9%
Churn (%)1
         
Mobile Churn (%)2
1.9%
1.9%
2.2%
0.3pp
0.3pp
Fixed Churn (%)
1.8%
1.5%
1.8%
-
0.3pp
ARPU (Average Monthly Revenue per User) (TRY)
         
Mobile ARPU, blended
30.9
32.7
36.2
17.2%
10.7%
   Mobile ARPU, blended (excluding M2M)
32.8
34.9
38.7
18.0%
10.9%
Postpaid
44.3
47.1
50.8
14.7%
7.9%
   Postpaid (excluding M2M)
50.0
53.7
58.1
16.2%
8.2%
Prepaid
15.7
15.8
18.9
20.4%
19.6%
Fixed Residential ARPU, blended
53.5
55.4
55.3
3.4%
(0.2%)
Average mobile data usage per user (GB/user)
4.2
5.0
5.4
28.6%
8.0%
Mobile MoU (Avg. Monthly Minutes of usage per subs) blended
366.2
364.4
372.6
1.7%
2.3%

(1)
Presentation of churn figures has been changed to demonstrate average monthly churn figures for the respective quarters.
 
(2)
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. Please note that figures for prior periods have not been restated to reflect this change in churn policy.
 
 
In Q318, total Turkcell Turkey subscribers reached 37.8 million on 591 thousand annual additions on the back of our rich value proposition through quality of our 4.5G network and an attractive digital services portfolio.

Our mobile subscriber base reached 34.9 million by the end of Q318 on 128 thousand quarterly net additions. This was mainly driven by 191 thousand quarterly net additions to our postpaid subscribers, which reached 19 million mainly due to our rich value proposition and pre to post switch performance. Accordingly, the share of postpaid subscribers reached 54.5% (53.0%) of our total mobile subscriber base.

Our fixed subscriber base has continued to grow mainly on 43 thousand quarterly net additions to fiber subscribers. Our fiber customer base grew by 175 thousand on annual basis. IPTV subscribers reached 582 thousand on 22 thousand quarterly and 115 thousand annual net additions. Total TV users including OTT TV only customers reached 3.1 million. As of October, Turkcell TV+ mobile application downloads reached 10.1 million.

In Q318, our average monthly mobile churn rate was at 2.2%, while our average monthly fixed churn rate was at 1.8%.

Mobile ARPU (excluding M2M) rose 18.0% year-on-year driven mainly by increased data and digital services usage, upsell performance and a larger postpaid base. ARPU growth was also supported by the increased share of triple play customers, who use voice, data and digital services combined, to 63.9%3.

Fixed Residential ARPU rose 3.4% in Q318 year-on-year.

Average mobile data usage per user rose by 28.6% in Q318 year-on-year on the back of higher data consumption of 4.5G users. Accordingly, the average mobile data usage of 4.5G users was at 7.0GB in Q318.

In Q318, we continued to increase the 4.5G compatible smartphone penetration on our network. 4.5G compatible smartphones rose to 18.2 million on 0.5 million quarterly additions to 79% of total smartphones in Q318.
 


9

 
Third Quarter 2018 Results

(3) Share among mobile voice users excluding subscribers who have not used their lines in the last 3 months. Triple Play refers to mobile customers who use voice, data and one of core digital services

TURKCELL INTERNATIONAL

lifecell1 Financial Data
Quarter
Nine Months
Q317
Q318
y/y%
9M17
9M18
y/y%
Revenue (million UAH)
1,253.3
1,367.1
9.1%
3,606.8
3,851.5
6.8%
EBITDA (million UAH)
371.9
610.0
64.0%
995.2
1,678.6
68.7%
EBITDA margin (%)
29.7%
44.6%
14.9pp
27.6%
43.6%
16.0pp
Net income / (loss) (million UAH)
(92.1)
(185.6)
101.5%
(324.1)
(570.5)
76.0%
Capex (million UAH)2
234.2
576.8
146.3%
915.8
3,099.3
238.4%
Revenue (million TRY)
169.1
275.0
62.6%
486.7
650.6
33.7%
EBITDA (million TRY)
50.2
115.0
129.1%
134.3
283.6
111.2%
EBITDA margin (%)
29.7%
41.8%
12.1pp
27.6%
43.6%
16.0pp
Net income / (loss) (million TRY)
(12.4)
(34.8)
180.6%
(43.7)
(93.9)
114.9%

(1) Since July 10, 2015, we hold a 100% stake in lifecell.
(2) Excluding the impact of new IFRS standards

lifecell (Ukraine) revenues rose by 9.1% year-on-year in Q318 in local currency terms, mainly driven by growth in mobile data revenues with increased data users and higher data consumption. EBITDA in local currency terms increased 64.0% year-on-year, which resulted in an EBITDA margin of 44.6% with effective cost control measures and the positive impact of new IFRS standards.

lifecell’s revenues in TRY terms grew by 62.6%, while the EBITDA margin increased to 41.8% year-on-year in Q318. The impact of new IFRS standards on lifecell’s EBITDA is TRY35 million positive in Q318.

lifecell Operational Data
Q317
Q218
Q318
y/y%
q/q %
Number of subscribers (million)3
11.7
10.1
10.1
(13.7%)
-
    Active (3 months)4
8.2
7.8
7.6
(7.3%)
(2.6%)
MOU (minutes) (12 months)
128.2
147.4
145.8
13.7%
(1.1%)
ARPU (Average Monthly Revenue per User), blended (UAH)
34.6
41.7
45.0
30.1%
7.9%
    Active (3 months) (UAH)
50.4
55.5
59.3
17.7%
6.8%

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

lifecell’s three-month active subscriber base declined to 7.6 million in Q318, mainly due to the declining multiple SIM card usage trend in the country. Blended ARPU increased 30.1% year-on-year in Q318, mostly on rising mobile data consumption. Additionally, lifecell continued to grow higher ARPU customers leveraging the quality of its 3G and 4.5G networks, and its attractive digital services portfolio.

lifecell has continued its 4.5G network roll-out in Q318, launching its services on the 1800 MHz frequency on July 1st in addition to the introduction of services on the 2600 MHz frequency in March. The penetration of 4.5G services continued to rise as reflected by the number of 3-month active 4.5G users, which expanded by over 50% during the quarter. Overall, 3 month active data users on 3G and 4.5G networks in total exceeded 4.2 million, while average data consumption per user ramped up by 156% year-on-year, mainly with the higher data consumption of 4.5G users. Meanwhile, lifecell continued to lead the Ukrainian market with 73% smartphone penetration.
 


10

 
Third Quarter 2018 Results

In line with Turkcell’s global digital services strategy, lifecell continued to enrich its digital services portfolio and increase the penetration of these services within its customer base, which led to increased digitals services revenues.
BeST1
Quarter
Nine Months
Q317
Q318
y/y%
9M17
9M18
y/y%
Number of subscribers (million)
1.6
1.6
-
1.6
1.6
-
    Active (3 months)
1.3
1.2
(7.7%)
1.3
1.2
(7.7%)
Revenue (million BYN)
29.9
32.2
7.7%
81.4
92.0
13.0%
EBITDA (million BYN)
1.9
5.5
189.5%
2.5
15.2
508.0%
EBITDA margin (%)
6.5%
17.1%
10.6pp
3.0%
16.5%
13.5pp
Net loss (million BYN)
(9.9)
(8.5)
(14.1%)
(32.6)
(28.8)
(11.7%)
Capex (million BYN)2
3.0
1.8
(40.0%)
8.2
7.5
(8.5%)
Revenue (million TRY)
53.9
87.1
61.6%
152.2
209.1
37.4%
EBITDA (million TRY)
3.5
14.0
300.0%
4.5
34.8
673.3%
EBITDA margin (%)
6.5%
16.1%
9.6pp
3.0%
16.6%
13.6pp
Net loss (million TRY)
(17.9)
(23.2)
29.6%
(61.2)
(64.7)
5.7%
Capex (million TRY)2
5.5
8.3
50.9%
14.8
21.3
43.9%

(1) BeST, in which we hold an 80% stake, has operated in Belarus since July 2008.
(2) Excluding the impact of new IFRS standards

BeST revenues rose by 7.7% year-on-year in Q318 in local currency terms, mainly on growth in voice, mobile data and device sale revenues. BeST’s EBITDA margin rose to 17.1%, mainly driven by top-line growth and the implementation of new IFRS standards.

BeST’s revenues in TRY terms rose by 61.6% year-on-year in Q318, while its EBITDA margin increased to 16.1%. The impact of new IFRS standards on BeST’s EBITDA is TRY10.7 million positive in Q318.

BeST continued to increase its 4G coverage offering its services in all regions of Belarus. Increasing penetration of 4G services leads to greater data consumption and paves the way for digital services usage. Accordingly, BeST continued to increase the penetration of its digital services within its customer base and saw increasing digital revenues on the back of music, TV and gaming platforms. BeST introduced its new game platform for the kids segment this quarter.

Kuzey Kıbrıs Turkcell3 (million TRY)
Quarter
Nine Months
Q317
Q318
y/y%
9M17
9M18
y/y%
Number of subscribers (million)
0.5
0.5
-
0.5
0.5
-
Revenue
40.7
45.6
12.0%
117.0
134.3
14.8%
EBITDA
14.2
16.0
12.7%
42.4
47.3
11.6%
EBITDA margin (%)
34.8%
35.0%
0.2pp
36.3%
35.2%
(1.1pp)
Net income
8.9
8.7
(2.2%)
26.3
24.0
(8.7%)
Capex4
19.8
18.9
(4.5%)
27.6
30.4
10.1%

(3) Kuzey Kıbrıs Turkcell, in which we hold a 100% stake, has operated in Northern Cyprus since 1999.
(4) Excluding the impact of new IFRS standards
Kuzey Kıbrıs Turkcell revenues rose by 12.0% year-on-year in Q318, mainly driven by mobile data revenue growth and increase in device sales. EBITDA increased by 12.7%, which led to an EBITDA margin of 35.0% with the positive impact of new IFRS impacts despite the rise in costs of devices sold and interconnection expenses. The impact of new IFRS standards on Kuzey Kıbrıs Turkcell’s EBITDA is TRY1.3 million positive in Q318.
 


11

 
Third Quarter 2018 Results

Fintur had operations in Azerbaijan, Kazakhstan, Moldova and Georgia, and we hold a 41.45% stake in the company. 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 March 5, 2018, Fintur transferred its 51.3% total shareholding in Azertel Telekomunikasyon Yatirim Diş Ticaret A.Ş to Azerbaijan International Telecom LLC, a fully state-owned company of the Republic of Azerbaijan, for EUR221.7 million.

On March 20, 2018, Fintur completed the transfer of its 99.99% total shareholding in Geocell LLC to Silknet JSC, a joint stock company organized under the laws of Georgia, for a total consideration of US$153 million.

These transactions have no impact on our financial statements since Fintur is classified as “assets held for sale” in our financials.

Turkcell Group Subscribers

Turkcell Group subscribers amounted to approximately 50.3 million as of September 30, 2018. This figure is calculated by taking the number of subscribers of Turkcell Turkey and each of our subsidiaries. It includes the total number of mobile, fiber, ADSL 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 Subscribers
Q317
Q218
Q318
y/y%
q/q%
Mobile Postpaid (million)
18.4
18.8
19.0
3.3%
1.1%
Mobile Prepaid (million)
16.3
16.0
15.9
(2.5%)
(0.6%)
Fiber (thousand)
1,156.5
1,288.5
1,331.3
15.1%
3.3%
ADSL (thousand)
917.4
916.7
917.6
0.0%
0.1%
IPTV (thousand)
466.6
559.9
581.5
24.6%
3.9%
Turkcell Turkey subscribers (million)1
37.2
37.6
37.8
1.6%
0.5%
lifecell (Ukraine)
11.7
10.1
10.1
(13.7%)
-
BeST (Belarus)
1.6
1.6
1.6
-
-
Kuzey Kıbrıs Turkcell 
0.5
0.5
0.5
-
-
lifecell Europe2
0.3
0.3
0.2
(33.3%)
(33.3%)
Turkcell Group Subscribers (million)
51.3
50.1
50.3
(1.9%)
0.4%
(1) Subscribers to more than one service are counted separately for each service.
(2) The “wholesale traffic purchase” agreement, signed between Turkcell Europe GmbH operating in Germany and Deutsche Telekom for five years in 2010, had been modified to reflect the shift in business model to a “marketing partnership”. The new agreement between Turkcell and a subsidiary of Deutsche Telekom was signed on August 27, 2014. The transfer of Turkcell Europe operations to Deutsche Telekom’s subsidiary was completed on January 15, 2015. Subscribers are still included in the Turkcell Group Subscriber figure. Turkcell Europe was rebranded as lifecell Europe on January 15, 2018.

OVERVIEW OF THE MACROECONOMIC ENVIRONMENT

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

 
Quarter
Nine Months
Q317
Q218
Q318
y/y%
q/q%
9M17
9M18
y/y%
GDP Growth (Turkey)
11.5%
5.2%
n.a
n.a
n.a
7.5%
n.a
n.a
Consumer Price Index (Turkey) (yoy)
11.2%
15.4%
24.5%
13.3pp
9.1pp
11.2%
24.5%
13.3pp
US$ / TRY rate
               
   Closing Rate
3.5521
4.5607
5.9902
68.6%
31.3%
3.5521
5.9902
68.6%
   Average Rate
3.4999
4.2639
5.5223
57.8%
29.5%
3.5763
4.5313
26.7%
EUR / TRY rate
               
   Closing Rate
4.1924
5.3092
6.9505
65.8%
30.9%
4.1924
6.9505
65.8%
   Average Rate
4.1241
5.0636
6.4356
56.0%
27.1%
3.9867
5.3929
35.3%
US$ / UAH rate
               
   Closing Rate
26.52
26.19
28.30
6.7%
8.1%
26.52
28.30
6.7%
   Average Rate
25.94
26.24
27.43
5.7%
4.5%
26.50
27.03
2.0%
US$  / BYN rate
               
   Closing Rate
1.9623
1.9898
2.1121
7.6%
6.1%
1.9623
2.1121
7.6%
   Average Rate
1.9404
1.9975
2.0408
5.2%
2.2%
1.9100
2.0015
4.8%
 


12

 
Third Quarter 2018 Results

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 and Administrative expenses, 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)
Quarter
Nine Months
Q317
Q318
y/y%
9M17
9M18
y/y%
Adjusted EBITDA
1,632.4
2,392.8
46.6%
4,489.3
6,549.0
45.9%
Depreciation and amortization
(651.0)
(975.1)
49.8%
(1,896.4)
(3,001.0)
58.2%
Finance income
175.7
1,911.3
987.8%
619.1
3,158.0
410.1%
Finance costs
(341.1)
(2,779.9)
715.0%
(835.3)
(4,826.5)
477.8%
Other income / (expense)
(39.9)
(123.0)
208.3%
(73.0)
(186.6)
155.6%
Share of profit of equity accounted investees
-
(0.4)
n.m
-
(0.4)
n.m
Consolidated profit from continued operations before income tax & minority interest
776.1
425.6
(45.2%)
2,303.7
1,692.5
(26.5%)
Income tax expense
(161.1)
(144.4)
(10.4%)
(502.2)
(456.8)
(9.0%)
Consolidated profit from continued operations before minority interest
615.0
281.2
(54.3%)
1,801.4
1,235.7
(31.4%)
Discontinued operations
-
-
-
-
-
-
Consolidated profit before minority interest
615.0
281.2
(54.3%)
1,801.4
1,235.7
(31.4%)

 

13

 
Third Quarter 2018 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 and capex for 2018. 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 2017 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 8 countries – Turkey, Ukraine, Belarus, Northern Cyprus, Germany, Azerbaijan, Kazakhstan, Moldova. Turkcell launched LTE services in its home country on April 1st, 2016, employing LTE-Advanced and 3 carrier aggregation technologies in 81 cities. In 2G and 3G, Turkcell’s population coverage in Turkey is at 99.68% and 98.23%, respectively, as of September 2018. Turkcell offers up to 10 Gbps fiber internet speed with its FTTH services. Turkcell Group reported TRY5.8 billion revenue in Q318 with total assets of TRY45.4 billion as of September 30, 2018. 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





This press release can also be viewed using the Turkcell Investor Relation app, which can be downloaded here for iOS, and here for Android mobile devices.
 


14

 
Third Quarter 2018 Results

Appendix A – Tables

Table: Net foreign exchange gain and loss details

Million TRY
Quarter
Nine Months
Q317
Q318
y/y%
9M17
9M18
y/y%
Turkcell Turkey
(140.4)
(1,811.8)
n.m
(340.3)
(2,836.5)
733.5%
Turkcell International
(1.3)
(80.6)
n.m
1.1
(123.6)
n.m
Other Subsidiaries
(19.3)
(818.2)
n.m
(22.6)
(1,205.1)
n.m
Net FX loss before hedging
(161.0)
(2,710.5)
n.m
(361.8)
(4,165.0)
n.m
Fair value gain on derivative financial instruments1
87.3
1,993.9
n.m
215.7
2,775.2
n.m
Net FX gain / (loss) after hedging
(73.7)
(716.5)
872.2%
(146.1)
(1,389.8)
851.3%
(1)
Definition of fair value gain on derivative financial instruments has been extended to include the impact of interest income and expense in relation to derivative instruments and fair value of FX swaps engaged in during the period to manage operational cash flow balance. Please note that figures for prior periods have not been restated to reflect this change in definition.
 

Table: Income tax expense details

Million TRY
Quarter
Nine Months
Q317
Q318
y/y%
9M17
9M18
y/y%
Current tax expense
(120.7)
(178.3)
47.7%
(353.7)
(540.0)
52.7%
Deferred tax income / (expense)
(40.4)
33.9
(183.9%)
(148.5)
83.2
(156.0%)
Income Tax expense
(161.1)
(144.4)
(10.4%)
(502.2)
(456.8)
(9.0%)
 

15

TURKCELL ILETISIM HIZMETLERI AS

CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
As at 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)

   
Note
   

30 September 2018
   

31 December 2017
 
Assets
                 
Property, plant and equipment
   
9
     
10,542,071
     
9,665,408
 
Right-of-use assets
   
11
     
1,444,026
     
-
 
Intangible assets
   
10
     
9,873,705
     
8,340,410
 
Investment properties
           
15,369
     
980
 
Trade receivables
           
135,386
     
155,634
 
Receivables from financial services
           
1,322,739
     
1,297,597
 
Deferred tax assets
           
140,617
     
96,060
 
Investments in equity accounted investees
   
19
     
13,393
     
-
 
Held to maturity investments
           
-
     
654
 
Other non-current assets
           
838,982
     
356,620
 
Total non-current assets
           
24,326,288
     
19,913,363
 
                         
Inventories
           
154,950
     
104,102
 
Trade receivables and accrued income
           
3,363,060
     
2,848,572
 
Due from related parties
           
8,992
     
5,299
 
Receivables from financial services
           
3,467,098
     
2,950,523
 
Derivative financial instruments
           
2,140,218
     
981,396
 
Held to maturity investments
           
12,435
     
11,338
 
Cash and cash equivalents
           
8,749,191
     
4,712,333
 
Other current assets
           
1,253,215
     
1,160,605
 
Subtotal
           
19,149,159
     
12,774,168
 
Assets classified as held for sale
   
12
     
1,928,649
     
1,294,938
 
                         
Total current assets
           
21,077,808
     
14,069,106
 
                         
Total assets
           
45,404,096
     
33,982,469
 
                         
                         
Equity
                       
Share capital
           
2,200,000
     
2,200,000
 
Share premium
           
269
     
269
 
Treasury shares (-)
           
(101,114
)
   
(56,313
)
Additional paid in capital
           
35,026
     
35,026
 
Reserves
           
2,060,634
     
1,542,679
 
Remeasurements of employee termination benefit
           
(44,776
)
   
(44,776
)
Retained earnings
           
10,652,643
     
11,312,276
 
Total equity attributable to equity holders of
Turkcell Iletisim Hizmetleri AS (“the Company”)
         
14,802,682
     
14,989,161
 
 
Non-controlling interests
           
88,210
     

55,927
 
                         
Total equity
           
14,890,892
     
15,045,088
 
                         
Liabilities
                       
Borrowings
   
14
     
14,955,068
     
8,257,995
 
Employee benefit obligations
           
233,238
     
197,666
 
Provisions
           
239,074
     
197,418
 
Deferred tax liabilities
           
1,009,867
     
651,122
 
Other non-current liabilities
           
603,414
     
409,337
 
Total non-current liabilities
           
17,040,661
     
9,713,538
 
                         
Borrowings
   
14
     
8,100,030
     
4,278,154
 
Current tax liabilities
           
136,786
     
103,105
 
Trade and other payables
           
4,072,284
     
3,696,466
 
Due to related parties
   
13
     
628,638
     
6,980
 
Deferred revenue
           
241,740
     
193,831
 
Provisions
           
183,468
     
835,199
 
Derivative financial instruments
           
109,597
     
110,108
 
Total current liabilities
           
13,472,543
     
9,223,843
 
                         
Total liabilities
           
30,513,204
     
18,937,381
 
                         
Total equity and liabilities
           
45,404,096
     
33,982,469
 
 

The accompanying notes on page 7 to 50 are an integral part of these condensed consolidated interim financial statements.
1

TURKCELL ILETISIM HIZMETLERI AS

CONDENSED CONSOLIDATED INTERIM STATEMENT OF PROFIT OR LOSS
For the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)

          
          Nine months ended     Three months ended  
   
Note
   
30 September
2018
   
30 September
2017
   
30 September 2018
   
30 September 2017
 
                               
Revenue
   
8
     
14,971,686
     
12,543,344
     
5,547,350
     
4,431,808
 
Revenue from financial services
   
8
     
694,470
     
422,703
     
251,890
     
165,619
 
Total revenue
           
15,666,156
     
12,966,047
     
5,799,240
     
4,597,427
 
                                         
Cost of revenue
           
(9,979,957
)
   
(8,130,475
)
   
(3,626,313
)
   
(2,862,264
)
Cost of revenue from financial services
           
(271,543
)
   
(203,474
)
   
(118,677
)
   
(71,112
)
Total cost of revenue
           
(10,251,500
)
   
(8,333,949
)
   
(3,744,990
)
   
(2,933,376
)
                                         
Gross profit
           
4,991,729
     
4,412,869
     
1,921,037
     
1,569,544
 
Gross profit from financial services
           
422,927
     
219,229
     
133,213
     
94,507
 
Total gross profit
           
5,414,656
     
4,632,098
     
2,054,250
     
1,664,051
 
                                         
Other income
           
65,922
     
51,054
     
21,962
     
18,963
 
Selling and marketing expenses
           
(1,231,112
)
   
(1,461,344
)
   
(409,791
)
   
(488,414
)
Administrative expenses
           
(635,540
)
   
(577,884
)
   
(226,792
)
   
(194,281
)
Other expenses
           
(252,541
)
   
(124,062
)
   
(144,916
)
   
(58,836
)
Operating profit
           
3,361,385
     
2,519,862
     
1,294,713
     
941,483
 
                                         
Finance income
   
6
     
3,158,012
     
619,117
     
1,911,260
     
175,698
 
Finance costs
   
6
     
(4,826,511
)
   
(835,307
)
   
(2,779,933
)
   
(341,103
)
Net finance income / (cost)
           
(1,668,499
)
   
(216,190
)
   
(868,673
)
   
(165,405
)
                                         
Share of profit of equity accounted investees
           
(408
)
   
-
     
(408
)
   
-
 
Profit before income tax
           
1,692,478
     
2,303,672
     
425,632
     
776,078
 
                                         
Income tax expense
   
7
     
(456,748
)
   
(502,244
)
   
(144,376
)
   
(161,087
)
Profit from the period
           
1,235,730
     
1,801,428
     
281,256
     
614,991
 
                                         
Profit for the period is attributable to:
                                       
Owners of the Company
           
1,157,196
     
1,763,248
     
241,361
     
600,603
 
Non-controlling interest
           
78,534
     
38,180
     
39,895
     
14,388
 
Total
           
1,235,730
     
1,801,428
     
281,256
     
614,991
 
                                         
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL)
 
           
0.53
     
0.80
     
0.11
     
0.27
 
Basic and diluted earnings per share for profit from continuing operations attributable to owners of the Company (in full TL)
 
           
0.53
     
0.80
     
0.11
     
0.27
 
Basic and diluted earnings per share for profit from discontinued operations attributable to owners of the Company (in full TL)
           
-
     


-
     
-
     


-
 
 
 
The accompanying notes on page 7 to 50 are an integral part of these condensed consolidated interim financial statements.

2

TURKCELL ILETISIM HIZMETLERI AS

CONDENSED CONSOLIDATED INTERIM STATEMENT OF OTHER
COMPREHENSIVE INCOME
For the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)

   
Nine months ended
   
Three months ended
 
   
30 September 2018
   
30 September 2017
   
30 September 2018
   
30 September 2017
 
                         
Profit for the period
   
1,235,730
     
1,801,428
     
281,256
     
614,991
 
                                 
                                 
Other comprehensive income / (loss):
                               
                                 
Items that will not be reclassified to profit or loss:
                               
Remeasurements of employee termination benefits
   
-
     
(1,569
)
   
-
     
(1,569
)
Income tax relating to remeasurements of employee termination benefits
   
-
     
314
     
-
     
314
 
     
-
     
(1,255
)
   
-
     
(1,255
)
                                 
Items that may be reclassified to profit or loss:
                               
Exchange differences on translation of foreign operations
   
406,841
     
38,770
     
155,006
     
13,517
 
Exchange differences arising from discontinued operations
   
633,715
     
9,399
     
408,374
     
12,856
 
Cash flow hedges – effective portion of changes in fair value
   
418,617
     
-
     
418,617
     
-
 
Cash flow hedges – reclassified to profit or loss
   
(1,209,994
)
   
-
     
(1,209,994
)
   
-
 
Income tax relating to these items
   
(188,714
)
   
(61,478
)
   
(69,419
)
   
(20,932
)
-Income tax relating to exchange differences
   
(362,817
)
   
(61,478
)
   
(243.522
)
   
-
 
-Income tax relating to cash flow hedges
   
174,103
     
-
     
174.103
     
(20,932
)
     
60,465
     
(13,309
)
   
(297,416
)
   
5,441
 
Other comprehensive income / (loss) for the period,
net of  income tax
   
60,465
     
(14,564
)
   
(297,416
)
   
4,186
 
Total comprehensive income  for the period
   
1,296,195
     
1,786,864
     
(16,160
)
   
619,177
 
                                 
Total comprehensive income attributable to:
                               
Owners of the Company
   
1,215,586
     
1,745,500
     
(56,844
)
   
604,548
 
Non-controlling interest
   
80,609
     
41,364
     
40,684
     
14,629
 
Total
   
1,296,195
     
1,786,864
     
(16,160
)
   
619,177
 
                                 
Total comprehensive income attributable to the owners of the Company arises from:
                               
Continuing operations
   
616,726
     
1,737,038
     
(442,757
)
   
587,811
 
Discontinued operations
   
598,860
     
8,462
     
385,913
     
16,737
 
     
1,215,586
     
1,745,500
     
(56,844
)
   
604,548
 

 
The accompanying notes on page 7 to 50 are an integral part of these condensed consolidated interim financial statements.


3

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
For the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)

Attributable to equity holders of the Company
                                                                               
   
Share Capital
   
Treasury Shares
   
Additional Paid-in Capital
   
Share Premium
   
Legal Reserve (*)
   
Reserve for Non-Controlling Interest Put Option (*)
   
Hedging reserve
   

Remeasurements of Employee
Termination Benefits
   
Foreign Currency Translation Reserve (*)
   
Retained
Earnings
   
Total
   
Non-Controlling Interests
   
Total
Equity
 
Balance at 1 January 2017
   
2,200,000
     
(65,607
)
   
35,026
     
269
     
1,195,204
     
(494,197
)
   
-
     
(41,786
)
   
401,889
     
12,780,967
     
16,011,765
     
56,632
     
16,068,397
 
Total comprehensive income/(loss)
                                                                                                       
Profit for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,763,248
     
1,763,248
     
38,180
     
1,801,428
 
Other comprehensive income/(loss)
                                                                                                       
Foreign currency translation differences
   
-
     
-
     
-
     
-
     
-
     
(5,969
)
   
-
     
-
     
(10,524
)
   
-
     
(16,493
)
   
3,184
     
(13,309
)
Remeasurements of employee termination  benefit
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,255
)
   
-
     
-
     
(1,255
)
   
-
     
(1,255
)
Total other comprehensive income/(loss), net of income tax
   
-
     
-
     
-
     
-
     
-
     
(5,969
)
   
-
     
(1,255
)
   
(10,524
)
   
-
     
(17,748
)
   
3,184
     
(14,564
)
Total comprehensive income/(loss)
   
-
     
-
     
-
     
-
     
-
     
(5,969
)
   
-
     
(1,255
)
   
(10,524
)
   
1,763,248
     
1,745,500
     
41,364
     
1,786,864
 
Transfer to legal reserves
   
-
     
-
     
-
     
-
     
444,385
     
-
     
-
     
-
     
-
     
(444,385
)
   
-
     
-
     
-
 
Dividends paid (Note 13)
   
-
     
9,294
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(3,000,000
)
   
(2,990,706
)
   
(47,801
)
   
(3,038,507
)
Balance at 30 September 2017
   
2,200,000
     
(56,313
)
   
35,026
     
269
     
1,639,589
     
(500,166
)
           
(43,041
)
   
391,365
     
11,099,830
     
14,766,559
     
50,195
     
14,816,754
 
                                                                                                         
                                                                                                         
Balance at 1 January 2018
   
2,200,000
     
(56,313
)
   
35,026
     
269
     
1,643,024
     
(540,045
)
   
-
     
(44,776
)
   
439,700
     
11,312,276
     
14,989,161
     
55,927
     
15,045,088
 
Changes in accounting policy (Note 3)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
542,736
     
542,736
     
-
     
542,736
 
Restated total equity at 1 January 2018
   
2,200,000
     
(56,313
)
   
35,026
     
269
     
1,643,024
     
(540,045
)
   
-
     
(44,776
)
   
439,700
     
11,855,012
     
15,531,897
     
55,927
     
15,587,824
 
Total comprehensive income
                                                                                                       
Profit for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
1,157,196
     
1,157,196
     
78,534
     
1,235,730
 
Other comprehensive income
                                                                                                       
Foreign currency translation differences
   
-
     
-
     
-
     
-
     
-
     
(402,463
)
   
-
     
-
     
1,078,127
     
-
     
675,664
     
2,075
     
677,739
 
Change in cash flow hedge reserve
   
-
     
-
     
-
     
-
     
-
     
-
     
(617,274
)
   
-
     
-
     
-
     
(617,274
)
   
-
     
(617,274
)
Total other comprehensive income, net of income tax
   
-
     
-
     
-
     
-
     
-
     
(402,463
)
   
(617,274
)
   
-
     
1,078,127
     
-
     
58,390
     
2,075
     
60,465
 
Total comprehensive income
   
-
     
-
     
-
     
-
     
-
     
(402,463
)
   
(617,274
)
   
-
     
1,078,127
     
1,157,196
     
1,215,586
     
80,609
     
1,296,195
 
Transfer to legal reserves
   
-
     
-
     
-
     
-
     
459,565
     
-
     
-
     
-
     
-
     
(459,565
)
   
-
     
-
     
-
 
Acquisition of treasury shares
   
-
     
(53,528
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(53,528
)
   
-
     
(53,528
)
Dividends paid (Note 13)
   
-
     
8,727
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1,900,000
)
   
(1,891,273
)
   
(48,326
)
   
(1,939,599
)
Balance at 30 September 2018
   
2,200,000
     
(101,114
)
   
35,026
     
269
     
2,102,589
     
(942,508
)
   
(617,274
)
   
(44,776
)
   
1,517,827
     
10,652,643
     
14,802,682
     
88,210
     
14,890,892
 


(*) Included in reserves in the condensed interim consolidated statement of financial position.
 
The accompanying notes on page 7 to 50 are an integral part of these condensed consolidated interim financial statements. 
4

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
For the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)

 
         
Nine months ended
 
         
30 September
 
   
Note
   
2018
   
2017
 
Cash flows from operating activities:
                 
Profit before income tax from
                 
Continuing operations
         
1,235,730
     
1,801,428
 
Discontinued operations
                 
-
 
Profit before income tax including discontinued operations
         
1,235,730
     
1,801,428
 
                       
Adjustments for:
                     
Depreciation and impairment of property, plant and equipment and investment properties
         
1,287,011
     
1,076,163
 
Amortization of intangible assets
   
10
     
1,713,992
     
820,269
 
Net finance income
           
185,861
     
15,874
 
Fair value adjustments to derivatives
   
15
     
(3,094,433
)
   
(220,392
)
Income tax expense
           
456,748
     
502,244
 
Gain on sale of property, plant and equipment
           
(25,904
)
   
(17,403
)
Unrealized foreign exchange losses on operating assets
           
6,517,313
     
525,120
 
Provisions
           
458,094
     
140,683
 
Share of profit of equity accounted investees
           
408
     
-
 
Deferred revenue
           
62,926
     
108,090
 
             
8,797,746
     
4,752,076
 
Change in operating assets/liabilities
                       
Change in trade receivables
           
(360,216
)
   
582,802
 
Change in due from related parties
           
5,089
     
263
 
Change in receivables from financial services
           
(671,807
)
   
(1,404,601
)
Change in inventories
           
(50,848
)
   
34,866
 
Change in other current assets
           
199,750
     
(442,544
)
Change in other non-current assets
           
51,541
     
39,089
 
Change in due to related parties
           
13,338
     
975,266
 
Change in trade and other payables
           
(342,172
)
   
(2,531,225
)
Change in other non-current liabilities
           
(170,074
)
   
6,860
 
Change in employee benefit obligations
           
(16,183
)
   
21,960
 
Changes in other working capital
           
(913,930
)
   
(35,079
)
Cash generated from operations
           
6,542,234
     
1,999,733
 
                         
Interest paid
           
(714,559
)
   
(444,359
)
Income tax paid
           
(511,562
)
   
(360,775
)
Net cash inflow from operating activities
           
5,316,113
     
1,194,599
 
 
Cash flows from investing activities:
                       
Acquisition of property, plant and equipment
   
9
     
(1,920,069
)
   
(1,608,914
)
Acquisition of intangible assets
   
10
     
(1,522,376
)
   
(641,920
)
Proceeds from sale of property, plant and equipment
           
51,113
     
38,034
 
Proceeds from advances given for acquisition of property, plant and equipment
           
(530,065
)
   
14,683
 
Contribution of increase of share capital in joint ventures/associates
           
(13,801
)
   
-
 
Payments for held to maturity investment
           
(449
)
   
(16,546
)
Interest received
           
492,353
     
414,989
 
Net cash outflow from investing activities
           
(3,443,294
)
   
(1,799,674
)
                         
Cash flows from financing activities:
                       
Dividends received for treasury share
           
5,344
     
6,196
 
Proceeds from issues of loans and borrowings
           
35,861,996
     
15,815,697
 
Proceeds from issues of bonds
           
2,113,313
     
209,808
 
Repayment of borrowings
           
(34,983,381
)
   
(14,207,690
)
Repayment of bonds
           
(191,312
)
   
(400,000
)
Proceeds from derivative instruments
           
476,399
     
-
 
Repayments of derivative instruments
           
(218,167
)
   
-
 
Dividends paid to shareholders
           
(1,276,799
)
   
(1,933,413
)
Dividends paid to non-controlling interest
           
(48,326
)
   
(47,801
)
Treasury shares
           
(53,528
)
   
-
 
(Increase)/decrease in cash collateral related to loans
           
(113,107
)
   
(148,197
)
Payments of lease liabilities
           
(724,627
)
   
-
 
Net cash (outflow)/inflow from financing activities
           
847,805
     
(705,400
)
                         
Net (decrease)/increase  in cash and cash equivalents
           
2,720,624
     
(1,310,475
)
                         
Cash and cash equivalents at 1 January
           
4,712,333
     
6,052,352
 
                         
Effects of exchange rate changes on cash and cash equivalents
           
1,316,234
     
164,581
 
                         
Cash and cash equivalents at 30 September
           
8,749,191
     
4,906,458
 

The accompanying notes on page 7 to 50 are an integral part of these condensed consolidated interim financial statements.
5

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
Notes to the condensed consolidated interim financial statements

 
Page
1. Reporting entity
7
2. Basis of preparation
8
3. Changes in accounting policies
8
4. Segment information
25
5. Seasonality of operations
28
6. Finance income and costs
28
7. Income tax expense
28
8. Revenue
29
9. Property, plant and equipment
31
10. Intangible assets
32
11. Right of use assets
33
12. Asset held for sale and discontinued operation
34
13. Equity
35
14. Borrowings
36
15. Financial instruments
38
16. Guarantees and purchase obligations
44
17. Commitments and contingencies
44
18. Related parties
47
19. Subsidiaries
49
20. Subsequent events
50
 

6

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands 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 nine months ended 30 September 2018 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 24 October 2018.
 
After failure to comply with corporate governance principles for election of independent board members, the CMB appointed 3 independent board members and 4 members, of which 2 members were chosen from the independent nominees list submitted by TeliaSonera Finland Oyj (“Sonera”), as board members who satisfy the independence criteria in 2013. On 29 March 2018, in accordance with the shareholder proposal at the Ordinary General Assembly, 3 new members were elected to serve for
3 years instead of 3 members who are appointed by the CMB and meet the independence criteria. Since a member of board of directors resigned from his office as of 11 July 2018, Turkcell’s Board of Directors consists of a total of 6 non-executive members including 3 independent members as of
30 September 2018.
 
The liquidation process of Financell B.V., which is a wholly owned subsidiary of the Company incorporated in the Netherlands and which is non-operational since December 2015, has been completed as of 14 August 2018.
 
As the term of the agreement executed between Spor Toto and İnteltek dated 29 August 2008 has been expired on 29 August 2018 and the new tender has not been concluded yet, an agreement of “procurement through bargaining” has been signed between İnteltek and Spor-Toto being effective from 29 August 2018 and for a term of up to 1 year as per to the article 26 of the Law on the Transfer of Rights to Organize Fixed Odds and Paramutual Betting Games Based on Sports Competitions to Private Legal Entities numbered 5738. The agreement of “procurement through bargaining” is a follow-up of the agreement which currently exists and the terms and conditions of this agreement are generally same with the agreement which has been expired as of 29 August 2018.
 
 
7

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
2.
Basis of preparation
 
These condensed consolidated interim financial statements for the nine months ended 30 September 2018 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 year ended 31 December 2017 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 nine months ended 30 September 2018 as set out in Note 3.
 
The Group adopted IFRS 9, ”Financial Instruments” and IFRS 15, “Revenue from contracts with customers” for the first time for the period beginning on 1 January 2018. The Group early adopted the new standard, IFRS 16, “Leases” for the first time for the period beginning on 1 January 2018. 
 
The impact of adoption of   IFRS 9, ”Financial Instruments ” and IFRS 15, “Revenue from contracts with customers” and  IFRS 16, “Leases” on the condensed consolidated interim financial statements and accounting policies are explained under Note 3.
 
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of accounting.
 
3.
Changes in accounting policies
 
This note explains the impact of the adoption of IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases on the group’s condensed consolidated interim financial statements and also discloses the new accounting policies that have been applied from 1 January 2018, where they are different to those applied in prior periods.

a) 
Impact on the condensed consolidated interim financial statements
 
The impact of adoption of IFRS 9, IFRS 15 and IFRS 16 on the condensed consolidated interim financial position as at 30 September 2018 and for the nine months ended 30 September 2018 are stated as below. The adoptions of these standards do not have a significant impact on the condensed consolidated interim other comprehensive income (OCI) and condensed consolidated interim statement of cash flows.
 
The following tables show the adjustments recognised for each individual line item. Line items that were not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided. The adjustments are explained in more detail by standard below.


8

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
   
30 September 2018 As reported
   
Effect Of Change
Due to IFRS 9
   
Effect Of Change
Due to IFRS 15
   
Effect Of Change
Due to IFRS 16
   
30 September 2018 w/o Adoptions
 
Assets
                             
Property, plant and equipment
   
10,542,071
     
-
     
-
     
-
     
10,542,071
 
Right-of-use assets
   
1,444,026
     
-
     
-
     
1,444,026
     
-
 
Intangible assets
   
9,873,705
     
-
     
977,110
     
-
     
8,896,595
 
Investment properties
   
15,369
     
-
     
-
     
-
     
15,369
 
Trade receivables
   
135,386
     
(1,104
)
   
-
     
-
     
136,490
 
Receivables from financial services
   
1,322,739
     
-
     
-
     
-
     
1,322,739
 
Deferred tax assets
   
140,617
     
-
     
-
     
23,982
     
116,635
 
Investments in equity accounted investees
   
13,393
                             
13,393
 
Held to maturity investments
   
-
     
-
     
-
     
-
     
-
 
Other non-current assets
   
838,982
     
(304
)
   
(12,521
)
   
(149,720
)
   
1,001,527
 
Total non-current assets
   
24,326,288
     
(1,408
)
   
964,589
     
1,318,288
     
22,044,819
 
                                         
Inventories
   
154,950
     
-
     
-
     
-
     
154,950
 
Trade receivables and accrued income
   
3,363,060
     
43,390
     
(21,267
)
   
1,481
     
3,339,456
 
Due from related parties
   
8,992
     
(12
)
   
-
     
-
     
9,004
 
Receivables from financial services
   
3,467,098
     
(54,399
)
   
-
     
-
     
3,521,497
 
Derivative financial instruments
   
2,140,218
     
-
     
-
     
-
     
2,140,218
 
Held to maturity investments
   
12,435
     
(1
)
   
-
     
-
     
12,436
 
Cash and cash equivalents
   
8,749,191
     
(2,471
)
   
-
     
-
     
8,751,662
 
Other current assets
   
1,253,215
     
(250
)
   
(131,838
)
   
(318,395
)
   
1,703,698
 
Subtotal
   
19,149,159
     
(13,743
)
   
(153,105
)
   
(316,914
)
   
19,632,921
 
Assets classified as held for sale
   
1,928,649
     
-
     
-
     
-
     
1,928,649
 
                                         
Total current assets
   
21,077,808
     
(13,743
)
   
(153,105
)
   
(316,914
)
   
21,561,570
 
                                         
Total assets
   
45,404,096
     
(15,151
)
   
811,484
     
1,001,374
     
43,606,389
 
                                         
Equity
                                       
Share capital
   
2,200,000
     
-
     
-
     
-
     
2,200,000
 
Share premium
   
269
     
-
     
-
     
-
     
269
 
Treasury shares (-)
   
(101,114
)
   
-
     
-
     
-
     
(101,114
)
Additional paid in capital
   
35,026
     
-
     
-
     
-
     
35,026
 
Reserves
   
2,060,634
     
(693
)
   
13,166
     
(676
)
   
2,048,837
 
Remeasurements of employee termination benefit
   
(44,776
)
   
-
     
-
     
-
     
(44,776
)
Retained earnings
   
10,652,643
     
(11,121
)
   
626,429
     
(84,352
)
   
10,121,687
 
Total equity attributable to equity holders of Turkcell Iletisim Hizmetleri AS (“the Company”)
   
14,802,682
     
(11,814
)
   
639,595
     
(85,028
)
   
14,259,929
 
Non-controlling interests
   
88,210
     
-
     
-
     
-
     
88,210
 
Total equity
   
14,890,892
     
(11,814
)
   
639,595
     
(85,028
)
   
14,348,139
 
                                         
Liabilities
                                       
Borrowings
   
14,955,068
     
-
     
-
     
751,254
     
14,203,814
 
Employee benefit obligations
   
233,238
     
-
     
-
     
-
     
233,238
 
Provisions
   
239,074
     
-
     
-
     
-
     
239,074
 
Deferred tax liabilities
   
1,009,867
     
(3,337
)
   
170,414
     
-
     
842,790
 
Other non-current liabilities
   
603,414
     
-
     
-
     
-
     
603,414
 
Total non-current liabilities
   
17,040,661
     
(3,337
)
   
170,414
     
751,254
     
16,122,330
 
                                         
Borrowings
   
8,100,030
     
-
     
-
     
335,148
     
7,764,882
 
Current tax liabilities
   
136,786
     
-
     
-
     
-
     
136,786
 
Trade and other payables
   
4,072,284
     
-
     
2,135
     
-
     
4,070,149
 
Due to related parties
   
628,638
     
-
     
-
     
-
     
628,638
 
Deferred revenue
   
241,740
     
-
     
(660
)
   
-
     
242,400
 
Provisions
   
183,468
     
-
     
-
     
-
     
183,468
 
Derivative financial instruments
   
109,597
     
-
     
-
     
-
     
109,597
 
Total current liabilities
   
13,472,543
     
-
     
1,475
     
335,148
     
13,135,920
 
                                         
Total liabilities
   
30,513,204
     
(3,337
)
   
171,889
     
1,086,402
     
29,258,250
 
                                         
Total equity and liabilities
   
45,404,096
     
(15,151
)
   
811,484
     
1,001,374
     
43,606,389
 
                                         

 
9

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)

 
   
30 September 2018 As reported
   
Effect Of Change
Due to IFRS 9
   
Effect Of Change
Due to IFRS 15
   
Effect Of Change
Due to IFRS 16
   
30 September 2018 w/o Adoptions
 
                               
Revenue
   
14,971,686
     
-
     
(37,596
)
   
-
     
15,009,282
 
Revenue from financial services
   
694,470
     
-
     
7,469
     
-
     
687,001
 
Total revenue
   
15,666,156
     
-
     
(30,127
)
   
-
     
15,696,283
 
                                         
Cost of revenue
   
(9,979,957
)
   
-
     
(245,896
)
   
59,584
     
(9,793,645
)
Cost of revenue from financial services
   
(271,543
)
   
-
     
-
     
-
     
(271,543
)
Total cost of revenue
   
(10,251,500
)
   
-
     
(245,896
)
   
59,584
     
(10,065,188
)
                                         
Gross profit
   
4,991,729
     
-
     
(283,492
)
   
59,584
     
5,215,637
 
Gross profit from financial services
   
422,927
     
-
     
7,469
     
-
     
415,458
 
Total gross profit
   
5,414,656
     
-
     
(276,023
)
   
59,584
     
5,631,095
 
                                         
Other income
   
65,922
     
-
     
-
     
1,174
     
64,748
 
Selling and marketing expenses
   
(1,231,112
)
   
-
     
368,873
     
36,642
     
(1,636,627
)
Administrative expenses
   
(635,540
)
   
251
     
(494
)
   
41,140
     
(676,437
)
Other expenses
   
(252,541
)
   
-
     
-
     
(54,896
)
   
(197,645
)
Operating profit
   
3,361,385
     
251
     
92,356
     
83,644
     
3,185,134
 
                                         
Finance income
   
3,158,012
     
-
     
-
     
55
     
3,157,957
 
Finance costs
   
(4,826,511
)
   
(64
)
   
-
     
(192,033
)
   
(4,634,414
)
Net finance costs
   
(1,668,499
)
   
(64
)
   
-
     
(191,978
)
   
(1,476,457
)
                                         
Share of profit of equity accounted investees
   
(408
)
   
-
     
-
     
-
     
(408
)
Profit before income tax
   
1,692,478
     
187
     
92,356
     
(108,334
)
   
1,708,269
 
                                         
Income tax expense
   
(456,748
)
   
(160
)
   
(19,811
)
   
23,982
     
(460,759
)
Profit for the period
   
1,235,730
     
27
     
72,545
     
(84,352
)
   
1,247,510
 
                                         
Profit for the year is attributable to:
                                       
Owners of the Company
   
1,157,196
     
27
     
72,545
     
(84,352
)
   
1,168,976
 
Non-controlling interests
   
78,534
     
-
     
-
     
-
     
78,534
 
Total
   
1,235,730
     
27
     
72,545
     
(84,352
)
   
1,247,510
 
                                         
Basic and diluted earnings per share for profit attributable to owners of the Company (in full TL)
   
0.53
     
0.00
     
0.03
     
(0.04
)
   
0.53
 
 
 
10

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Changes in accounting policies (continued)
 
a) 
Impact on the condensed consolidated interim financial statements (continued)
 
IFRS 9 Financial Instruments – Impact of adoption

IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the condensed consolidated interim financial statements as stated below:

The total impact on the group’s retained earnings as at 1 January 2018 is as follows:

   
1 January 2018
 
Retained Earnings Opening – 31 December 2017
   
11,312,276
 
Increase in provision for receivables from financial services
   
(52,951
)
Increase in provision for other financial assets
   
38,384
 
Deferred tax effect
   
3,419
 
Total impact of adoption in accordance with IFRS 9
   
(11,148
)
Retained Earnings Opening – 1 January 2018 (Including IFRS 9- excluding IFRS 15)
   
11,301,128
 
 
Impairment of financial assets
The group recognizes impairment charges for financial assets that are subject to the expected credit loss model in accordance with IFRS 9 as below:

· Trade receivables resulting from operations
· Financial services receivables
· Cash and cash equivalents
· Financial investments
· Other receivables
· Other assets

 
Financial services receivables

On 1 January 2018, credit risks were assessed for these loans in accordance with the impairment methodology and TL (52,951) has been recognized under retained earnings.
 
11

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Changes in accounting policies (continued)
 
a) 
Impact on the condensed consolidated interim financial statements (continued)

The reconciliation of impairment provision and opening balances for financial services receivables as of 1 January 2018 is stated as below:
 
   
1 January 2018
 
At 1 January 2018 (calculated under IAS 39)
   
72,992
 
Amounts restated through opening retained earnings
   
52,951
 
At 1 January 2018 (calculated under IFRS 9)
   
125,943
 
Current year provision at profit or loss statement – IFRS 9
   
148,468
 
Current year provision at profit or loss statement if IAS 39 was applied
   
147,020
 
 
Other financial assets
The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for its financial assets comprising of trade receivables, cash and cash equivalents, financial investments, other receivables and other assets.

The reconciliation of impairment provision and opening balances for other financial assets as of 1 January 2018 is stated as below:

   
1 January 2018
 
At 1 January 2018 (calculated under IAS 39)
   
705,440
 
Amounts restated through opening retained earnings
   
(38,384
)
At 1 January 2018 (calculated under IFRS 9)
   
667,056
 
Current year provision at profit or loss statement-IFRS 9
   
215,932
 
Current year provision at profit or loss statement if IAS 39 was applied
   
217,567
 
 
Hedge Accounting
 
The new hedge accounting model is to provide useful information about risk management activities that use financial instruments, with the effect that financial reporting will reflect more accurately how an entity manages its risk and the extent to which hedging mitigates those risks. The new hedge accounting model aims to provide a better link between an entity’s risk management strategy, the rationale for hedging and the impact of hedging on the financial statements.
 
The Group has started to apply hedge accounting as of 1 July 2018 for existing participating cross currency swap and cross currency swap transactions in accordance with IFRS 9 hedge accounting requirement. IFRS 9 includes new hedge accounting rules aiming alignment with risk management activities.
 
The Group enters into participating cross currency swap and cross currency swap transactions in order to hedge the changes in cash flows of foreign exchange denominated fixed and floating rate financial instruments. While applying cash flow hedge accounting, the effective portion of the changes in the fair value of the hedging instrument is accounted for under “other comprehensive income/expense items to be reclassified to profit or loss” as a “hedging reserve” in equity, and the ineffective portion is recognized in profit or loss. The changes recognized in equity is reclassified and included in profit or loss in the same period when the hedged cash flows effect the profit or loss. In addition, time value of options included in participating cross currency swaps are accounted for cost of hedging and recognized under other comprehensive income.
 
 
12

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Changes in accounting policies (continued)
 
a) 
Impact on the condensed consolidated interim financial statements (continued)
 
Hedge Accounting (continued)

The new effectiveness test model may be qualitative depending on the complexity of hedging relationship provided that it is prospective only. The 80-125% range in IAS 39 is replaced by an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship.
 
Under IFRS 9, a hedging relationship is discontinued in its entirety when as a whole it ceases to meet the qualifying criteria after considering the rebalancing of the hedging relationship. Voluntary discontinuation when the qualifying criteria are met is prohibited.  Hedge accounting is discontinued when the risk management objective for the hedging relationship has changed, the hedging instrument expires or is sold, terminated or exercised, there is no longer an economic relationship between the hedged item and hedging instrument or when the effect of credit risk starts dominating the value changes that result from the economic relationship.
 
When the Group discontinues hedge accounting for a cash flow hedge it shall account for the amount that has been accumulated in the cash flow hedge reserve in accordance as follows;
 
-if the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve until the future cash flows occur.
 
-When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs, resulting in the recognition of a non-financial asset. When the forecast transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.

 
13

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Changes in accounting policies (continued)
 
a) 
Impact on the condensed consolidated interim financial statements (continued)
 
IFRS 15 Revenue from Contracts with Customers – Impact of adoption

The impact of adoption of IFRS 15, “Revenue from contracts with customers” on retained earnings as of 1 January 2018 is stated as below:

   
1 January 2018
 
Retained earnings 1 January 2018 - (including IFRS 9 effects-excluding
IFRS 15 effects)
   
11,301,128
 
Recognition of asset for subscriber acquisition cost
   
830,011
 
Decrease in current assets and non-current assets
   
(132,685
)
Deferred tax effect
   
(151,320
)
Other
   
7,878
 
Adjustment to retained earnings from adoption of IFRS 15
   
553,884
 
         
Opening retained earnings 1 January 2018 - (including IFRS 9 and IFRS 15 effects)
   
11,855,012
 


Contract costs eligible for capitalization as incremental costs of obtaining a contract comprise commission on sale relating to postpaid contracts with acquired or retained subscribers. Contract costs are capitalized in the month of service activation if the Group expects to recover those costs. Contract costs comprise sales commissions to dealers and to own salesforce which can be directly attributed to an acquired or retained contract. Contract costs are classified as intangible assets in the condensed consolidated interim financial statements.

Contract costs capitalized prior to IFRS 15 have been classified under prepaid expenses. As of 1 January 2018, contract costs amounting to 156,879 TL has been classified from prepaid expenses to
intangible assets.
 
Details of contract costs and related accumulated depreciation for the period 1 January - 30 September 2018 has been disclosed under Note 10.

 
14

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Changes in accounting policies (continued)
 
a) 
Impact on the condensed consolidated interim financial statements (continued)

Subscriber acquisition costs
 
Following the adoption of IFRS 15, the costs that relate directly to fulfil a contract are capitalized as subscriber acquisition costs under intangible asset. The asset is amortised on a straight line basis over the customer life time it relates to, consistent with the pattern of recognition of the associated revenue.
 
b)
New standards and interpretations applied
 
IFRS 9 Financial instruments

The last version of IFRS 9, issued in July 2014, replaces the existing guidance in IAS 39 “Financial Instruments: Recognition and Measurement”. It also carries forward the guidance on recognition, classification, measurement and derecognition of financial instruments from IAS 39 to IFRS 9. The last version of IFRS 9 includes a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements and also includes guidance issued in previous versions of IFRS 9. IFRS 9 is effective for annual reporting periods beginning on or after
1 January 2018.
 
Classification and measurement – Financial assets
 
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics.

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI (fair value through other comprehensive income) and FVTPL (fair value through profit or loss) . The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.

The new classification requirements would have had a impact on its accounting for consumer financing loans, trade receivables, investments in debt securities, cash and cash equivalents and other financial assets. Since Turkcell Finansman A.S. may sell and derecognizes some portion of its loans depending on the management assessment, the related portion may be assessed in “hold and sell” business model and may require fair value measurement.
 
Impairment – Financial assets and contract assets
 
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward looking ‘expected credit loss’ (ECL) model. This will require considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.
The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments, and to contract assets.
15

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 9 Financial instruments (continued)
 
Under IFRS 9, loss allowances will be measured on either the following bases.
-
12 month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
-
lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
 
Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12 month ECL measurement applies if it has not.
 
An entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However lifetime ECL measurement (simplified approach) always applies for trade receivables and contract assets without a significant financing component. The Group will apply lifetime ECL measurement for all group companies except Turkcell Finansman A.S. which will apply both 12 month and lifetime ECL (general approach) since it is a financing company.
 
Transition
 
The Group has taken advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as at 1 January 2018.
 
Hedge accounting
 
The Group has elected to adopt the new general hedge accounting model in IFRS 9. This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.
 
The Group uses participating cross currency and cross currency swap contracts to hedge the variability in the cash flows arising from changes in foreign exchange rates relating to foreign currency borrowings and the variability in the borrowing cash outflows attributable to changes in the interest rates. The effective portion of changes in fair value of hedging instruments is accumulated in a cash flow hedge reserve as a separate component of equity.
 
Under IAS 39, time value of option contracts were recognized immediately in profit or loss at the time of change in fair value. However, under IFRS 9, time value of options are accounted for as a cost of hedging; they are recognized in OCI and accumulated in a cost of hedging reserve as a separate component within equity.
 
Under IAS 39, for all cash flow hedges, the amounts accumulated in the cash flow hedge reserve were reclassified to profit or loss as a reclassification adjustment in the same period as the hedged expected cash flows affected profit or loss. The same approaches also apply under IFRS 9 to the amounts accumulated in the cost of hedging reserve.
 
16

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 9 Financial instruments (continued)
 
Hedge Ineffectiveness
 
The Group monitors source of ineffectiveness over the course of the hedge relation period. The change in the fair value of the hedged item will be calculated using the hypothetical derivative method.
 
The entire fair value of the participating cross currency and cross currency swap including currency basis was designated as the hedging instrument. The hypothetical derivative is modelled to exclude the currency basis. Hedge ineffectiveness is determined by comparing the actual derivative which includes currency basis to the hypothetical derivative which does not include currency basis.
 
There is ‘an economic relationship’ between the hedged item and the hedging instrument as the underlying of the hedging instrument matches, and aligned with, the hedged risk so that the hedging instrument and the hedged item are expected to move in opposite directions as a result of a change in the hedged risk.
 
The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. The impacts of changes in credit risk are not magnitude such that it dominates the value changes, even if there is an economic relationship between the hedged item and hedging instrument.
 
The hedge ratio, between the amount of hedged item and the amount of hedging instrument is 1:1.
 
Effect of adjustments arising from application of IFRS 9 hedge accounting requirements
 
Retrospective application of the costs of hedging approach has had no effects on the amounts presented for 2017 since IAS 39 hedge accounting was not applied.
 
IFRS 15 Revenue from Contracts with Customers
 
IFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
 
The new revenue standard supersedes all current revenue recognition requirements under IFRS. The Group adopted the new standard on the required effective date using the modified retrospective method which requires the recognition of the cumulative effect of initially applying IFRS 15, as at 1 January 2018, to retained earnings and not restate prior years.
 
The Group is mainly in the business of providing telecommunication services. The goods and services are sold both on their own in separate identified contracts with customers and together as a bundled package of goods and/or services.
 
Sale of goods
 
For contracts with customers and intermediaries in which the sale of device or equipment is generally expected to be a performance obligation, adoption of IFRS 15 does not have significant impact on the Group’s revenue and profit or loss because sale of goods were already recognised as a distinct performance obligation at fair value under current accounting treatment.
 
The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods.

17

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 15 Revenue from Contracts with Customers (continued)
 
Rendering of services
 
The Group mainly provides telecommunication services. Services are generally bundled with other products/services and these bundled services and products involve consideration in the form of fixed fee or a fixed fee coupled with a continuing payment stream or discount. The Company’s current accounting treatment in allocating total consideration to the performance obligations comply with the requirements of IFRS 15.
 
Contract costs
 
Under IFRS 15, certain incremental costs incurred in acquiring a contract with a customer will be deferred on the consolidated statement of financial position and amortised as revenue is recognised under the related contract; this will generally lead to the later recognition of charges for some commissions payable to third party dealers and employees.
 
IFRS 16 Leases
 
The Group has applied IFRS 16 Lease with initial application date of January 1, 2018. The Group has opted using the modified retrospective approach - option 2 application and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4.

Policy applicable from 1 January 2018

At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, The Group assess whether:

-
the contract involved the use of an identified asset – this may be specified explicitly or implicitly
-
the asset should be physically distinct or represent substantially all of the capacity of a physically
distinct asset. If the supplier has a substantive substitution right, the asset is not identified;
-
the Group has the right to obtain substantially all of the economic benefits from the use of an asset throughout the period of use; and
-
the Group has the right to direct use of the asset. The Group has the right when it has the decision-making rights that are most relevant to changing the how and for what purpose the asset is used is predetermined, the Group has the right the use of asset if either:
-
the Group has the right to operate the asset or;
-
the Group designed the asset in a way that predetermines how and for what purpose it will be used.

18

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 16 Leases (continued)
 
The policy is applied to contracts entered into, or changed, on or after 1 January 2018.

At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

Policy applicable before 1 January 2018

For contracts entered into before 1 January 2018, the Group determined whether the arrangement was or contained a lease based on the assessment whether:

-
the fulfillment of the arrangement was dependent on the use of specific asset or assets; and
-
the arrangement has conveyed a right of use the asset if one of the following met;
-
the purchaser had the ability or right to operate the asset while obtaining or controlling more than a significant amount of the output;
-
the purchaser had the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output; or
-
facts and circumstances indicated that it was remote that other parties would take more than an insignificant  amount of output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output.
 
The Group as a lessee
 
Right of use asset

The Group recognizes a right-of use asset and a lease liability at the lease commencement date.

The right of use asset is initially recognized at cost comprising of:

-
amount of the initial measurement of the lease liability;
-
any lease payments made at or before the commencement date, less any lease incentives received;
-
any initial direct costs incurred by the Group; and
 
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end date of the useful life of the right-of-use asset of the end date of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability (Note 11).

 

19

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 16 Leases (continued)
 
Lease Liability

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’ incremental borrowing rate. Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:
-
fixed payments, including in-substance fixed payments;
-
variable lease payments that depend on an index or a rate, initially measured using the index or rate as the commencement date;
-
amounts expected to be payable under a residual value guarantee; and
-
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewable period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain to terminate early.

After initial recognition, the lease liability is measured (a) increasing the carrying amount to reflect interest on lease liability; (b) reducing the carrying amount to reflect the lease payments made; and (c) remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

Where, (a) there is a change in the lease term as a result of reassessment of certainty to exercise an exercise option, or not to exercise a termination option as discussed above; or (b) there is a change in the assessment of an option to purchase the underlying asset, assessed considering the events and circumstances in the context of a purchase option, the Group remeasures the lease liabilities to reflect changes to lease payments by discounting the revised lease payments using a revised discount rate. The Group determines the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the its incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.

Where, (a) there is a change in the amounts expected to be payable under a residual value guarantee; or (b) there is a change in the future lease payments resulting from a change in an index or a rate used to determine those payments, including change to reflect changes in market rental rates following a market rent review, the Group remeasures the lease liabilities by discounting the revised lease payments using an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In such case, the Group use revised discount rate that reflects changes in the interest rate.

The Group recognises the amount of the remeasurement of lease liability as an adjustment to the right of use asset. Where the carrying amount of the right of use asset is reduced zero and there is further reduction in the measurement of the lease liability, the Group recognises any remaining amount of the remeasurement in profit or loss.

20

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 16 Leases (continued)
 
The Group accounts for a lease modification as a separate lease if both:

-          the modification increases the scope of the lease by adding the right to use one or more underlying assets; and
-          the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.


The Group as a Lessor
 
When the Group acts an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use-asset arising from the head lease, not with reference to the underlying asset.
 
If an arrangement contains lease and non-lease components, the Group applies IFRS 15 to allocate the consideration in the contract.
 
Transition
The Group applied IFRS 16 with a date of initial application of January 1, 2018. As a result, the Group has changed its accounting policy for lease contracts as detailed below.

The Group opted IFRS 16 using modified retrospective approach - option 2 application under which the cumulative effect of initially applying the Standard recognised at the date of initial application
at 1 January 2018.

On transition to IFRS 16, the Group elected to apply practical expedient to grandfather the assessment of which transitions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2018.

On transition the Group does not elect to apply recognition exemption for short-term leases by class of underlying assets and leases for low-value items which shall be applied lease-by-lease basis on both transition and subsequently.


21

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
b)
New standards and interpretations applied (continued)
 
IFRS 16 Leases (continued)
 
As a lessee, the Group previously classified leases as operating and finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Group. At transition lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate at 1 January 2018. The Group measured right-of-use assets at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments under IFRS 16 modified retrospective approach option 2 application and used the following practical expedients;

-
Group applied a single discount rate to a portfolio of leases with similar characteristics
-
Adjusted the right-of-use assets by the amount of IAS 37 onerous contract provision immediately before the date of initial application
-
Excluded initial direct costs from measuring the right-of-use asset at the date of initial application
-
Used hindsight when determining the lease term when the contract contains options to renew or terminate the lease.
 
c)
Standards, amendments and interpretations applicable as at 30 September 2018:
 
-          Amendments to IFRS 4, ‘Insurance contracts’ regarding the implementation of IFRS 9, ‘Financial Instruments’; effective from annual periods beginning on or after 1 January 2018. These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will:

·          give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued; and
·          give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying IFRS 9 until 2021. The entities that defer the application of IFRS 9 will continue to apply the existing financial instruments standard IAS 39.

-          Amendment to IAS 40, ‘Investment property’ relating to transfers of investment property; effective from annual periods beginning on or after 1 January 2018. These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence.
 
-          Amendments to IFRS 2, ‘Share based payments’ on clarifying how to account for certain types of share-based payment transactions; effective from annual periods beginning on or after 1 January 2018. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority.
 

22

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
c)
Standards, amendments and interpretations applicable as at 30 September 2018 (continued):
 
-          Annual improvements 2014-2016; effective from annual periods beginning on or after
1 January 2018. These amendments impact 2 standards:

·          IFRS 1, ‘First time adoption of IFRS’, regarding the deletion of short-term exemptions for first-time adopters regarding IFRS 7, IAS 19 and IFRS 10,
·          IAS 28, ‘Investments in associates and joint venture’ regarding measuring an associate or joint venture at fair value.

-          IFRIC 22, ‘Foreign currency transactions and advance consideration’; effective from annual periods beginning on or after 1 January 2018. This IFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice.

d)
Standards, amendments and interpretations that are issued but not effective as at 30 September 2018
 
-          Amendment to IFRS 9, ‘Financial instruments’; effective from annual periods beginning on or after 1 January 2019. This amendment confirm that when a financial liability measured at amortised cost is modified without this resulting in de-recognition, a gain or loss should be recognised immediately in profit or loss. The gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. This means that the difference cannot be spread over the remaining life of the instrument which may be a change in practice from IAS 39.

-          Amendment to IAS 28, ‘Investments in associates and joint venture’; effective from annual periods beginning on or after 1 January 2019. These amendments clarify that companies account for long-term interests in associate or joint venture to which the equity method is not applied using IFRS 9.

-          IFRIC 23, ‘Uncertainty over income tax treatments’; effective from annual periods beginning on or after 1 January 2019. This IFRIC clarifies how the recognition and measurement requirements of IAS 12 ‘Income taxes’, are applied where there is uncertainty over income tax treatments. The IFRS IC had clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.
 
23

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
3.
Significant accounting policies (continued)
 
d)
Standards, amendments and interpretations that are issued but not effective as at 30 September 2018 (continued)
 
-          IFRS 17, ‘Insurance contracts’; effective from annual periods beginning on or after 1 January 2021. 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.

-
Annual improvements 2015-2017; effective from annual periods beginning on or after
1 January 2019. These amendments include minor changes to:

·          IFRS 3, ‘Business combinations’, – a company remeasures its previously held interest in a joint operation when it obtains control of the business.
·          IFRS 11, ‘Joint arrangements’, – a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business.
·          IAS 12, ‘Income taxes’ – a company accounts for all income tax consequences of dividend payments in the same way.
·          IAS 23, ‘Borrowing costs’ – a company treats as part of general borrowings any borrowing originally made to develop an asset when the asset is ready for its intended use or sale.

-          Amendments to IAS 19, ‘Employee benefits’ on plan amendment, curtailment or settlement’; effective from annual periods beginning on or after 1 January 2019. These amendments require an entity to:

·          use updated assumptions to determine current service cost and net interest for the reminder of the period after a plan amendment, curtailment or settlement; and
·          recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling.
 
24

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
4.
Segment Information
 
The Group has two reportable segments in accordance with its integrated communication and technology services strategy - Turkcell Turkey and Turkcell International. While some of these strategic segments offer the same types of services, they are managed separately because they operate in different geographical locations and are affected by different economic conditions.
 
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker function is carried out by the Board of Directors, however Board of Directors may transfer the authorities, other than recognized by the law, to the General Manager and other directors.
 
Turkcell Turkey reportable segment includes the operations of Turkcell, Turkcell Superonline Iletisim Hizmetleri A.S. (“Turkcell Superonline”), Turkcell Satis ve Dagitim Hizmetleri A.S. (“Turkcell Satis”), group call center operations of Global Bilgi Pazarlama Danisma 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 Odeme Hizmetleri A.S. (“Turkcell Odeme”) and Turkcell Gayrimenkul Hizmetleri A.S. (“Turkcell Gayrimenkul”). Turkcell International reportable segment includes the operations of Kibris Mobile Telekomunikasyon Limited Sirketi (“Kibris Telekom”), East Asian Consortium B.V. (“Eastasia”), LLC lifecell (“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 (“Lificell 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 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.
 
 
25

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
4.
Segment Information (continued)

   
Nine months ended 30 September
 
   
Turkcell Turkey
   
Turkcell International
   
All other segments
   
Intersegment Eliminations
   
Consolidated
 
   
2018
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
   
2017
 
                                                             
Total segment revenue
   
13,480,348
     
11,409,596
     
1,035,121
     
778,781
     
1,404,939
     
830,529
     
(254,252
)
   
(52,859
)
   
15,666,156
     
12,966,047
 
Inter-segment revenue
   
(32,414
)
   
(24,657
)
   
(50,732
)
   
(28,193
)
   
(171,106
)
   
(9
)
   
254,252
     
52,859
     
-
     
-
 
Revenue from external customers
   
13,447,934
     
11,384,939
     
984,389
     
750,588
     
1,233,833
     
830,520
     
-
     
-
     
15,666,156
     
12,966,047
 
Adjusted EBITDA
   
5,736,888
     
4,027,736
     
365,715
     
199,867
     
460,429
     
264,969
     
(14,025
)
   
(3,270
)
   
6,549,007
     
4,489,302
 

 

 
   
Three months ended 30 September
 
   
Turkcell Turkey
   
Turkcell International
   
All other segments
   
Intersegment Eliminations
   
Consolidated
 
   
2018
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
   
2017
 
                                                             
Total segment revenue
   
4,959,501
     
4,044,010
     
424,178
     
272,929
     
512,286
     
300,977
     
(96,725
)
   
(20,489
)
   
5,799,240
     
4,597,427
 
Inter-segment revenue
   
(9,063
)
   
(8,818
)
   
(20,526
)
   
(11,666
)
   
(67,136
)
   
(5
)
   
96,725
     
20,489
     
-
     
-
 
Revenue from external customers
   
4,950,438
     
4,035,192
     
403,652
     
261,263
     
445,150
     
300,972
     
-
     
-
     
5,799,240
     
4,597,427
 
Adjusted EBITDA
   
2,088,707
     
1,460,642
     
150,535
     
73,529
     
160,850
     
99,824
     
(7,319
)
   
(1,600
)
   
2,392,773
     
1,632,395
 

 
 
26

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
4.
Segment Information (continued)
 
   
Nine months ended
   
Three months ended
 
   
30 September 2018
   
30 September 2017
   
30 September 2018
   
30 September 2017
 
                         
Profit for the period
   
1,235,730
     
1,801,428
     
281,256
     
614,991
 
                                 
    Add(Less):
                               
                                 
Income tax expense
   
456,748
     
502,244
     
144,376
     
161,087
 
Finance income
   
(3,158,012
)
   
(619,117
)
   
(1,911,260
)
   
(175,698
)
Finance costs
   
4,826,511
     
835,307
     
2,779,933
     
341,103
 
Other income
   
(65,922
)
   
(51,054
)
   
(21,962
)
   
(18,963
)
Other expenses
   
252,541
     
124,062
     
144,916
     
58,836
 
Depreciation and amortization
   
3,001,003
     
1,896,432
     
975,106
     
651,039
 
Share of profit of equity accounted investees
   
408
     
-
     
408
     
-
 
Consolidated adjusted EBITDA
   
6,549,007
     
4,489,302
     
2,392,773
     
1,632,395
 

 
 
 
 
 
27

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
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.

6.
Finance income and costs
 
Net finance income / (costs) amounts to TL (1,668,499), TL (216,190), TL (868,673), and TL (165,405) for the nine and three months ended 30 September 2018 and 2017, respectively.
 
Finance costs for the nine months ended 30 September 2018 consist of foreign exchange losses without right of use assets TL (4,083,518); fair value gains on derivative financial instruments TL 3,094,433, net interest expense for derivative financial instruments TL (319,193); interest income on financial liabilities measured at amortized cost TL 94,149; interest expense on financial liabilities measured at amortized cost without right of use assets TL (492,837); other finance income TL 230,499.
 
Interest expense and foreign exchange loss effect of right of use assets is respectively TL (110,404), TL (37,614) and TL (81,629), TL (14,777) for the nine and three months ended 30 September 2018.
 
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 nine months ended 30 September 2018 is 27%, compared to 22% for the nine months ended 30 September 2017. The increase in effective tax rate is resulted from non-deductible expenses and the unused tax losses that are not likely to generate taxable income in the foreseeable future.
 
Effective tax rates for the nine and three months ended 30 September 2018 and 2017 are 27%, 22% and 34%, 21% respectively.

 
28

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
8.
Revenue
 
   
Nine months ended 30 September
 
   
Turkcell Turkey
   
Turkcell International
   
Other
   
Intersegment eliminations
   
Consolidated
 
 
2018
   
2017
   
2018
   
2017
   
2018
   
2017
    2018    
2017
   
2018
   
2017
 
                                                             
Telecommunication services
   
12,347,908
     
10,481,198
     
910,596
     
698,201
     
-
     
-
     
51,639
     
52,859
     
13,206,865
     
11,126,540
 
Equipment revenues
   
1,039,698
     
848,419
     
72,860
     
49,124
     
-
     
-
     
-
     
-
     
1,112,558
     
897,543
 
Revenue from financial services
   
-
     
-
     
-
     
-
     
694,470
     
422,703
     
-
     
-
     
694,470
     
422,703
 
Call center revenues
   
-
     
-
     
7,318
     
5,875
     
165,261
     
165,732
     
5,150
     
-
     
167,429
     
171,607
 
Commission fees on betting business
   
-
     
-
     
-
     
-
     
142,829
     
123,174
     
-
     
-
     
142,829
     
123,174
 
Revenue from betting business
   
-
     
-
     
-
     
-
     
186,243
     
118,344
     
-
     
-
     
186,243
     
118,344
 
Other
   
92,742
     
79,979
     
44,347
     
25,581
     
216,136
     
576
     
197,463
     
-
     
155,762
     
106,136
 
Total
   
13,480,348
     
11,409,596
     
1,035,121
     
778,781
     
1,404,939
     
830,529
     
254,252
     
52,859
     
15,666,156
     
12,966,047
 
 

 

   
Three months ended 30 September
 
   
Turkcell Turkey
   
Turkcell International
   
Other
         
Intersegment eliminations
   
Consolidated
 
 
2018
   
2017
   
2018
   
2017
   
2018
   
2017
    2018    
2017
   
2018
   
2017
 
                                                             
Telecommunication services
   
4,496,002
     
3,737,044
     
375,053
     
242,684
     
-
     
-
     
17,036
     
20,489
     
4,854,019
     
3,959,239
 
Equipment revenues
   
426,930
     
277,570
     
29,426
     
18,513
     
-
     
-
     
-
     
-
     
456,356
     
296,083
 
Revenue from financial services
   
-
     
-
     
-
     
-
     
251,890
     
165,619
     
-
     
-
     
251,890
     
165,619
 
Call center revenues
   
-
     
-
     
2,922
     
2,246
     
48,240
     
56,174
     
2,201
     
-
     
48,961
     
58,420
 
Commission fees on betting business
   
-
     
-
     
-
     
-
     
46,181
     
37,905
     
-
     
-
     
46,181
     
37,905
 
Revenue from betting business
   
-
     
-
     
-
     
-
     
79,621
     
41,066
     
-
     
-
     
79,621
     
41,066
 
Other
   
36,569
     
29,396
     
16,777
     
9,486
     
86,354
     
213
     
77,488
     
-
     
62,212
     
39,095
 
Total
   
4,959,501
     
4,044,010
     
424,178
     
272,929
     
512,286
     
300,977
     
96,725
     
20,489
     
5,799,240
     
4,597,427
 
 
 

29

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
8.
Revenue (continued)

   
Nine months ended 30 September 2018
 
   
Turkcell Turkey
   
Turkcell International
   
Other
   
Intersegment eliminations
   
Consolidated
 
Telecommunication Services
   
12,347,908
     
910,596
     
-
     
51,639
     
13,206,865
 
At a point in time
   
227,801
     
-
     
-
     
7,409
     
220,392
 
Over time
   
12,120,107
     
910,596
     
-
     
44,230
     
12,986,473
 
Equipment Related
   
1,039,698
     
72,860
     
-
     
-
     
1,112,558
 
At a point in time
   
920,335
     
72,860
     
-
     
-
     
993,195
 
Over time
   
119,363
     
-
     
-
     
-
     
119,363
 
Call Center
   
-
     
7,318
     
165,261
     
5,150
     
167,429
 
At a point in time
   
-
     
-
     
-
     
-
     
-
 
Over time
   
-
     
7,318
     
165,261
     
5,150
     
167,429
 
Commision fees on betting business
   
-
     
-
     
142,829
     
-
     
142,829
 
At a point in time
   
-
     
-
     
-
     
-
     
-
 
Over time
   
-
     
-
     
142,829
     
-
     
142,829
 
Revenue from betting business
   
-
     
-
     
186,243
     
-
     
186,243
 
At a point in time
   
-
     
-
     
-
     
-
     
-
 
Over time
   
-
     
-
     
186,243
     
-
     
186,243
 
Revenue from financial operations
   
-
     
-
     
694,470
     
-
     
694,470
 
At a point in time
   
-
     
-
     
7,469
     
-
     
7,469
 
Over time
   
-
     
-
     
687,001
     
-
     
687,001
 
All other segments
   
92,742
     
44,347
     
216,136
     
197,463
     
155,762
 
At a point in time
   
7,063
     
4,161
     
5,182
     
-
     
16,406
 
Over time
   
85,679
     
40,186
     
210,954
     
197,463
     
139,356
 
Total
   
13,480,348
     
1,035,121
     
1,404,939
     
254,252
     
15,666,156
 
At a point in time
   
1,155,199
     
77,021
     
12,651
     
7,409
     
1,237,462
 
Over time
   
12,325,149
     
958,100
     
1,392,288
     
246,843
     
14,428,694
 



30

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
9.
Property, plant and equipment
 
Cost
 
Balance as at 1 January 2018
   
Additions
   
Disposals
   
Transfers
   
Impairment expenses/ (reversals)
   
Effects of movements in exchange rates
   
Transfer from Investment Property
   
Balance as at
30 September 2018
 
Network infrastructure (All operational)
   
15,480,128
     
353,855
     
(171,290
)
   
1,395,395
     
-
     
1,310,408
     
-
     
18,368,496
 
Land and buildings
   
786,058
     
18,482
     
(2,335
)
   
71,882
     
-
     
11,077
     
(44,318
)
   
840,846
 
Equipment, fixtures and fittings
   
728,202
     
36,901
     
(13,498
)
   
10,494
     
-
     
21,750
     
-
     
783,849
 
Motor vehicles
   
37,216
     
2,176
     
(725
)
   
-
     
-
     
3,051
     
-
     
41,718
 
Leasehold improvements
   
314,867
     
2,502
     
(591
)
   
3,170
     
-
     
2,885
     
-
     
322,833
 
Construction in progress
   
672,294
     
1,517,358
     
(3,808
)
   
(1,486,684
)
   
(206
)
   
55,436
     
-
     
754,390
 
Total
   
18,018,765
     
1,931,274
     
(192,247
)
   
(5,743
)
   
(206
)
   
1,404,607
     
(44,318
)
   
21,112,132
 
                                                                 
Accumulated depreciation
                                                               
Network infrastructure (All operational)
   
7,326,559
     
1,144,522
     
(156,741
)
   
-
     
20,622
     
1,096,922
     
-
     
9,431,884
 
Land and buildings
   
209,918
     
31,566
     
(74
)
   
-
     
-
     
7,221
     
(29,003
)
   
219,628
 
Equipment, fixtures and fittings
   
539,827
     
61,128
     
(8,986
)
   
-
     
41
     
19,222
     
-
     
611,232
 
Motor vehicles
   
31,306
     
1,868
     
(652
)
   
-
     
-
     
3,328
     
-
     
35,850
 
Leasehold improvements
   
245,747
     
22,912
     
(591
)
   
-
     
12
     
3,387
     
-
     
271,467
 
Total
   
8,353,357
     
1,261,996
     
(167,044
)
   
-
     
20,675
     
1,130,080
     
(29,003
)
   
10,570,061
 
                                                                 
Total property, plant and equipment
   
9,665,408
     
669,278
     
(25,203
)
   
(5,743
)
   
(20,881
)
   
274,527
     
(15,315
)
   
10,542,071
 
 
 
Depreciation expense for the nine and three months ended 30 September 2018 amounting to TL (1,282,877) and TL (404,354) including impairment losses are recognized in cost of revenues.
 
The impaired network infrastructure mainly consists of damaged or technologically inadequate mobile and fixed line infrastructure investments.
 
Impairment losses on property, plant and equipment for the nine and three months ended 30 September 2018 amounting to TL (20,881) and TL (5,523) are included in depreciation expense. 
 
As at 30 September 2018, net book amount of fixed assets acquired under finance leases amounted to TL 168,839.
 
31

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
10.
Intangible assets
 
   
Balance at
1 January 2018
   

Impact of IFRS 15 adaption
   
Additions
   
Disposals
   
Transfers
   
Effects of movements in exchange rates
   
Balance at
30 September 2018
 
Cost
                                         
GSM and other telecommunication operating licenses
   
8,139,628
     
-
     
4,047
     
-
     
407,400
     
344,867
     
8,895,942
 
Computer software
   
7,117,116
     
-
     
635,622
     
-
     
127,651
     
156,019
     
8,036,408
 
Indefeasible right of usage
   
112,556
     
-
     
5,062
     
-
     
-
     
-
     
117,618
 
Transmission lines
   
71,820
     
-
     
480
     
-
     
-
     
-
     
72,300
 
Brand name
   
7,040
     
-
     
-
     
-
     
-
     
-
     
7,040
 
Customer base
   
15,512
     
-
     
-
     
-
     
-
     
-
     
15,512
 
Central betting system operating right
   
11,981
     
-
     
-
     
-
     
-
     
-
     
11,981
 
Goodwill
   
32,834
     
-
     
-
     
-
     
-
     
-
     
32,834
 
Subscriber acquisition  cost
   
-
     
1,431,901
     
408,608
     
-
     
-
     
26,599
     
1,867,108
 
Other
   
42,749
     
-
     
4,248
     
(10
)
   
12
     
-
     
46,999
 
Construction in progress
   
127,637
     
-
     
464,309
     
-
     
(529,320
)
   
31,390
     
94,016
 
     
15,678,873
     
1,431,901
     
1,522,376
     
(10
)
   
5,743
     
558,875
     
19,197,758
 
                                                         
Accumulated amortization
                                                       
GSM and other telecommunication operating licenses
   
2,419,230
     
-
     
419,672
     
-
     
-
     
109,027
     
2,947,929
 
Computer software
   
4,770,880
     
-
     
462,597
     
-
     
-
     
89,930
     
5,323,407
 
Indefeasible right of usage
   
23,274
     
-
     
6,437
     
-
     
-
     
-
     
29,711
 
Transmission lines
   
62,468
     
-
     
3,407
     
-
     
-
     
-
     
65,875
 
Brand name
   
6,512
     
-
     
528
     
-
     
-
     
-
     
7,040
 
Customer base
   
11,774
     
-
     
328
     
-
     
-
     
-
     
12,102
 
Central betting system operating right
   
11,491
     
-
     
578
     
-
     
-
     
-
     
12,069
 
Subscriber acquisition  cost
   
-
     
601,890
     
267,993
     
-
     
-
     
20,115
     
889,998
 
Other
   
32,834
     
-
     
3,092
     
(4
)
   
-
     
-
     
35,922
 
     
7,338,463
     
601,890
     
1,164,632
     
(4
)
   
-
     
219,072
     
9,324,053
 
                                                         
Total intangible assets
   
8,340,410
     
830,011
     
357,744
     
(6
)
   
5,743
     
339,803
     
9,873,705
 
                                                         
 
 
Amortization expense on intangible assets other than goodwill for the nine and three months ended 30 September 2018 amounting to TL (1,164,632) and TL (408,576) including impairment losses are recognized in cost of revenues.
 
There is no impairment losses on intangible assets recognized for the nine and three months ended 30 September 2018.
 
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 119,281   and TL 44,550 respectively, for the nine months and three months ended 30 September 2018.

 
32

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
10.
Intangible assets (continued)
 
2600 MHz frequency tender as part of the 4G License Tender, which the Group’s fully owned subsidiary lifecell based in Ukraine had applied to participate, has been held on 31 January 2018. At the tender, lifecell has been awarded with the license for 15 years bidding UAH 909,251 (TL 128,887) for 15 MHz frequency band, the total of Lot 1 and Lot 2. Payment amounting to UAH 909,251 (equivalent to TL 128,887) of license was made in cash on 1 March 2018.
 
1800 MHz frequency tender as part of the 4G License Tender, which the Group’s fully owned subsidiary lifecell based in Ukraine had applied to participate, was held on 6 March 2018. As a result of the tender, lifecell was awarded with the license for 15 years for 15 MHz frequency band on Lot 1 with its UAH 795,000 bid. Payment amounting to UAH 795,000 (equivalent to TL 124,587) of license was made in cash on 11 April 2018.
 
11.
Right of use assets
 
As of 1 January 2018, The Company provided a right of use asset equal to the lease liability adjusted for prepaid or accrued rent payments. In accordance with this methodology, application of IFRS 16 does not have an impact on the Group’s retained earnings as of 1 January 2018.
 
Closing balances of right of use assets as of 1 January and 30 September 2018 and depreciation and amortization expenses for the nine months ended 30 September 2018 is stated as below:
   
Tangible Assets
   
Intangible Assets
       
   
Site Rent
   
Building
   
Network equipment
   
Other
   
Total
   
Right of way
   
Total
 
Balance at 1 January
   
1,077,517
     
146,826
     
226,243
     
115,652
     
1,566,238
     
12,321
     
1,578,559
 
Depreciation charge for the year
   
(337,635
)
   
(13,582
)
   
(134,306
)
   
(58,555
)
   
(544,078
)
   
(5,282
)
   
(549,360
)
Balance at 30 September
   
1,054,876
     
162,680
     
94,346
     
121,948
     
1,433,850
     
10,176
     
1,444,026
 
                                                         
 
 
The amount of TL 468,075 of the right to use of the asset is attributable to the classification of the prepaid lease expenses accounted for under prepaid expenses before the application of IFRS 16.
 
As at 30 September 2018, additions to right of use assets amount to TL 699,177.
 
33

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
12.
Asset held for sale and discontinued operations
 
In 2016, the Group has committed to plan to exit from Fintur operations in relevant jurisdictions and initiated an active program to locate a buyer for its associate. In this regard, Fintur has been classified as held for sale and reported as discontinued operation starting from 1 October 2016.
 
Equity accounting for Fintur ceased starting from 1 October 2016, and in accordance with IFRS 5, Fintur has been measured at the lower of carrying amount and fair value less costs to sell.
 
The Company is still committed to the plan to exit from Fintur operations in relevant jurisdictions and the delay during 2018 in the sales process was caused by events and circumstances beyond the Company’s control. The Company has taken necessary actions to respond the change in circumstances and Fintur is being actively marketed at reasonable prices given the change in circumstances.
 
Our subsidiary Fintur, has transferred its total shareholding in Azertel Telekomunikasyon Yatirim Diş Ticaret A.Ş (“Azertel”) to Azerbaijan International Telecom LLC (“Azintelecom”) at the price of EUR 221,687 on 5 March 2018. The signing of definitive agreement, the transfer of shares to Azintelecom and the transfer of proceeds to Fintur were completed simultaneously. The transaction has no impact on condensed consolidated interim financial statements since Fintur is classified as “assets held for sale” in the statement of financial position.
 
Our subsidiary Fintur has completed the transfer of all its shares in Geocell LLC to Silknet JSC on 20 March 2018, a joint stock company organized under the laws of Georgia, for a total consideration of USD 153,000 upon receiving the necessary regulatory approvals. The transaction has no impact on condensed consolidated interim financial statements since Fintur is classified as “assets held for sale” in the statement of financial position.
 

 
34

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
13.
Equity
 
Dividends 
 
Turkcell:
 
On 29 March 2018, the Company’s General Assembly has approved a dividend distribution for the year ended 31 December 2017 amounting to TL 1,900,000; this representsa gross cash dividend of full TL 0.86364 per share. The dividend will be paid in three instalments on 18 June, 17 September and 17 December 2018 to the shareholders.
 
First installment was paid in June 2018 amounting to TL 591,392. The Company has paid TL 633,333 in total including withholding tax which has been paid in July 2018. The second installment payment amounting to TL 592,592 was made in September and a total payment of TL 633,333 including the withholding tax paid in October. Last instalment will be paid on 17 December 2018.
 
Azerinteltek:
 
According to the resolution of the General Assembly Meeting of Azerinteltek dated 10 April 2017 and 30 April 2018 , Board of Directors have decided to pay dividend amounting to  AZN 14,609 (30 September 2018: TL 37,744) from the profit realized for the last quarter of  2017, first and second quarter of 2018. Dividend payment was made in 2018.
 
Inteltek:
 
According to Board of Directors Resolution of Inteltek dated 18 December 2017 the advanced dividend payment has been made in January 2018 amounting to TL 28,402 for the first nine months of 2017 profit. According to the resolution of the Ordinary General Assembly Meeting of Inteltek dated 30 March 2018, the shareholders resolved to pay a dividend amount equal to TL 60,011 out of profits for the year ended 31 December 2017 (remaining amount after deducting interim dividends for the nine-month period ended 30 September 2017 amounting to TL 28,402) and a dividend out legal reserves amount equal to TL 9,507. The aggregate amount of dividends has been paid on May 2018.
 
Treasury shares
 
The Company has purchased 4,941,879 shares back on 12, 13, 16, 24 July and 15, 16 August 2018 with a price range of TL 10.01 to TL 11.50 as part of the share buyback decision on 27 July 2016 and 30 January 2017. Total amount of the transactions are TL 53,523. Treasury shares are deducted from equity.
 
 
35

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
14.
Borrowings
 
 
   
30 September
2018
   
31 December
2017
 
Non-current liabilities
           
Unsecured bank loans
   
8,456,666
     
6,376,981
 
Secured bank loans
   
2,150
     
2,368
 
Finance lease liabilities
   
150,315
     
108,164
 
Debt securities issued
   
5,594,684
     
1,770,482
 
Rent lease obligations
   
751,253
     
-
 
     
14,955,068
     
8,257,995
 
Current liabilities
               
Unsecured bank loans
   
4,902,337
     
2,643,112
 
Current portion of unsecured bank loans
   
2,502,709
     
1,513,425
 
Current portion of secured bank loans
   
2,764
     
2,022
 
Current portion of finance lease liabilities
   
22,217
     
14,556
 
Current portion of long-term debt securities issued
   
334,855
     
105,039
 
Rent lease obligations
   
335,148
     
-
 
     
8,100,030
     
4,278,154
 

 
The sale process of the bond issuance of the Company with an aggregate principal amount of USD 500,000, 10 year maturity, a redemption date of 11 April 2028 and a re-offer price of 97.8 % with a fixed coupon rate of 5.80% per annum to qualified investors abroad was completed on 11 April 2018 and the notes are listed on the official list of Euronext Dublin (Irish Stock Exchange).

The scope of the EUR 690,000 unutilized portion of the EUR 750,000 loan agreement signed with China Development Bank (CDB) has been expanded. In this respect, in addition to Turkcell, the Company’s subsidiaries Turkcell Superonline, Turkcell Finansman and lifecell LLC will also be able to utilize the corresponding loan. Furthermore, in addition to the right to utilize in EUR terms, relevant loan may also be utilized in USD and Renminbi (RMB) with respective annual interest rates of LIBOR + 2.2% and 5.5%. There have been no changes to maturity and the repayment schedule of the loan. As at 9 March 2018 and 4 April 2018, the Company has utilized RMB 202,600 (equivalent to TL 175,330 as at 30 September 2018) and USD 40,000 (equivalent to TL 239,608 as at 30 September 2018) comparatively, under this agreement.

One of the main reason of increase in borrowings arises from funds received by Turkcell Finansman in order to provide loans to its customers and bond issuance.
 
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 15,500 as at 30 September 2018.
 
The Company has issued management agreement based lease certificates in accordance with capital markets legislation through KT Sukuk Varlık Kiralama A.S.  in the domestic market, in Turkish Lira terms, at an amount of up to TL 300,000, on various dates and at various amounts without public offering, as private placement and/or to be sold to institutional investors amounting to TL 125,000. As at 30 September 2018, issued management agreement based lease certificates was redeemed.
 
36

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
14.
Borrowings (continued)
 
Terms and conditions of outstanding loans are as follows:
 
 
         
30 September 2018
 
31 December 2017
 
Currency
 
Interest rate type
 
Nominal interest rate
 
Payment
period
   
Carrying amount
 
Nominal interest
Rate
 
Payment period
   
Carrying amount
                                   
Unsecured bank loans (*)
USD
 
Floating
 
Libor+2.0%-Libor+4.1%
 
2018-2026
 
5,113,259
 
Libor+2.0%-Libor+3.3%
 
2018-2020
   
2,880,615
Unsecured bank loans (*)
EUR
 
Floating
 
Euribor+1.0%-Euribor+2.2%
 
2018-2026
 
8,135,680
 
Euribor+1.2%-Euribor+2.2%
 
2018-2026
   
5,511,579
Unsecured bank loans
TL
 
Fixed
 
12.6%-31.2%
 
2018-2019
 
1,405,879
 
11.1%-15.5%
 
2018-2019
   
1,620,391
Unsecured bank loans
UAH
 
Fixed
 
14.5%-22.8%
 
2018
 
1,026,972
 
11%-14.5%
 
2018
   
520,933
Unsecured bank loans
RMB
 
Fixed
 
5.5%
 
2018-2026
 
179,922
 
-
 
-
   
-
Secured bank loans (**)
BYN
 
Fixed
 
12-16%
 
2018-2020
 
4,914
 
12%-16%
 
2018-2020
   
4,390
Debt securities issued
USD
 
Fixed
 
5.8%
 
2018-2028
 
5,929,539
 
5.8%
 
2018-2025
   
1,875,521
Finance lease liabilities
EUR
 
Fixed
 
0%-3.6%
 
2018-2031
 
168,722
 
3.4%
 
2018-2024
   
116,797
Finance lease liabilities
USD
 
Fixed
 
-
 
-
 
-
 
22.5%
 
2018
   
41
Finance lease liabilities
TL
 
Fixed
 
27.5%-27.7%
 
2018-2020
 
3,810
 
27.5%-27.7%
 
2018-2020
   
5,882
                   
21,968,697
           
12,536,149

 
(*)
As a consumer finance company, Turkcell Finansman’s liabilities originated from banks abroad are subject to certain reserve requirements as obliged by Central Bank of the Republic of Turkey (CBRT). As at 30 September 2018, blocked deposit in connection with the foreign currency loans utilized by Turkcell Finansman from banks outside of Turkey amounting to
TL 296,694 is accounted in other current assets.

(**)
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.
 
37

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
15.
Financial instruments
 
Impairment losses
 
Movement in the provision for impairment of other financial assets and due from related parties that are assessed for impairment collectively for the nine months ended 30 September 2018 is as follows:
 
   
30 September
2018
 
Opening balance
   
705,440
 
IFRS 9 effect
   
(38,384
)
Provision for impairment recognized during the year
   
215,932
 
Amounts collected
   
(132,718
)
Unused amount reversed (*)
   
(73,023
)
Receivables written off during the year as uncollectible
   
(77,398
)
Exchange differences
   
19,419
 
Closing balance
   
619,268
 
 
(*) The Company signed a transfer of claim agreement with a debt management company to transfer some of its doubtful receivables stemming from the years between 1998 to 2016. Transferred doubtful receivables comprise of balances that the Company started legal proceedings.
 
There is no provision for impairment in respect to due from related parties.
 
Movement in the provision for impairment of receivables from financial services that are assessed for impairment collectively for the nine months ended 30 September 2018 is as follows:
 
   
30 September
2018
 
Opening balance
   
72,992
 
IFRS 9 effect
   
52,951
 
Provision for impairment recognized during the year
   
148,468
 
Amounts collected
   
(71,329
)
Unused amount reversed (*)
   
(19,901
)
Closing balance
   
183,181
 
 
(*) Turkcell Finansman signed a transfer of claim agreement with a debt management company to transfer some of its doubtful receivables stemming from 2016 and 2017. Transferred doubtful receivables comprise of balances that the Company started legal proceedings.
 
 
38

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
15.
Financial instruments (continued)
 
Exposure to currency risk
 
The Group’s exposure to foreign currency risk is as follows:
 
   
31 December 2017
 
   
USD
   
EUR
 
Foreign currency denominated assets
           
Other non-current assets
   
72
     
2,681
 
Due from related parties-current
   
571
     
407
 
Trade receivables and accrued income
   
18,890
     
57,283
 
Other current assets
   
43,039
     
35,049
 
Cash and cash equivalents
   
688,717
     
237,697
 
     
751,289
     
333,117
 
Foreign currency denominated liabilities
         
Loans and borrowings-non current
   
(557,180
)
   
(960,629
)
Debt securities issued-non- current
   
(469,387
)
   
-
 
Other non-current liabilities
   
(85,816
)
   
-
 
Loans and borrowings-current
   
(206,535
)
   
(285,827
)
Debt securities issued-current
   
(27,848
)
   
-
 
Trade and other payables-current
   
(328,323
)
   
(29,442
)
Due to related parties
   
(1,172
)
   
(394
)
     
(1,676,261
)
   
(1,276,292
)
Exposure related to derivative instruments
               
Participating  cross currency swap and FX swap contracts
   
937,011
     
748,650
 
Currency forward contracts
   
50,000
     
-
 
Net exposure
   
62,039
     
(194,525
)
                 
 
 
   
30 September 2018
       
   
USD
   
EUR
   
CNY
 
Foreign currency denominated assets
                 
Other non-current assets
   
222
     
411
     
-
 
Due from related parties-current
   
6,571
     
300
     
-
 
Trade receivables and accrued income
   
22,204
     
60,827
     
-
 
Other current assets
   
34,378
     
33,722
     
-
 
Cash and cash equivalents
   
845,669
     
367,808
     
-
 
     
909,044
     
463,068
     
-
 
Foreign currency denominated liabilities
                       
Loans and borrowings-non current
   
(475,250
)
   
(798,697
)
   
(196,767
)
Debt securities issued-non- current
   
(933,973
)
   
-
     
-
 
Rent lease obligations-non-current
   
(18,504
)
   
(3,719
)
   
-
 
Other non-current liabilities
   
(83,588
)
   
-
     
-
 
Loans and borrowings-current
   
(378,354
)
   
(506,274
)
   
(11,148
)
Debt securities issued-current
   
(55,900
)
   
-
     
-
 
Rent lease obligations-current
   
(733
)
   
(5,857
)
   
-
 
Trade and other payables-current
   
(226,462
)
   
(36,627
)
   
-
 
Due to related parties
   
(1,282
)
   
(43
)
   
-
 
     
(2,174,046
)
   
(1,351,217
)
   
(207,915
)
                         
Exposure related to derivative instruments
                       
Participating  cross currency swap and FX swap contracts
   
1,070,665
     
725,550
     
202,600
 
Net exposure
   
(194,337
)
   
(162,599
)
   
(5,315
)
 
39

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
15.
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 of the TL, UAH, and BYN against the following currencies as at 30 September 2018 and 31 December 2017 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.
 
   
Profit or loss
 
   
30 September
2018
   
31 December
2017
 
             
USD
   
116,411
     
(23,400
)
EUR
   
113,014
     
87,838
 
CNY
   
460
     
-
 
 
10% weakening of the TL, UAH, BYN against the following currencies as at 30 September 2018 and
31 December 2017 would have increased / (decreased) profit or loss before tax by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
 
   
Profit or loss
 
   
30 September
2018
   
31 December
2017
 
             
USD
   
(116,411
)
   
23,400
 
EUR
   
(113,014
)
   
(87,838
)
CNY
   
(460
)
   
-
 
 
 
Fair values
 
To provide an indication about the reliability of the inputs used in determining fair value, the Group classifies 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.
 
40

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
15.
Financial instruments (continued)
 
Fair values (continued)
 
The following table presents the Group’s financial assets and financial liabilities measured and recognized at fair value at 30 September 2018 and 31 December 2017 on a recurring basis:
 
  Fair values
               
 
30 September
 2018
 
31 December
2017
 
Fair Value hierarchy
 
Valuation Techniques
               
a)Participating cross currency swap contracts (*)
895,425
 
950,862
 
Level 3
 
Pricing models based on discounted cash Present value of the estimated future cash flows based on unobservable yield curves and end period FX rates
-Held for trading
-
 
950,862
       
               
-Derivatives used for hedging
895,425
 
-
       
               
b)FX swap contracts
1.247.637
 
(4,675)
 
Level 2
 
Present value of the estimated future cash flows based on observable yield curves and end period FX rates
               
-Held for trading
1.163.028
 
(4,675)
       
               
-Derivatives used for hedging
84,609
 
-
       
               
               
c)Currency forward contracts
1,231
 
(2,246)
 
Level 2
 
Forward exchange rates at the balance sheet date
               
-Held for trading
1,231
 
(2,246)
       
               
-Derivatives used for hedging
-
 
-
       
 
There were no transfers between levels during the period.
 
The Group did not measure any financial assets or financial liabilities at fair value on a non-recurring basis as at 30 September 2018.

(*) Participating cross currency swap contracts include EUR-TL interest and currency swap contracts, EUR put and call options, amounting to nominal value of EUR 560,000, USD-TL interest and currency swap contracts and put and call options amounting to nominal value of USD 420,000. On 9 March 2018, the Company has realized CNY-TL interest and currency swap contracts amounting to nominal value of CNY 202,600. The Company modified the parameters of the participating currency swap transaction for the 10- year loan with the amount of EUR 500 million from China Development Bank, which was disclosed with announcement dated 1 July 2016 in order to manage its foreign currency risk. Accordingly, our Company has fixed the annual interest rate of EUR 500 million loan to 10.1% until October 2018, and to 10.98% after October 2018 until maturity date, in Turkish Lira terms, while increasing the protection levels of the swap transaction. There have been no changes to the maturity of the loan and the swap transaction which are both 2025. First principal payment of USD-TL interest and currency swap contracts of USD 400,000 which amount to USD 66,667 has been made on 22 June 2018. Regarding these contracts, TL 113,672  accrual of net interest expense has been reflected to condensed consolidated interim financial statements as at 30 September 2018 (31 December 2017: TL 72,653 respectively). Since bid-ask spread is unobservable input; in valuation of participating cross currency swap contracts, prices in bid- ask price range which 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 137,903 lower as at 30 September 2018 (31 December 2017: TL 129,870).
 
 
41

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
15.
Financial instruments (continued)
 
Fair values (continued)
 
The following table presents the Group’s financial assets and financial liabilities measured and recognised at fair value at 30 September 2018 and 31 December 2017 on a hedge accounting basis:

   
Fair values
Participating cross currency swap contracts
 
Nominal Value
 
Maturity Date
 
30 September 2018
 
31 December 2017
 
Fair Value hierarchy
 
Hedge Ratio
                         
EUR Contracts
 
500,000
 
23 October 2025
 
1,046,159
 
627,385
 
Level 3
 
1:1
EUR Contracts
 
60,000
 
22 April 2026
 
81,318
 
1,078
 
Level 3
 
1:1
                         
USD Contracts
 
400,000
 
16 September 2020
 
514,062
 
224,560
 
Level 3
 
1:1
USD Contracts
 
20,000
 
10 April 2026
 
19,692
 
-
 
Level 3
 
1:1
                         
   
Fair values
Participating cross currency swap contracts
 
Nominal Value
 
Maturity Date
 
30 September 2018
 
31 December 2017
 
Fair Value hierarchy
 
Hedge Ratio
                         
CNY Contracts
 
202,600
 
22 April 2026
 
84,609
 
-
 
Level 2
 
1:1


Movements in the participating cross currency swap contracts for the years ended 30 September 2018 are stated below:

   
30 September 2018
 
Opening balance
   
950,862
 
Cash flow effect
   
(765,806
)
Total gain/loss:
       
Gains recognized in profit or loss
   
710,369
 
Closing balance
   
895,425
 

 
42

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
15.
Financial instruments (continued)
 
Valuation inputs and relationships to fair value

The following table summarises the quantitative information about the significant unobservable inputs used in level 3 fair value measurement of contingent consideration.

 
   
Fair value at
     
Inputs
     
   
30 September 2018
31 December 2017
 
Unobservable
Inputs
 
30 September 2018
31 December 2017
 
Relationship of unobservable inputs to fair value
 
                       
Contingent consideration
 
500,708
323,691
 
Risk-adjusted discount  rate
 
7.4%
4.8%
 
A change in the discount rate by 100 bps would increase / decrease FV by TL (11,471) and TL 11,851 respectively.
 
         
Expected settlement date
 
first quarter of 2021
first quarter of 2021
 
If expected settlement date changes by 1 year FV would increase / decrease by TL (34,630) and TL 37,203 respectively.
 
 
Changes in the consideration payable in relation to acquisition of Belarusian Telecom for the years ended 30 September 2018 are stated below:
   
30 September 2018
 
Opening balance
   
323,691
 
Gains recognized in profit or loss
   
177,017
 
Closing balance
   
500,708
 
 
Net off / Offset
The Company signed a Credit Support Annex (CSA) against default risk of the parties in respect of a EUR 500,000 participating cross currency swap transaction restructured respectively on 26 May 2017 and 9 August 2018. 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 131,660 as collateral to the Company (30 September 2018: TL 915,103) which was the amount exceeding the threshold (EUR 10,000) and the Company transferred EUR 21,480 as collateral to the bank (30 September 2018:  TL 149,297) which was the amount exceeding the threshold (EUR 10,000). 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 765,806 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 30 September 2018, If this transaction was not conducted, derivative financial instruments assets would have been TL 2,906,024 and current borrowings would have been TL 8,865,836.
 
43

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
16.
Guarantees and purchase obligations
 
At 30 September 2018, outstanding purchase commitments with respect to property, plant and equipment, inventory, advertising and sponsorship amount to TL 871,462 (31 December 2017: TL 592,956). Payments for these commitments will be made within 5 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 7,369,603 at 30 September 2018 (31 December 2017: TL 4,926,916).
 
As at 30 September 2018, the Company’s commitments regarding lifecell’s 3G license purchases amounted to UAH 228,210 (equivalent to TL 48,308 as at 30 September 2018).
 
17.
Commitments and Contingencies
 
17.1
Dispute on Treasury Share Amounts
 
 
The Undersecretariat of Treasury and ICTA alleged that Company made deficient treasury share and contribution to the authority expenses payments in the past, the Company objected to these claims.
 
The Company has resolved the following within the scope of Provisional Article 13 added to the Telegraph and Telephone Law No.406 dated 4 February 1924 of the Law on the Amendment of Certain Tax Laws and Other Laws No. 7061 published in the Official Gazette dated December 5th, 2017: to restructure relevant disputes and their interest fees and to choose the method of increasing for relevant years’ legal payment amounts from the options in order to restructure relevant disputes and their interest fees for the periods for which examination is ongoing or has not been yet initiated. The Company applied for restructure, and according to the Law the Company submitted waiver petition or accepted the cases related to the restructured amounts. In some of the cases, the Courts already granted decisions in line with the petitions submitted by the Company and in the other pending cases, it is expected that the Courts shall grant decisions in line with the statement of waiver/acceptance of the aforementioned cases.
 
Based on the Laws stated above, the total amount, including principal and interest, calculated is TL 206,365 and is TL 209,159, respectively. The total payment including interest on installments is TL 436,300 and the payment will be made in 6 equal installments in two-month periods. First four installments were paid on 31 January, 2 April, 31 May 2018 and 31 July amounting to TL 69,254, TL 70,634, TL 72,014 and TL 73,394.
 
As of 30 September 2018, the remaining amount of TL 149,770 including the discount for the remaining installments is shown under trade and other payables in the financial statements.
(31 December 2017: TL 417,668).
 
 
44

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
17.
Commitments and Contingencies (continued)
 
17.2
Disputes on Special Communication Tax and Value Added Tax
 
a)
Disputes on SCT for the year 2011
 
Large Tax Payers 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 Tax Payers 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.
 
As per the Law no. 6736, the Company filed applications for the restructuring of penalties and interest on the SCT regarding the dispute on the tax, while the cases are pending before the court of appeal. Tax Office rejected the application for the year 2011. The Company also filed a case for the cancellation of aforementioned rejection act of the Tax Office for the year 2011. The case is pending as well as the cases regarding the cancellation of the SCT assessment for the year 2011.
 
b)
Disputes on SCT for the years 2013 and 2014 and effects of Law No. 7143
 
Tax assessments for prepaid card sales for 2013 and 2014 have been completed. The Company has been notified of the tax audit reports prepared at the end of the said investigations. The Company management has decided to benefit from Law No. 7143, which provides advantageous payment and discount provisions, regarding the criticized issues in the tax audit reports. As of 30 September 2018, there is a liability of TL 39,362 in the condensed consolidated financial statements for the payments to be made within the scope of 2013 and 2014 SCT. (31 December 2017:  TL 24,175).
 
On the other hand, the Company Management decided to apply for VAT and corporate tax base increase mechanism for 2017 due to Law Serial No. 7143. There is liability of TL 35,443 in the condensed consolidated financial statements and these amounts were paid by the Company on 1 October 2018.
 
c)
Disputes on SCT and VAT for the years 2015 and 2016
 
Turkish telecom sector players including Turkcell has been subjected to a limited tax audit with respect from VAT and SCT for 2015 and 2016. At the end of the tax audit process for the Company no issues to be criticized were identified for 2015. However, some of bundle offers and some services offered by the Company are subjected to criticism by tax authority for 2016. As of 30 September 2018, respectively tax claims arising from SCT and VAT amounting to TL 134,537 and TL 113,367 including the principal and penalty amounts have been notified to the Company. Administrative process has been initiated in accordance with the relevant legislation while reserving right to take legal action.
 
Based on the management opinion, an outflow of resources embodying economic benefits is deemed to be less than probable, thus, no provision is recognized in the condensed consolidated interim financial statements as at and for the period ended 30 September 2018 (31 December 2017: None).
 

45

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
17.
Commitments and Contingencies (continued)
 
17.3
Investigation initiated by ICTA on subscription numbers and radio utilization and usage fees
 
ICTA commenced in-depth investigations, against the GSM operators for the years, 2004-2009, 2010-2011, 2012, 2013 and 2014. As a result of the investigations, ICTA imposed administrative fines to the Company amounting TL 11,240 in total and decided to warn the Company. The administrative fines were paid within 1 month following the notification of the decision of ICTA, with 25% discount. The Company filed lawsuits for the cancellation of aforementioned administrative fines and ICTA’s administrative acts. ICTA filed lawsuits against Company for the collection of the radio utilization and usage fee amount which was alleged that the Company paid deficiently.
 
The Company has resolved the following based on the Laws No. 7061 as explained in detailed note 17.1 to restructure radio fees which are in dispute and respective penalty, default interest regarding these disputes. The Company applied for restructure, and according to the Law The Company submitted waiver petition or accepted the cases related to the restructured amounts. The Courts granted decisions in line with the petitions submitted by the Company.
 
The total amount, including principal and interest, calculated within the scope of clause 2 is TL 158,340. The total payment including interest on installments is TL 166,257 and the payment will be made in 6 equal installments in two-month periods. First four installments were paid on 31 January, 2 April, 31 May 2018 and 31 July amounting to TL 26,390, TL 26,923, TL 27,455 and TL 27,988.
 
As of 30 September 2018, the remaining amount of TL 57,104 including the discount for the remaining instalments is shown under trade and other payables in the financial statements (31 December 2017: TL 157,446).
 
17.4
Disputes regarding the Law on the Protection of Competition
 
On the grounds of the investigation initiated by the Competition Board on the grounds that the Company violated the competitive environment through abusing its dominant position in the Turkish mobile market and it was decided to apply administrative fine amounting to TL 91,942 on the Company. A lawsuit was filed by the Company. The Court rejected the case.  The Company appealed the decision with the request of the stay of the execution.
 
Three private companies filed a lawsuits against the Company in relation with this case claiming in total of TL 113,084 together with up to 3 times of the loss amount to be determined by the court for its material damages by reserving its rights for surpluses allegedly. The cases are still pending.
 
Based on the management opinion, the probability of an outflow of resources embodying economic benefits is uncertain, thus, no provision is recognized in the condensed consolidated interim financial statements as at and for the period ended 30 September 2018 (31 December 2017: None).
 
17.5
Other ongoing lawsuits
 
Within condensed consolidated interim financial statements prepared as of 30 September 2018, obligations which are related to following ongoing disputes have been evaluated.
 
Based on the management opinion, an outflow of resources embodying economic benefits is deemed to be less than probable, thus, no provision is recognized in the condensed consolidated interim financial statements as at and for the period ended 30 September 2018 (31 December 2017: None).
 
Subject
30 September 2018
Anticipated Maximum Risk
(excluding accrued interest)
31 December 2017
Anticipated Maximum Risk
(excluding accrued interest)
30 September 2018
Provision
 
 
 
31 December 2017
Provision
Disputes related with ICTA
13,367
13,367
-
-
Dispute related with the Ministry of Customs and Trade
138,173
-
-
-
 
 
46

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
18.
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 30 September 2018 and 2017.
 
The Group provide additional benefits to key management personnel and contribution to retirement plans based on a pre-determined ratio of compensation.

   
Nine months ended
   
Three months ended
 
   
30 September 2018
   
30 September 2017
   
30 September 2018
   
30 September 2017
 
                         
Short-term benefits (*)
   
70,965
     
45,791
     
34,687
     
20,671
 
Termination benefits
   
91
     
1,201
     
41
     
72
 
Long-term benefits
   
491
     
402
     
231
     
170
 
     
71,547
     
47,394
     
34,959
     
20,913
 

(*) Includes share-based payment.
 
 
 
47

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
18.
Related parties (continued)
 
Transactions with related parties
 
   
   
Nine months ended
   
Three months ended
 
Revenues from related parties
 
30 September 2018
   
30 September 2017
   
30 September 2018
   
30 September 2017
 
Sales to Kyivstar GSM JSC (“Kyivstar”)
                       
Telecommunications services
   
37,859
     
18,701
     
16,898
     
7,160
 
Sales to PJSC MegaFon (“Megafon”)
                               
Telecommunications services
   
12,804
     
3,821
     
5,702
     
1,622
 
Sales to Teliasonera International Carrier AB           (“Telia”)
                               
Telecommunications services
   
7,941
     
7,427
     
1,986
     
3,098
 
Sales to VimpelCom (BVI) Ltd. (“Vimpelcom”)
                               
Telecommunications services
   
5,075
     
5,673
     
2,455
     
2,023
 
Sales to Azercell Telekom MMC (“Azercell”)
                               
Telecommunications services (*)
   
256
     
1,223
     
-
     
661
 
Sales to other related parties
   
4,691
     
4,160
     
2,163
     
1,770
 
     
68,626
     
41,005
     
29,204
     
16,334
 
                                 
(*) Azercell is not a related party effective from 5 March 2018.
 

   
Nine months ended
   
Three months ended
 
Related party expenses
 
30 September 2018
   
30 September 2017
   
30 September 2018
   
30 September 2017
 
Charges from Kyivstar
                       
Telecommunications services
   
53,986
     
28,943
     
22,800
     
10,926
 
Charges from Telia
                               
Telecommunications services
   
6,047
     
2,872
     
-
     
218
 
Charges from Wind Telecomunicazioni
                               
Telecommunications services
   
3,787
     
1,243
     
1,583
     
500
 
Charges from Megafon
                               
Telecommunications services
   
3,751
     
3,440
     
2,337
     
1,396
 
Charges from Vimpelcom
                               
Telecommunications services
   
2,751
     
5,620
     
959
     
2,398
 
Charges from Hobim Bilgi Islem Hizmetleri AS (“Hobim”)
                               
Invoicing and archiving services
   
-
     
16,993
     
-
     
-
 
Charges from other related parties
   
5,296
     
6,970
     
517
     
2,868
 
     
75,618
     
66,081
     
28,196
     
18,306
 
 
 
48

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
19.
Subsidiaries
 
Subsidiaries and associates of the Company as at 30 September 2018 and 31 December 2017 are as follows:
 
     
Effective Ownership Interest
Subsidiaries
Country of
 
30 September
31 December
Name
Incorporation
Business
2018 (%)
2017 (%)
Kibris Telekom
Turkish Republic of Northern Cyprus
Telecommunications
100
100
Turkcell Global Bilgi
Turkey
Customer relations management
100
100
Turktell
Turkey
Information technology, value
 added GSM services and entertainment investments
100
100
Turkcell Superonline
Turkey
Telecommunications, television services and content services
100
100
Turkcell Satis
Turkey
Sales and delivery
100
100
Eastasia
Netherlands
Telecommunications investments
100
100
Turkcell Teknoloji
Turkey
Research and development
100
100
Global Tower
Turkey
Telecommunications infrastructure
   business
100
100
Rehberlik
Turkey
Directory Assistance
100
100
Lifecell Ventures
Netherlands
Telecommunications investments
100
100
Beltel
Turkey
Telecommunications investments
100
100
Turkcell Gayrimenkul
Turkey
Property investments
100
100
Global LLC
Ukraine
Customer relations management
100
100
UkrTower
Ukraine
Telecommunications infrastructure
   business
100
100
Turkcell Europe
Germany
Telecommunications
100
100
Turkcell Odeme
Turkey
Payment services  and e-money license
100
100
lifecell
Ukraine
Telecommunications
100
100
Turkcell Finansman
Turkey
Consumer financing services
100
100
Beltower
Republic of Belarus
Telecommunications Infrastructure business
100
100
Turkcell Enerji
Turkey
Electricity energy trade and wholesale and retail electricity sales
100
100
Paycell
Ukraine
Consumer financing services
100
100
Lifecell Digital
Turkish Republic of
Northern Cyprus
Telecommunications
100
100
TÖFAŞ (1)
Turkey
Payment services  and e-money license
100
-
Turkcell Sigorta(3)
Turkey
Insurance agency activities
100
-
Belarusian Telecom
Republic of Belarus
Telecommunications
80
80
Lifetech
Republic of Belarus
Research and development
78
78
Inteltek
Turkey
Information and Entertainment Services
55
55
Azerinteltek
Azerbaijan
Information and Entertainment Services
28
28
     
Effective Ownership Interest
Associates
Country of
 
30 September
31 December
Name
Incorporation
Business
2018 (%)
2017 (%)
Fintur
Netherlands
Telecommunications investments
41
41
Türkiye’nin Otomobili (2)
Turkey
Electric passenger car  development, production and trading activities
19
-
     
Effective Ownership Interest
Joint Venture
Country of
 
30 September
31 December
Name
Incorporation
Business
2018 (%)
2017 (%)
Sofra (4)
Turkey
Meal coupons and cards
33
-
 
(1) On 16 February 2018, Turkcell Ozel Finansman A.S., which will grant loans within the framework of Islamic financing principles for purchases of goods and services, was incorporated under the laws of Republic of Turkey.
 
 (2) On 28 June 2018, Türkiye’nin Otomobili, which will develop and produce mainly electric passenger car and to carry out trading activities, was incorporated and accounted under investments in equity accounted investees in the condensed consolidated interim financial statements as at 30 September 2018.
 
 
49

TURKCELL ILETISIM HIZMETLERI AS

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
As at and for the nine months ended 30 September 2018
(Amounts expressed in thousands of Turkish Liras unless otherwise stated. Currencies other than Turkish Liras are expressed in thousands unless otherwise stated.)
 
19.
Subsidiaries (continued)
 
(3) On 25 June 2018, Turkcell Sigorta Aracılık Hizmetleri A.S., which will engage in insurance agency activities, was incorporated.
 
(4) On 30 July 2018, Sofra, which will provide services via various means such as service coupons, meal coupons, meal card, electronic coupon and/or smart card, in vehicle payment, smart key, was incorporated and accounted under investments in equity accounted investees in the condensed consolidated interim financial statements as at 30 September 2018. Turkcell Ödeme ve Elektronik Para Hizmetleri A.Ş, BELBİM Elektronik Para ve Ödeme Hizmetleri A.Ş. and Posta ve Telgraf Teşkilatı A.Ş. (“PTT”) holds equal shareholding ratios of Sofra.
 
20.
Subsequent events
 
The Company has purchased 924,000 shares back on 5 October 2018 with a price range of TL 10.71 to TL 10.94 as part of the share buyback decision on 27 July 2016 and 30 January 2017. Total amount of the transactions are TL 9,998.

The Communiqué Regarding Amendment on the Communiqué Regarding Decree No. 32 on the Protection of the Value of the Turkish Lira Currency (Communiqué No: 2018-32/34) is published on the Official Gazette dated on 6 October 2018, numbered 30557 and became effective as of the publication date. According to the Communiqué, The Company has converted its foreign currency contract prices to TL for which the amount agreed by the parties or certain to be agreed by parties. In this context, as of 30 September 2018, TL 389,757 foreign currency lease liabilities are adjusted as TL 190,632 in the condensed consolidated interim financial statements.
 
 
 
 
50

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: October 25, 2018 By: /s/Zeynel Korhan Bilek  
    Name: Zeynel Korhan Bilek  
    Title: Investor Relations & Mergers & Acquisitions Director  
         
 
 
  TURKCELL ILETISIM HIZMETLERI A.S.  
         
         
Date: October 25, 2018 By: /s/Osman Yilmaz  
    Name: Osman Yilmaz  
    Title: Finance - Executive Vice President (Acting)  
         
 
 
  TURKCELL ILETISIM HIZMETLERI A.S.  
         
         
Date: October 25, 2018 By: /s/Kamil Kalyon  
    Name: Kamil Kalyon  
    Title: Reporting Director