Turkcell Iletisim Hizmetleri A.S. Reports Q3 2004 Results; ''Strong Results on the Back of Improved Usage and Subscriber Growth''.ISTANBUL Istanbul (ĭs'tănb  l`, ĭstan`bl), city (1990 pop. 6,748,435), capital of Istanbul prov. , Turkey -- Turkcell |Turkcell (NYSE: TKC) is a mobile phone operator in Turkey, currently the country's largest. With circa 32 million customers, it has a market share approaching 60 percent. Company background In February 1994, Turkcell started Turkey's first GSM network. (NYSE NYSE See: New York Stock Exchange :TKC TKC tightly-knit community TKC Tom Kita Chara (scouting) TKC Thomas Kvamme Consulting (Norway) , ISE Ise (ē`sā), city (1990 pop. 104,164), Mie prefecture, S Honshu, Japan, on Ise Bay. It is one of the foremost religious centers of Shinto, the site of the shrines of Ise. :TCELL), (www.turkcell.com.tr), the leading provider of mobile communications services in Turkey, today announced results for the quarter ended September September: see month. 30, 2004. All financial results in this press release are unaudited, expressed in US$, and reported in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. (US GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ). Figures in parentheses See parenthesis. parentheses - See left parenthesis, right parenthesis. following the operational and financial results of the third quarter of 2004 refer to the same item in the second quarter of 2004. Highlights of the Quarter --Turkcell's number of subscribers reached 22.3 million (20.9 million) as of September 30, 2004 thanks to seasonally, higher subscriber acquisitions and lower churn churn: see butter. --Usage increased in the third quarter of 2004 by 12% to 73.6 minutes (65.7 minutes), as a result of seasonality strong consumer sentiment and Turkcell's volume and segment-based campaigns --Turkcell's infrastructure usage dispute with Turk See Mechanical Turk. Telekom was settled in October October: see month. 2004, while the settlement process for ongoing disputes with Turk Telekom and the Turkish Treasury continued --Turkcell generated revenues of US$969 million (US$606 million) in the third quarter of 2004 --Turkcell recorded net income of US$151 million (US$96 million) in the third quarter of 2004 --Turkcell's EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (*) increased to US$481 million (US$136 million) in the third quarter of 2004 --Turkcell's quarterly churn rate (1) The percentage of customers who cancel their online, cellphone or other subscription service during a certain time period. (2) The percentage of employees who leave the company during a certain time period. See churning. decreased to 1.95% (2.44%) in the third quarter of 2004 --Turkcell announced its corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. and dividend policy in November November: see month. 2004 (*)EBITDA is a non-GAAP financial measure. See note below for the reconciliation of EBITDA to net cash provided by operating activities. Comments from the CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Muzaffer Akpynar We achieved strong results in the third quarter of 2004 mainly due to the positive effects of seasonality and the impact of a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. macroeconomic mac·ro·ec·o·nom·ics n. (used with a sing. verb) The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. environment. Our minutes of usage per subscriber increased during the quarter and we continued with our strong subscriber growth. As announced earlier in October, our subscriber base reached 22.3 million through the addition of 1,468,000 million net new subscribers during the third quarter. The principle reasons underlying this growth include the positive effect of seasonality on acquisitions, lower churn backed by the favorable macroeconomic environment as well as our successful retention efforts and Customer Relationship Management capabilities. In the first nine months of 2004, Turkcell added 3.3 million net new subscribers which corresponded to an 18% growth rate compared to year end 2003. We believe that the Turkish telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. market is currently undergoing a transition period. The process of privatizing Turk Telekom started in November 2004 with the announcement of the deadline for bidders as May 2005. In addition, the sale of Telsim, which is still under the management of the SDIF SDIF SGML Document Interchange Format SDIF Saving Deposit Insurance Fund (Turkey) SDIF Sony Digital Interface Format SDIF Standard Document Interchange Format SDIF Sequential Difference SDIF Sound Description Interface Format (Savings Deposit Insurance Fund), is still on the agenda although it is unclear when the sale will occur. As a leading player in the telecom industry, we will monitor these developments closely. On the GSM (Global System for Mobile Communications) A digital cellular phone technology based on TDMA that is the predominant system in Europe, but also used worldwide. Developed in the 1980s, GSM was first deployed in seven European countries in 1992. front, our rivals have continued to be price aggressive as demonstrated by their sales and marketing efforts. In general, price based competition and communication in the market has intensified in·ten·si·fy v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies v.tr. 1. To make intense or more intense: especially with the reduced on-net Connected to the Internet, or connected to a LAN or WAN. Contrast with off-net. prices and community tariff tariff, tax on imported and, more rarely, exported goods. It is also called a customs duty. Tariffs may be distinguished from other taxes in that their predominant purpose is not financial but economic—not to increase a nation's revenue but to protect domestic offers. In accordance with our long standing strategy, we continued to introduce products, services and tariff options that we believe are in line with the needs and expectations of our subscribers, while seeking the right balance between achieving our revenue goals and maximizing customer satisfaction. We announced an upward price adjustment of 1.7% on average in November, resulting in a total price increase of 4.95% during 2004. We intend to continue to carefully monitor the changing market environment, as well as the competitive, regulatory and macroeconomic dynamics in the Turkish telecommunications market so as to be in a position to deal with new challenges. One of the major items on our agenda is the amicable am·i·ca·ble adj. Characterized by or exhibiting friendliness or goodwill; friendly. [Middle English, from Late Latin am settlement of the legal disputes with Turk Telekom and the Turkish Treasury. With regard to the disputes with Turkish Treasury, settlement process currently continues under the law dated June June: see month. 16, 2004 and numbered 5189 ("The Law") that was passed through the Parliament. This Law enables the settlement of disputes between government entities and private companies out of court. Also as per the Law, both the Ministry of Finance and the Minister responsible for the Turkish Treasury on behalf of the Turkish Treasury are authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: to carry out settlement discussions with third parties subject to the approval of the Cabinet of Ministers. The potential resolution will cover the disputed period starting from April 1998 through the date on which the agreement is finalized See finalization. . Whereas, the related article of the license agreement between us and Telecommunication telecommunication Communication between parties at a distance from one another. Modern telecommunication systems—capable of transmitting telephone, fax, data, radio, or television signals—can transmit large volumes of information over long distances. Authority would have to be revised for the future definition of gross revenue which is used in calculating the 15% treasury fee. During our negotiations with the Turkish Treasury, a payment of TL450 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. (approximately US$300 million as of September 30, 2004) has become a requirement to the settlement process. Subsequent to September 30, 2004, we made this payment to the Turkish Treasury, which totaled to TL450 trillion (approximately US$300 million as of September 30, 2004). This payment will be released from the related provisions in the fourth quarter of 2004. In the event that a final settlement agreement is not reached, the already paid amount may be subject to collection from Treasury with interest, through deductions, from our monthly ongoing Treasury share payments. On the Turk Telekom front, we have concluded that the principles and procedures set by the Cabinet's Decree decree, in law, decision of a suit in a court of equity. It is the counterpart in equity of the judgment in a court of law, although in those jurisdictions where law and equity have merged, judgment is sometimes used to include both. are acceptable by us and as the management teams of Turk Telekom and Turkcell have an agreement on these settlement terms, however, currently the approval process is underway. In connection with our international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. , we continue to enjoy the positive contributions to our financial statements from our operations in Azerbaijan Azerbaijan, country, Asia Azerbaijan (ä'zərbījän`, ă'zər–), Azeri Azərbaycan, officially Republic of Azerbaijan, republic (2005 est. pop. 7,912,000), 33,428 sq mi (86,579 sq km), in Transcaucasia. , Kazakhstan Kazakhstan or Kazakstan (kä'zäkstän`), officially Republic of Kazakhstan, republic (2005 est. pop. 15,186,000), c.1,050,000 sq mi (2,719,500 sq km), central Asia. , Georgia Georgia, country, Asia Georgia (jôr`jə), Georgian Sakartvelo, Rus. Gruziya, officially Republic of Georgia, republic (2005 est. pop. 4,677,000), c.26,900 sq mi (69,700 sq km), in W Transcaucasia. and Moldova Moldova (məldō`və), officially Republic of Moldova, republic (2005 est. pop. 4,455,000), c.13,000 sq mi (33,670 sq km). Chişinău (formerly Kishinev) is the capital and largest city. through our stake in Fintur. In Ukraine Ukraine (y `krān, ykrān`), Ukr. Ukraina, republic (2005 est. pop. , our rollout activities will soon be
finalized and we expect to launch services early in the first quarter of
2005. In Iran, we have fulfilled ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. the tender requirements, but we are currently waiting for the final approval by the Iranian Parliament, as the Parliament earlier had issued a new law requiring an approval for investments with more than 50.1% foreign ownership. We believe that a positive outcome on December December: see month. 17, 2004 regarding the accession Coming into possession of a right or office; increase; augmentation; addition. The right to all that one's own property produces, whether that property be movable or immovable; and the right to that which is united to it by accession, either naturally or artificially. date for Turkey's entry to European Union European Union (EU), name given since the ratification (Nov., 1993) of the Treaty of European Union, or Maastricht Treaty, to the European Community is an important development for both Turkey and the European Union and may help drive further positive sentiment in our market. Recognizing the importance of this development, we sponsored an event on the 'Role of Communication in Turkey's Integration with the EU' on November 30, 2004, in the European Parliament European Parliament, a branch of the governing body of the European Union (EU). It convenes on a monthly basis in Strasbourg, France; most meetings of the separate parliamentary committees are held in Brussels, Belgium, and its Secretariat is located in Luxembourg. in Brussels Brussels (brŭ`səlz), Fr. Bruxelles, Du. Brussel, city and region (1995 pop. 948,122), 63 sq mi (162 sq km), capital of Belgium, central Belgium, on the Senne River and at the junction of the Charleroi-Brussels and Willebroek which included some members of the European Parliament, leaders from communities and the CEO of the GSM Association (GSM Association, Dublin, Ireland, www.gsmworld.com) A membership association founded in 1987 that promotes the development and evolution of the GSM communications standard worldwide. as participants. We of course, believe that we have already achieved such integration with Europe in our sector and globally through our various partnership agreements, international operations and through our Board level contributions at the GSM Association, the most effective international organization of the global GSM sector. We continue to look forward to continuous improvements in our corporate governance practices in line with applicable regulations and best practices. We believe that the recent approval of the Corporate Governance Guidelines, Audit Committee Charter, Corporate Governance Committee Charter and the dividend policy as adapted by our Board of Directors, is a further sign of our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. commitment. Looking forward to 2005, in general, we have positive expectations. The Turkish government's budgetary targets for 2005 include single digit A single character in a numbering system. In decimal, digits are 0 through 9. In binary, digits are 0 and 1. digit - An employee of Digital Equipment Corporation. See also VAX, VMS, PDP-10, TOPS-10, DEChead, double DECkers, field circus. inflation of 8% and a 5% GDP GDP (guanosine diphosphate): see guanine. growth both of which are positive indicators. We believe that these targets will have a positive impact on the Turkish economy as a whole. Our strategy for 2005 is to maintain our leading position in the market by capitalizing on our well established brand name, customer focused approach, nationwide quality network coverage, and extensive distribution channels. Our strategic priorities for 2005 will be to continue to offer differentiated products, services, and tariff options that are in line with the needs and expectations of our subscribers, to be proactive and lead the market in target areas, to be sensitive to our social responsibilities, to be cost efficient and to create value for our stakeholders Stakeholders All parties that have an interest, financial or otherwise, in a firm-stockholders, creditors, bondholders, employees, customers, management, the community, and the government. and shareholders alike. We may also note that developments in our operating environment In computing, an operating environment is the environment in which users run programs, whether in a command line interface, such as in MS-DOS or the Unix shell, or in a graphical user interface, such as in the Macintosh operating system. during the fourth quarter are currently in line with our year end 2004 expectations, and as of the date of this announcement we do not foresee fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. any major changes to our year end results expectations. Overview
Summary of Financial and
Operational Data *
Q3 Q2 Q3 9 9
2003 2004* 2004 Months Months
2003 2004
Number of total subscribers (million) 18.2 20.9 22.3 18.2 22.3
Number of post-paid subscribers
(million) 4.7 5.0 5.0 4.7 5.0
Number of pre-paid subscribers
(million) 13.5 15.9 17.3 13.5 17.3
ARPU
Average revenue per user, blended
(US$) 14.2 9.8 14.7 12.0 12.4
Average revenue per user, postpaid
(US$) 32.1 25.0 33.8 26.1 29.3
Average revenue per user, prepaid
(US$) 7.8 4.9 8.9 6.6 7.1
Churn (%) 3.9 2.4 2.0 11.7 7.3
MOU
Minutes of usage, blended, per month 65.7 65.7 73.6 58.8 65.2
Revenue (US$ million) 765 606 969 1,839 2,321
EBITDA** (US$ million) 351 136 481 801 955
Translation (Loss)/Gain (US$ million) (23) 29 13 (76) 21
Net Income (US$ million) 117 96 151 230 373
All figures are quarterly if not specified otherwise.
* Due to legal provisions in our Q2 2004 financial statements, the
financial results provided above are not fully comparable.
** EBITDA is a non-GAAP financial measure. See note below for the
reconciliation of EBITDA to net cash used for operating activities.
Strong revenues due to seasonality and increase in usage Revenues increased 60% to US$969.3 million (US$606.4 million) in the third quarter of 2004. The deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. of US$299 million from our revenues in the second quarter of 2004 due to ongoing legal disputes should be taken into account when making quarterly comparisons and analysis. However, excluding the impact of the additional provisions in the second quarter, we would have still recorded an improvement in revenues in the third quarter compared to the second quarter due to the 7% increase in our subscriber base and the seasonally higher minutes of usage per subscriber in the third quarter. Successful churn prevention program Our churn rate during the third quarter of 2004 stood at 1.95%, which is 20% better than the second quarter churn rate of 2.44%. Churn prevention efforts contributed to the improvement in the churn rate backed by positive market conditions and new subscriber additions during the third quarter. Consequently, our number of subscribers reached 22.3 million (20.9 million) with net new additions totaling 1.4 million in the third quarter of 2004. We enhance loyalty of a large subscriber base with our mass retention programs that reward tenure and preferred usage pattern. Our proactive and reactive reactive /re·ac·tive/ (re-ak´tiv) characterized by reaction; readily responsive to a stimulus. re·ac·tive adj. 1. Tending to be responsive or to react to a stimulus. 2. retention programs mainly focus on staggered offers for longer loyalty and they are designed not only to decrease the churn rate but also to minimize the cost of churn by targeting higher value subscribers. We use our churn prediction models This article outlines the various propagation models currently used by the wireless industry for signal transmission at both 900 MHz and 1800 MHz. We start with the foundation of free-space transmission, followed by Picquenard’s multiple knife edge diffraction model. with the expertise we accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. about our subscriber base. Record high usage Our minutes of usage increased in the third quarter of 2004 to the highest level since the macro economic crisis in 2001 despite the dilutive impact of increasing prepaid pre·pay tr.v. pre·paid, pre·pay·ing, pre·pays To pay or pay for beforehand. pre·pay  ment n. subscriber base in our total
subscriber base. Our blended minutes of usage per subscriber per month
("MOU (Minutes Of Usage) A metric used to compute billing and/or statistics for telephone calls or other network use. ") increased by 12% to 73.6 minutes (65.7) in the third
quarter of 2004. Historically, the third quarter has been the strongest
quarter in terms of usage. We used our volume and segment based
campaigns to further support the strong consumer sentiment and reward
preferred usage and counter refill refill noun A second allotment of a prescription agent obtained from a pharmacy, which is allowed by the original prescription verb Pharmacology To obtain more of a particular drug, after the initially prescribed amount of the agent has been used or patterns and volume.On the back of the improved usage our blended average revenue per user ("ARPU (Average Revenue Per User) A calculation often used to determine the overall value of an application. It is also used to rate particular customers, especially in the wireless space, by comparing someone's account to the overall average. ") increased to US$14.7 (US$9.8) in the third quarter of 2004. Additional legal provisions in the second quarter had a negative impact on the ARPU. Competitive Environment In 2004, the Turkish GSM market continued growing, and the mobile line penetration reached approximately 48% as of the end of the third quarter. Increased competition in the market also contributed to the pace of this growth, mainly due to increased visibility and market communications demonstrated by market participants The term market participant is used in United States constitutional law to describe a U.S. State which is acting as a producer or supplier of a marketable good or service. When a state is acting in such a role, it may permissibly discriminate against non-residents. . As for the pricing aspect on-net based and community focused rates provide for lower pricing in general for the subscribers in our market. Corporate and youth segments tend to be among the segments that receive the most attention during new product rollouts. Lower termination rates Termination rates are the charges which one telecommunications operator will charge another in order to terminate calls on their network. For example, a customer of T-Mobile wishes to call a friend who has a Vodafone mobile. in the wholesale business side have been a factor in our market since September 2003. Along with the already lower rates, the reference tariff structure introduced by the Telecommunication Authority, which imposes a further reduction in rates, may come into effect if the current discussions between operators to renew existing pricing terms of the interconnection in·ter·con·nect v. in·ter·con·nect·ed, in·ter·con·nect·ing, in·ter·con·nects v.intr. To be connected with each other: The two buildings interconnect. v.tr. agreements do not result in an agreement. The process to agree on possible new rates is currently underway. The Long Distance Telephony Service providers A telephony service provider, as defined in Microsoft's TAPI specification, is a software interface to a physical telephony device (such as a modem) that can be accessed programmatically to perform actions such as dialing a phone number or logging a call. are expected to become operational at the start of 2005, increasing competition in the Turkish telecommunications market. We obtained a long distance business license through one of our subsidiaries and also intend to enter this market directly. The process of privatizing Turk Telekom began in November 2004 with the announcement of the deadline for bidders as May 2005. In addition, Telsim, whose management is still under the SDIF, is being prepared for sale, although the timetable for the sale has not yet been made public. We expect to see an increasingly competitive environment next year, due to more established players and a possible market entry by new operators through acquisitions of existing players in the Turkish market. The mobile line penetration rate of approximately 48% is still relatively low and the Turkish market should continue to grow in the next few years, although at a slower rate than the past few years. We believe that most of the growth will continue to come from the prepaid market. We aim to maintain our high-quality network through our ongoing investments and will continue to rely on our strong 2.5G network. The third generation licensing process is not yet on the agenda of Turkish telecom market and the timeline
Timeline may refer to:
Settlement Discussions As discussed in the second quarter 2004 results announcement, we have been engaged in talks with the related parties with respect to the amicable settlement of our ongoing disputes with Turk Telekom and the Turkish Treasury. Settlement process currently continues under the Law, which enables the settlement of disputes between government entities and private companies out of court. Following this Law and the decree issued by the Cabinet of Ministers in August 2004, that set out the basis for the settlement, we reevaluated our existing provisioning methodology and calculated additional provisions for the ongoing disputes with the Turkish Treasury and Turk Telekom in the second quarter of 2004 amounting to US$312 million. We settled our infrastructure usage dispute with Turk Telekom in October 2004. The settlement discussions with the related parties regarding the remaining disputes are continuing. With regard to the disputes with the Treasury, settlement process currently continues under the Law. The potential resolution will cover the disputed period starting from April 1998 through the date on which the agreement is finalized. Whereas, the related article of the license agreement between us and Telecommunication Authority would have to be revised for the future definition of gross revenue which is used in calculating the 15% treasury fee. During our negotiations with the Turkish Treasury, a payment of TL450 trillion (approximately US$300 million as of September 30, 2004) has become a requirement to the settlement process. Subsequent to September 30, 2004, we made this payment to the Turkish Treasury, which total TL450 trillion (US$300 million as of September 30, 2004). This payment will be released from the related provisions in the fourth quarter of 2004. Turkcell also provided a letter of guarantee for the remaining due amounts to Treasury totaling to TL566.5 trillion (approximately US$378 million as of September 30, 2004), which already covers the TL150 trillion payment that is part of the above mentioned payment realized. The amount of the letter of guarantee will be reduced as the payments are made. In the event that a final settlement agreement is not reached, the paid amount may be subject to collection from Treasury with interest, through deductions, from our monthly ongoing Treasury share payment. On the Turk Telekom front, we have concluded that the principles and procedures set by the Cabinet's Decree are acceptable by us and as the management teams of Turk Telekom and Turkcell have an agreement on these settlement terms, currently the approval process is underway. Turkcell's net risk for the ongoing legal disputes totaled US$1,126 million (US$1,206 million) as of September 30, 2004 and the breakdown can be found at the Financial and Operations Review section of this press release. The changes in the net risk regarding ongoing disputes during the third quarter 2004 were mainly due to the change in interest calculation for Treasury Share dispute, and Turk Telekom's deduction from interconnection revenues as well the settlement agreement reached regarding the infrastructure dispute with Turk Telekom. Settlement regarding the infrastructure usage dispute with Turk Telekom As we announced on October 14, 2004, an agreement was reached regarding the infrastructure dispute with Turk Telekom following the settlement talks conducted under the Cabinet's Decree, which set forth the rules and procedures to be followed by government entities to settle their disputes with third parties through negotiation. We and Turk Telekom calculated Turk Telekom's receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed with respect to infrastructure dispute as TL102,048,720 million (US$68 million as of September 30, 2004) including principal, interest, and Value Added Tax value added tax n (BRIT) → impuesto sobre el valor añadido or agregado (LAM) value added tax n (Brit ("VAT VAT See: Value-added tax VAT See value-added tax (VAT). "), and our receivables as TL39,451,875 million (US$26 million as of September 30, 2004). Our receivables arose from a legal decision in our favor in the lawsuit lawsuit: see procedure; tort. filed against Turk Telekom's collection of the 15% fund payment by withholding Withholding Any tax that is taken directly out of an individual's wages or other income before he or she receives the funds. Notes: In other words, these funds are "withheld" from your wages. payments to us. After netting off the receivables, We agreed with Turk Telekom that we owed Turk Telekom TL62,596,845 million (US$42 million as of September 30, 2004), including principal, interest, VAT and SCT Sacrococcygeal teratoma (SCT) A tumor occurring at the base of the fetus's tailbone. Mentioned in: Prenatal Surgery . This amount will be paid to Turk Telekom in 10 installments with interest, while we have an option to pay all or a portion of its debt, set forth by the settlement agreement, prior to the date determined by the installment plan. The interest rate used in this calculation will be the monthly interest rate calculated from the annual simple interest rate of the most recent TL denominated discount bond issued by the Turkish Treasury prior to the actual monthly installment. Turkcell will finance such payments from internal sources. We made two payments in October and November totaling TL14.8 trillion (US$10 million as of September 30, 2004) in accordance with the installment plan. In addition, we have made all necessary applications and started the procedures to end the lawsuits related to the above mentioned disputes. Corporate Governance Guidelines and Dividend Policy Our Board of Directors has approved the Corporate Governance Guidelines (including an Audit Committee Charter and a Corporate Governance Charter) in order to enhance our corporate governance practices in compliance with the applicable regulations of the Istanbul Stock Exchange Istanbul Stock Exchange The sole securities exchange in Turkey. and those of the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. . In addition, Mr Esko Rytkonen and Mr Murat Vargi, members of the Board of Directors, have been appointed as the Chairman of the Audit Committee and the Corporate Governance Committee, respectively. In addition, we have adopted a dividend policy, which is set out in our Corporate Governance Guidelines. The Board of Directors intends to distribute cash dividends in an amount of not less than 50% of our distributable profits, based on the financial statements prepared in accordance with the accounting principles accepted by the Capital Markets Board of Turkey, for each fiscal year, starting with profits for fiscal 2004. However, the payment of dividends will still be subject to our cash flow requirements, compliance with Turkish laws and regulations and the approval of, or amendment by, the Board of Directors and the General Assembly of Shareholders. International Operations Fintur Fintur International continued its strong growth in the third quarter of 2004. The GSM businesses in Azerbaijan, Kazakhstan, Georgia and Moldova added approximately 459,000 net new subscribers, raising the total number of subscribers to approximately 3.5 million (3.0 million) as of September 30, 2004. Furthermore, third quarter 2004 revenues were US$155 million (US$129 million), a 20% increase compared to the second quarter of 2004. We own 41.45% of Fintur and accounts for this investment using the equity method, which totaled US$15 million income in the third quarter of 2004. Ukraine Eurasia, our effectively 51% owned subsidiary, through its subsidiary Astelit, initiated the establishment of a GSM 1800 network and the rollout activities will soon be finalized. We expect to launch services early in the first quarter of 2005. For the network investments, two vendor agreements with Nokia (EUR EUR In currencies, this is the abbreviation for the Euro. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 125 million), Ericsson (US$89 million) and Sysdate (US$13 million) were signed. In case of non-payment by Astelit, we guaranteed to make necessary payments in proportion to our investment. As of September 30, 2004, total capital expenditure in Ukraine was US$128 million. Since second quarter 2004, Ukraine operations were consolidated in Turkcell's financial statements. Iran We have fulfilled the tender requirements, but we are currently waiting for the final approval by the Iranian Parliament, as the Parliament earlier had clarified that Iranian law required such an approval for investments with more than 50.1% foreign ownership. Exchange Rate Information One US$ equaled TL1,497,696 as of September 30, 2004 (TL1,485,911 as of June 30, 2004), which implies a 1% depreciation of TL against US$. The wholesale price index and consumer price index increased by 1.1% and 1.7%, respectively in the third quarter of 2004. Financial and Operational Review The following discussion focuses principally on the developments and trends in our business in the third quarter of 2004. As explained in detail in the second quarter 2004 results announcement, we recorded additional provisions in the second quarter of 2004 for the ongoing legal disputes with Turk Telekom and the Turkish Treasury. Accordingly, our statements of operations were negatively effected. Therefore the operating and financial information below should be read with this in mind. Subscribers Our total number of subscribers reached 22.3 million as of September 30, 2004 up from 20.9 million as of June 30, 2004, representing an increase of 7%. With the 1,468,000 net new additions in the third quarter of 2004, the total number of postpaid post·paid adj. With the postage having been paid in advance. postpaid Adverb, adj with the postage prepaid Adj. 1. subscribers remained at 5.0 million and prepaid subscribers increased to 17.3 million, a 9% increase compared to the previous quarter. Net new additions grew by 24% in the third quarter of 2004 compared to the previous quarter, supported by the seasonally higher gross new subscriber acquisition and lower churn. The postpaid subscribers made up 10% of the gross new acquisitions, while the remaining 90% were prepaid subscribers. Revenues We generated US$969.3 million (US$606.4 million) in revenues in the third quarter of 2004, a 60% increase as a result of the additional legal provisioning in the second quarter of 2004. Excluding the impact of additional legal provisions in the second quarter, we would have still recorded an improvement in revenues in the third quarter compared to the second quarter due to the 7% increase in our subscriber base and seasonally higher minutes of usage per subscriber in the third quarter. MoU The third quarter is the strongest quarter in terms of usage due to seasonality. Accordingly, our blended MoU increased by 12% to 73.6 minutes (65.7 minutes) in the third quarter of 2004. Moreover, we used our volume and segment based campaigns to further support the strong consumer sentiment and reward preferred usage and counter refill patterns and volume. ARPU On the back of the improved usage, our blended average revenue per user ("ARPU") increased to US$14.7 (US$9.8). In the third quarter 2004, ARPU for prepaid and postpaid subscribers was US$8.9 (US$4.9) and US$33.8 (US$25.0), respectively. Additional legal provisions had a negative impact on ARPU in the second quarter of 2004. Excluding the impact of these additional legal provisions in the second quarter, we would still have recorded an improvement in ARPU in the third quarter compared to the second quarter mainly due to seasonal increase in usage and roaming The ability to use a communications device such as a cellphone or PDA and be able to move from one cell or access point to another without losing the connection. revenue. EBITDA Parallel to the improvement in revenue due to the increase in the subscriber base and seasonally higher usage during the third quarter of 2004, our EBITDA increased to US$481.1 million (US$136.4 million) in the third quarter of 2004. The one time effect of additional legal provisions in the second quarter of 2004 was the major reason to the percentage wise increase in EBITDA in the third quarter of 2004. Translation gain We recorded US$12.7 million (US$28.9 million gain) translation gain in the third quarter of 2004. We recorded translation gain in the third quarter of 2004 since depreciation of TL was 1% in the third quarter of 2004 compared to 13% in the second quarter of 2004. Churn rate Churn refers to disconnected subscribers, whether disconnected voluntarily or involuntarily in·vol·un·tar·y adj. 1. Acting or done without or against one's will: an involuntary participant in what turned out to be an argument. 2. . We recorded a churn rate of 1.95% (2.44%) in third quarter of 2004. This improvement was achieved through our continued segmented retention activities and mass loyalty programs. Positive market sentiment Market Sentiment The feeling or tone of a market (i.e. crowd psychology). It is shown by the activity and price movement of the securities. Notes: For example, rising prices would indicate a bullish market sentiment. also contributed to the improvement in churn rate. Profit & Loss and Balance Sheet Statements Net income On the back of improved operational performance, our revenue and EBITDA increased and as a consequence our net income increased 56% to US$150.6 million (US$96.4 million). For detailed information please see "Income Tax Benefit" section of this press release. Direct cost of revenues The direct cost of revenues, including depreciation and amortization, remained almost stable at US$549.3 million (US$541.3 million) in nominal terms. However, the proportion of our direct cost of revenues to total revenue was 89% in the second quarter of 2004, while it decreased to 57% in the third quarter of 2004, One time effect of additional legal provisions in the second quarter of 2004 was the major reason for this improvement. Depreciation and amortization Depreciation and amortization remained almost stable at US$105.4 million (US$107.0 million) in the third quarter of 2004. Selling and marketing expenses In the third quarter of 2004, our selling and marketing expenses increased by 16% to US$89.0 million (US$77.0 million) mainly due to the increase in corporate communication activity expenses. The proportion of our selling and marketing expenses to revenues were 13% in the second quarter of 2004, while it decreased to 9% in the third quarter of 2004, which was attributable to the additional provisioning impact on revenues in the second quarter of 2004. General and administrative expenses Our general and administrative expenses as a proportion of our revenues was 3% in the third quarter of 2004, which was 6% in the previous quarter. Our general and administrative expenses decreased to US$26.5 million (US$38.2 million) in the third quarter of 2004 compared to previous quarter mainly due to one time effect of expenses related to our purchase of Cellco Bonds for our investment portfolio in the second quarter 2004. Equity in net income of unconsolidated investees Equity in net income of unconsolidated investees was US$15.4 million (US$8.5 million) in the third quarter of 2004 thanks to improvement in the operational performance of Fintur. Net interest income/(expense) The change that resulted in a lowering of interest rates applied on the treasury share dispute accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. based on the suggested settlement terms mentioned in the "Settlement Discussions" section of this press release, resulted in US$78.0 million (US$39.0 million in net interest income) net interest income. Income tax benefit (expense) Turkcell recorded US$264.0 million of income tax expense (of which US$49 million and US$215 million were related to current tax charge and deferred tax charge, respectively) in the third quarter of 2004 compared to US$66.7 million income tax benefit in the previous period mainly due to the deferred tax effect of the payments related to legal disputes in 2004 which will be tax deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). from the corporate tax basis as of 2004 year end and additional provision for withholding tax The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. to be paid on projected taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. of 2004. The Ministry of Finance confirmed that Turkcell's payments made to Turk Telekom and the Treasury, based on settlement agreements, will be tax deductable from our tax base whenever they are paid. Therefore, we reversed a portion of our deferred tax assets assuming that significant amount of payment will be done and deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. from our corporate tax base in 2004. Additionally, we provided a withholding tax provision (at the rate of 19.8%) of US$49 million as of third quarter 2004 which we expect to pay based on the projected taxable income at year end. Since our investment incentive certificates provide tax benefit in the form of deductions for corporate tax purposes, we are exempt from 33% corporate tax (applicable in 2004); instead such deductions are subject to withholding tax at the rate of 19.8%. Provisions Our legal provisions and liabilities decreased 7% to US$1,126 million (US$1,206 million) in the third quarter of 2004. The breakdown of the legal provisions according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. their subjects can be found at the below table.
Q3 2004 LEGAL PROVISIONS & LIABILITIES
Q2 04 Additional Paid/ Translation Q3 04
(Million USD) Net Income/ Deduction Effect Net
Risk (Expenses) in Q3 04 Risk
(**)
Turk Telekom (531) (2) 29 4 (500)
Interconnection dispute (531) (2) 29 4 (500)
Turk Telekom (21) (35) 16 - (40)
Infrastructure(*) (51) (23) 16 - (58)
TT Fund Share(*) 30 (12) - - 18
Treasury Share (633) 65 - 5 (563)
Other (21) (2) - - (23)
TOTAL (1,206) 26 45 9 (1,126)
(*)On October 14, 2004 we announced that we settled our infrastructure
usage and Fund Share disputes with Turk Telekom by an amicable
agreement.
(**)Includes principle and interest
Total assets Total assets increased to US$4,434.7 million (US$4,327.4 million), mainly due to the increase in cash and cash equivalents in the third quarter of 2004. Capital expenditures Our capital expenditures amounted to US$153.5 million (US$145.4 million) in the third quarter of 2004. US$47 million (US$81 million) of the total capital expenditure is related to Ukraine operations, which has been consolidated under Turkcell since the second quarter of 2004. Debt We have a total indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. of US$790.9 million (US$826.3 million) as of September 30, 2004. US$26 million of the total indebtedness was related to Ukraine operations, which has been consolidated under Turkcell since the second quarter of 2004. Reconciliation of Non-GAAP Financial Measures The SEC recently adopted new rules regarding the use of non-GAAP financial measures. We believe that EBITDA is a measure commonly used by companies, analysts and investors in the telecommunications industry that enhance the understanding of our operating results and assist in the evaluation of our capacity to meet our financial obligations. We also use EBITDA as an internal measurement tool and accordingly, we believe that the presentation of EBITDA provides useful and relevant information to analysts and investors. We are continuing to monitor developments in the interpretation of these new rules and will make adjustments to the use of non-GAAP measures as may be required. EBITDA equals net income (loss) before depreciation and amortization, interest expense and income tax benefit (expense). EBITDA is not a measurement of financial performance under US GAAP and should not be construed as a substitute for net earnings (loss) as a measure of performance or cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses as a measure of liquidity. The following table provides a reconciliation of EBITDA, which is a non-GAAP financial measure, to net cash provided by operating activities, which we believe is the most directly comparable financial measure calculated and presented in accordance with US GAAP. US$ million Q3 2003 Q2 2004 Q3 2004 EBITDA 351.1 136.4 481.1 Minority interest 1.8 1.7 1.8 Equity in net income of unconsolidated investees 6.6 8.5 15.4 Interest expense (85.3) 0.4 39.0 Net increase (decrease) in assets and liabilities 56.4 (9.6) (183.1) Net cash provided by operating activities 313.8 117.0 319.8 Forward Looking Statements This release may include forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the US Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. All statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding our operations, financial position and business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "plan," "estimate," "anticipate," "believe" or "continue." Although Turkcell believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to be correct. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety The whole, in contradistinction to a moiety or part only. When land is conveyed to Husband and Wife, they do not take by moieties, but both are seised of the entirety. by reference to these cautionary statements. www.turkcell.com.tr About Turkcell Turkcell is the leading GSM operator in Turkey with 22.3 million postpaid and prepaid customers. Turkcell provides high-quality wireless telephone services throughout Turkey and has coverage of 100% of the towns with more than 10,000 inhabitants
The game is based loosely on the concepts from SameGame. . Turkcell provides roaming with 423 operators in 173 countries as of September 30, 2004. Turkcell is the only NYSE listed company listed company n → compañía cotizable listed company n → société cotée en Bourse listed company list n → in Turkey. Turkcell has interests in international GSM operations in Azerbaijan, Georgia, Kazakhstan, Moldova and Northern Cyprus, which have a total of 3.5 million subscribers as of September 30, 2004.
TURKCELL ILETISIM HIZMETLERI A.S.
SELECTED FINANCIALS
------------- -------------
Nine Months Nine Months
Ended Ended
September 30, September 30,
2003 2004
------------- -------------
Consolidated Statement of
Operations Data
Revenues
Communication fees 1,787.6 2,246.8
Monthly fixed fees 30.1 38.4
SIM card sales 14.5 21.5
Call center revenues 5.4 5.8
Other 1.8 8.7
Total revenues 1,839.4 2,321.2
Direct cost of revenues (1,131.7) (1,523.6)
------------- -------------
Gross profit 707.7 797.6
General & administrative expenses (79.1) (94.0)
Selling & marketing expenses (173.7) (242.0)
------------- -------------
Income from operations 454.9 461.6
Income from related parties, net 3.2 1.4
Net interest income (expense) (168.7) 76.5
Other Income, net 3.8 2.5
Equity in net income of unconsolidated
investees 13.1 31.8
Minority interest 2.5 4.5
Translation Gain / (Loss) (76.1) 21.4
------------- -------------
Income before taxes 232.7 599.7
Income tax benefit ( expense ) (3.2) (226.5)
------------- -------------
Net income 229.5 373.2
============= =============
Net income per share 0.00016 0.00025
Other Financial Data
Gross margin 38.5% 34.4%
EBITDA(*) 801.3 954.7
Capital expenditures 128.7 352.1
Consolidated Balance Sheet Data (at
period end)
Cash and cash equivalents 696.2 954.1
Total assets 3,652.3 4,434.7
Long term debt 525.1 275.5
Total debt 1,011.3 790.9
Total liabilities 2,091.4 2,589.8
Total shareholders' equity / Net Assets 1,560.9 1,844.9
Consolidated Cash Flow Information
Net cash provided by operating
activities 733.4 637.9
Net cash used in by investing activities (154.7) (352.1)
Net cash provided by / (used in)
financing activities (276.7) 85.7
(*)Please refer to the notes on reconciliation of Non-GAAP Financial
measures, above
TURKCELL ILETISIM HIZMETLERI A.S.
SELECTED FINANCIALS
--------- -------- -------- ---------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
September March June September
30, 31, 30, 30,
2003 2004 2004 2004
--------- -------- -------- ---------
Consolidated Statement of
Operations Data
Revenues
Communication fees 744.5 721.8 580.7 944.3
Monthly fixed fees 10.9 11.9 12.3 14.2
SIM card sales 6.2 8.3 6.5 6.7
Call center revenues 2.2 2.2 1.7 1.9
Other 0.8 1.3 5.2 2.2
Total revenues 764.6 745.5 606.4 969.3
Direct cost of revenues (441.4) (433.0) (541.3) (549.3)
--------- -------- -------- ---------
Gross profit 323.2 312.5 65.1 420.0
General & administrative
expenses (30.3) (29.3) (38.2) (26.5)
Selling & marketing expenses (67.0) (76.0) (77.0) (89.0)
--------- -------- -------- ---------
Income (expense) from operations 225.9 207.2 (50.1) 304.5
Income from related parties, net 0.6 0.5 0.4 0.5
Net interest income (expense) (48.9) (40.5) 39.0 78.0
Other Income (expense), net (2.8) (0.5) 1.3 1.7
Equity in net income of
unconsolidated investees 6.6 7.9 8.5 15.4
Minority interest 1.8 1.0 1.7 1.8
Translation Gain / (Loss) (22.5) (20.2) 28.9 12.7
--------- -------- -------- ---------
Income before taxes 160.7 155.4 29.7 414.6
Income tax benefit ( expense ) (43.9) (29.2) 66.7 (264.0)
--------- -------- -------- ---------
Net income 116.8 126.2 96.4 150.6
========= ======== ======== =========
Net income per share 0.00008 0.00009 0.00007 0.00010
Other Financial Data
Gross margin 42.3% 41.9% 10.7% 43.3%
EBITDA(*) 351.1 337.2 136.4 481.1
Capital expenditures 39.0 53.2 145.4 153.5
Consolidated Balance Sheet Data
(at period end)
Cash and cash equivalents 696.2 939.3 822.6 954.1
Total assets 3,652.3 4,364.3 4,327.4 4,434.7
Long term debt 525.1 707.6 635.8 275.5
Total debt 1,011.3 852.6 826.3 790.9
Total liabilities 2,091.4 2,689.7 2,633.7 2,589.8
Total shareholders' equity / Net
Assets 1,560.9 1,674.6 1,693.7 1,844.9
Consolidated Cash Flow
Information
Net cash provided by operating
activities 313.8 201.1 117.0 319.8
Net cash used in by investing
activities (39.0) (66.5) (132.1) (153.5)
Net cash provided by / (used in)
financing activities (22.5) 222.0 (101.6) (34.8)
(*)Please refer to the notes on reconciliation of Non-GAAP Financial
measures, above
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