Turkcell Iletisim Hizmetleri A.S. Reports Third Quarter 2003 Results; Seasonality and Strong Turkish Lira Result In Record High Revenues.Business Editors ISTANBUL Istanbul (ĭs'tănb  l`, ĭstan`bl), city (1990 pop. 6,748,435), capital of Istanbul prov. , Turkey--(BUSINESS WIRE)--Oct. 30, 2003Turkcell | 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 as of and for the quarter ended September September: see month. 30, 2003. All financial results in this press release are unaudited 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 accounting principles generally accepted 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 third quarter operational and financial results refer to the same item in the second quarter of 2003. Highlights of the Quarter -- Turkcell's financial and operational results improved significantly due to the continued impact of seasonality, positive consumer sentiment and appreciation of the Turkish Lira against the US Dollar in the third quarter of 2003. -- Revenues increased 31% to US$764.6 million (US$583.7 million), a record high for a single quarter. -- Turkcell added approximately 932,000 (927,000) net new subscribers during the third quarter of 2003, increasing the total number of subscribers to 18.2 million (17.2 million) as of September 30, 2003. -- Blended 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 23% to US$14.2 (US$11.5) in the third quarter of 2003. -- Turkcell recorded net income of US$116.8 (US$73.2) in the third quarter of 2003. -- 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 with Turk See Mechanical Turk. Telekom and Telsim have been revised. -- The Telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. Authority announced the mobile 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. for all mobile operators. -- Turkcell initiated the process to redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. its US$300 million 15% Senior Subordinated Notes due 2005.
Summary of Financial and Operational Data
Q3 2002 Q2 2003 Q3 2003
Number of total subscribers (million) 14.8 17.2 18.2
Number of post-paid subscribers (million) 4.6 4.7 4.7
Number of pre-paid subscribers (million) 10.2 12.5 13.5
Average revenue per user, blended (US$) 12.6 11.5 14.2
Average revenue per user, postpaid (US$) 25.4 25.5 32.1
Average revenue per user, prepaid (US$) 6.0 6.1 7.8
Churn (%) 3.4 4.0 3.9
Minutes of usage, blended, per month 61.7 59.9 65.7
Revenue (US$ million) 534.3 583.7 764.6
EBITDA* (US$ million) 230.7 217.9 351.1
Translation Gain/(Loss) (US$ million) (10.4) (52.5) (22.5)
Net Income/(Loss) (US$ million) 58.8 73.2 116.8
All figures are quarterly other than subscriber numbers.
* EBITDA is a non-GAAP financial measure. See page 11 for the
reconciliation of EBITDA to net cash used for operating activities.
Turkcell has changed the reporting of EBITDA as of the second
quarter of 2003. The EBITDA figure for Q3 2002 has been recalculated
for comparison.
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 The favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. economic environment in Turkey continued to support our business in the third quarter of 2003. Consumer sentiment continued to improve as a result of positive 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. indicators such as controlled inflation levels and the continued strength of the Turkish Lira. This positive consumer sentiment combined with a positive seasonal impact contributed to a strong improvement in our operational results and record-high revenues for a single quarter, in spite of in opposition to all efforts of; in defiance or contempt of; notwithstanding. See also: Spite a highly competitive landscape. The third quarter of 2003 brought a very important development in the Turkish mobile industry. In September 2003 we signed an agreement with Turk Telekom to revise the interconnection rates for call termination Call Termination, also known as voice termination, refers to the handing off or routing of calls from one telephone company, also known as a carrier or provider, to another telephone company. The terminating point is end point. fees in line with the regulations introduced by the Telecommunications Authority. Additionally, the Telecommunications Authority recently announced the call termination rates for each mobile operator, effective September 24, 2003. These developments removed some uncertainty surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. the Turkish mobile industry and can be considered a step towards a more stable 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. for all players in the market. However, the implications of the new interconnection regime are not yet fully clear. Although the termination costs (wholesale prices) are now known, end-user (job) end-user - The person who uses a computer application, as opposed to those who developed or support it. The end-user may or may not know anything about computers, how they work, or what to do if something goes wrong. 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 structures (retail prices) may be subject to change. The impact of the possible changes in end-user tariffs This is a list of tariffs and trade legislation:
n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. and 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. results. As proven by our quarterly results our operational performance has been sound and provided us with healthy cash flow. We are looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. ways to transform our cash into new investment areas for sustaining growth and creating value for all of our shareholders. Currently, our 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. loss based on Turkish Accounting Standards makes the distribution of a dividend in 2004 very unlikely, although the decision to distribute any dividend would be taken by the General Assembly upon eligibility under Turkish Accounting Standards. On the other hand, since the growth in the Turkish mobile market is becoming moderate, we are looking for growth opportunities. We believe that the regional business opportunities as a mobile player and investments in other technology based business are two strategic areas which we could pursue as part of our general growth strategy along with our current 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. operations in Turkey. Our participation in recent bidding of the GSM tender in Iraq Iraq or Irak (both: ēräk`, ĭrăk`), officially Republic of Iraq, republic (2005 est. pop. 26,075,000), 167,924 sq mi (434,924 sq km), SW Asia. as well as our attempt for possible acquisition of Digital Platform are two examples of this strategy. We perceive an investment in Digital Platform as an opportunity to create value for the company from both a strategic and a financial standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the . On September 4, 2003, our Board of Directors had unanimously 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: Turkcell management to enter into discussions to purchase the majority stake of Digital Platform and to initiate a process of both financial and legal due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. . The evaluation process is ongoing and the purchase may be realized upon final board approval as well other necessary approvals. Overview Financial Results Turkcell's financial results were positively impacted by seasonality and the continued strength of the Turkish Lira against the US Dollar in the third quarter of 2003. Revenues increased 31% to US$764.6 million (US$583.7 million) primarily due to the improvement in mobile usage, the appreciation of the Turkish Lira against the US Dollar, and the increase in the subscriber base. Revenues were negatively impacted by the interconnection dispute with Turk Telekom as Turk Telekom continued to make partial interconnection payments to Turkcell during the third quarter of 2003. The impact of the dispute on revenues was US$47.7 million, excluding taxes, for the third quarter of 2003. Pursuant to the new agreement signed with Turk Telekom, the method for calculation of interconnection revenues has changed effective September 20, 2003. More information on the agreement is provided in this release in the section "Regulatory Environment: Interconnection Agreements Amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. ." Going forward, Turkcell expects to receive monthly interconnection payments in full from Turk Telekom based on the revised agreement. In line with the overall improvement in financial results, 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 61% to US$351.1 million (US$217.9 million) mainly due to higher revenues, a decline in translation loss and a relatively lower operational cost base in the third quarter of 2003. Turkcell incurred a translation loss of US$22.5 million (US$52.5 million) in the third quarter of 2003 due to the 3% appreciation of the Turkish Lira against the US Dollar. As Turkcell carries significant reserves against legal disputes on its balance sheet, and nearly all of the reserves are calculated in Turkish Lira, the appreciation of the Turkish Lira resulted in a translation loss in the third quarter of 2003. However, the translation loss declined significantly in the third quarter of 2003 due to the relatively lower appreciation of Turkish Lira during the period compared to the previous quarter. Turkcell's net income increased to US$116.8 million (US$73.2 million) in the third quarter of 2003. Debt Redemption and New Financing During the third quarter of 2003, Turkcell paid a total of US$66.3 million of debt in principal and interest. As of September 30, 2003, Turkcell's total outstanding financial debt was reduced to approximately US$1.0 billion from US$1.3 billion at the end of 2002. In the third quarter of 2003, Turkcell initiated the redemption of its 15% Senior Subordinated Notes due 2005. On October October: see month. 8, 2003, Cellco Finance, Turkcell's financing vehicle, announced that the holders of almost 90% in aggregate principal amount of its outstanding 12.75% Senior Notes due 2005 have consented to the proposed redemption. The redemption price Redemption price See: Call price redemption price 1. The price at which an open-end investment company will buy back its shares from the owners. In most cases, the redemption price is the net asset value per share. 2. is 103.75% and the redemption is expected to be complete on or around November 10, 2003. On September 19, 2003, Turkcell gave a mandate to HSBC HSBC Hongkong and Shanghai Banking Corporation HSBC Humane Society of Broward County (Florida) HSBC Humane Society of Bay County (Bay County, Michigan) Istanbul Main Branch ("HSBC") and The Islamic Development Bank Islamic Development Bank (also known as IDB), is a multilateral development financing institution. located in Jeddah, Saudi Arabia. It was founded by the first conference of Finance Ministers of the Organization of the Islamic Conference (OIC), convened 18 December 1973. ("IDB (ITS Data Bus) An interface between devices in an automobile endorsed by the Society of Automotive Engineers (SAE). Designed to fulfill the goal of Intelligent Transportation Systems (ITS), the ITS Data Bus enables engine diagnostic equipment, GPS navigation systems, ") to arrange financing of up to US$100 million with a maturity of two years from each drawdown Drawdown The peak to trough decline during a specific record period of an investment or fund. It is usually quoted as the percentage between the peak to the trough. Notes: of the financing. The financing will be structured in the form of a syndication See syndication format. , which will be led by HSBC and the IDB. The availability period will be 180 days from the signing date and the grace period will be one year from each drawdown. The new financing arrangement will be unsecured Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. and used for certain qualified equipment purchases in 2003 and 2004. Today, Turkcell received a commitment letter from Yapi ve Kredi Bankasi A.S. for a cash loan facility of US$150 million. The commitment letter has a maturity of one year from today and is subject to renewal with the consent of both parties. The recent debt restructuring Debt Restructuring A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage. Notes: is in line with Turkcell's long-standing strategy of improving its balance sheet by decreasing financing costs and increasing the maturity of its debt. Turkcell continues to evaluate financing alternatives and Turkcell believes that it has the flexibility to borrow from a broad lending base at competitive rates going forward. In the fourth quarter of 2003, Turkcell plans to repay approximately US$400.1 million of outstanding debt, including principal and interest, with cash generated from operations. Turkcell will make a total debt repayment of US$806.2 million in 2003 and anticipates no difficulty in meeting its repayment obligations for the remainder of 2003. Turkcell's cash position improved in the third quarter of 2003. Turkcell ended the quarter with US$696.2 million (US$443.8 million) in cash. Subscriber Growth Continued Positive consumer sentiment in the Turkish business environment continued to support Turkcell's acquisition of new subscribers in the third quarter of 2003. As a result, Turkcell increased its customer base by 5% to 18.2 million (17.2 million) during the period. Total new gross additions during the third quarter of 2003 consisted of approximately 91% prepaid pre·pay tr.v. pre·paid, pre·pay·ing, pre·pays To pay or pay for beforehand. pre·pay  ment n. and 9% postpaid post·paid adj. With the postage having been paid in advance. postpaid Adverb, adj with the postage prepaid Adj. 1. subscribers. The number of Turkcell's prepaid subscribers increased to 13.5 million (12.5 million) and the number of Turkcell's postpaid subscribers remained stable at 4.7 million (4.7 million) in the third quarter of 2003. Turkcell's acquisition cost per subscriber (SAC Sac: see Sac and Fox. SAC - 1. An early system on the Datatron 200 series. [Listed in CACM 2(5):16 (May 1959)]. ) increased 20% to US$29.6 (US$24.7) mainly due to the appreciation of the Turkish Lira against the US Dollar during the third quarter of 2003 and periodical periodical, a publication that is issued regularly. It is distinguished from the newspaper in format in that its pages are smaller and are usually bound, and it is published at weekly, monthly, quarterly, or other intervals, rather than daily. campaigns for distribution network and end-users during the third quarter of 2003. Usage and ARPU Turkcell's blended monthly minutes of usage (MoU) increased by 10% to 65.7 minutes (59.9 minutes) in the third quarter of 2003. Seasonality and positive consumer confidence supported by segmented volume campaigns during the quarter had a positive impact on the mobile usage of its customers. Both postpaid and prepaid ARPU were positively impacted by the increase in usage and the appreciation of the Turkish Lira against the US Dollar in the third quarter of 2003. As a result, postpaid ARPU increased by 26% to US$32.1 (US$25.5) and prepaid ARPU increased by 28% to US$7.8 (US$6.1) during the period. Blended ARPU increased by 23% to US$14.2 (US$11.5) in the third quarter of 2003. The Competitive Landscape In the third quarter of 2003, Turkcell maintained its leadership position in the Turkish mobile market in terms of both overall market share and its share of new subscriber acquisitions. Competition remained focused on tariffs price in the quarter. However, Turkcell continued to compete successfully through loyalty programs and volume based campaigns consistent with Turkcell's segmentation approach, rather than price cuts. Turkcell's churn churn: see butter. level decreased to 3.9% (4.0%) in the third quarter of 2003. The decrease in churn was mainly due to the relatively lower level of prepaid acquisitions in the previous quarters and 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. segmented churn prevention activities. Regulatory Environment: Interconnection Agreements Amended On September 20, 2003, Turkcell signed an agreement (the "Amended Agreement") with Turk Telekom amending certain sections of the Interconnection Agreement dated April 24, 1998, between Turkcell and Turk Telekom ("the Agreement"). Turkcell and Turk Telekom amended pricing terms of the Agreement in response to the Access and Interconnection Regulation introduced by the Telecommunications Authority in May 2003. The Amended Agreement came into effect as of the signature date. 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. the Amended Agreement, Turk Telekom will pay TL210.000 per minute to Turkcell for traffic originating on Turk Telekom's network and terminating on Turkcell's network. This rate, after quarterly revisions, will be subject to a discount of 4.762% in May 2004. Turkcell will pay TL50.000 per minute for local traffic and a net amount of TL70.000 for metropolitan and long distance traffic originating on Turkcell's network and terminating on Turk Telekom's network. On October 13, 2003, Turkcell also signed a new agreement with Telsim, revising the pricing terms of the interconnection agreement signed on October 4, 1999. However, on October 17, 2003, the Telecommunications Authority resolved that Turkcell will receive TL178,750 per minute for calls originating on all other mobile operators' networks and terminating on Turkcell's network. According to the resolution, Turkcell will pay TL178,750 per minute for calls originating on its network and terminating on Telsim's network. Turkcell will pay TL233,750 per minute for calls originating on its network and terminating on Aria's or Aycell's network. All the rates are set in Turkish Lira and will be revised by the parties every three months based on the consumer price index. The amended pricing terms will be applicable until the end of June 2004. All rates are net of all applicable taxes. The revised interconnection agreements dictate TO DICTATE. To pronounce word for word what is destined to be at the same time written by another. Merlin Rep. mot Suggestion, p. 5 00; Toull. Dr. Civ. Fr. liv. 3, t. 2, c. 5, n. 410. relatively lower rates for mobile call termination. Turkcell expects its interconnection revenues to be impacted negatively as a result of these lower termination rates assuming no change in the current tariff structure. However, mobile network operators may revise their end user tariffs. Although Turkcell expects a change in the traffic and revenue composition as a result of the lower termination rates, it is currently unable to assess the complete impact on interconnection revenues due to possible changes on end-user tariffs. Legal Issue Developments Treasury Share on Interconnection Revenues: In March 2001, Turkcell ceased including its interconnection revenues in the gross revenue for its Treasury Share payments to the Turkish Treasury. The Turkish Treasury informed Turkcell that it believed that Turkcell was required to include Turkcell's interconnection revenues in the gross revenue base. After failing to reach an agreement on the matter with the related authorities, Turkcell initiated an arbitration arbitration Process of resolving a dispute or a grievance outside a court system by presenting it for decision to an impartial third party. Both sides in the dispute usually must agree in advance to the choice of arbitrator and certify that they will abide by the suit in the ICC ICC See: International Chamber of Commerce International Court of Arbitration The International Court of Arbitration is an institution for the resolution of international commercial disputes. The International Court of Arbitration is part of the International Chamber of Commerce. in October 2001. Turkcell computed and paid the Treasury Share using the gross revenue base excluding the interconnection revenues based on an injunction injunction, in law, order of a court directing a party to perform a certain act or to refrain from an act or acts. The injunction, which developed as the main remedy in equity, is used especially where money damages would not satisfy a plaintiff's claim, or to received from the local court in November 2001. However, Turkcell calculated and reported the disputed amount in its financial reports as a reserve for this legal dispute. On October 9, 2003, the ICC International Court of Arbitration completed its hearings and ordered that the interconnection revenues should be included in the calculation of the Treasury Share to the Turkish Treasury. The disputed amount totals US$485 million as of September 30, 2003 and is included in the balance sheet at that date. Turkcell plans to take the necessary legal action against the ICC ruling. Dispute on Frequency Usage Fee Payment: In January 2002, Turkcell applied to the Telecommunications Authority (the "Authority") requesting it to review the protocol obligating Turkcell to collect frequency usage fees from its subscribers on the grounds that it was impossible to collect these fees from prepaid subscribers. Upon the Authority's February 2002 request to pay the frequency usage fees, Turkcell filed a lawsuit lawsuit: see procedure; tort. against the Authority requesting cancellation of the protocols obligating it to collect the frequency usage fees from prepaid subscribers. In July 2002, the court decided in favor of upon the side of; favorable to; for the advantage of. See also: favor Turkcell. However, the Authority appealed the decision and, in March 2003, the Court of Appeals accepted the Authority's appeal and annulled the decision of the lower court. After the Court of Appeals' decision, Turkcell paid TL86.9 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. (US$61.1 million, as of June 30, 2003) for the year 2003. Turkcell did not pay the fees due for 2002, as the legal process was ongoing. However, Turkcell accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. legal reserves in its financials. The disputed amount for the year 2002 is TL52.3 trillion (US$36.8 million, as of September 30, 2003) in principal and TL69.6 trillion (US$44.8 million as of September 30, 2003) in interest as of September 30, 2003. The lower court revised its decision to be consistent with the Court of Appeal's decision, and rejected Turkcell's request to cancel the protocols obligating it to collect the frequency usage fees from the prepaid subscribers. The decision is final and not subject to appeal. 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. Fintur's GSM businesses in Azerbaijan, Kazakhstan, 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 added approximately 239,000 (158,000) net new subscribers in the third quarter of 2003, bringing the total subscriber numbers to approximately 2.1 million (1.9 million) subscribers as of September 30, 2003. The combined revenue for the business was US$93 million (US$78 million) for the third quarter of 2003 and the business was EBITDA positive in all countries. Turkcell owns 41.45% of Fintur and accounts for its investment in Fintur using the equity method. Proposed Acquisition of Digital Platform On September 4, 2003, Turkcell announced its intention to acquire a majority stake in Digital Platform, the leading digital satellite TV broadcaster in Turkey, after Turkcell Board of Directors unanimously authorised Adj. 1. authorised - endowed with authority authorized lawful - conformable to or allowed by law; "lawful methods of dissent" legitimate - of marriages and offspring; recognized as lawful Turkcell's management to enter into discussions to purchase the 72.5% stake from Yapi Kredi Bankasi A.S. ("YKB YKB Yapý Kredi Bankasý (Turkey) ") and its subsidiaries and to initiate legal and financial due diligence. Turkcell intends to acquire the Digital Platform shares through Turktell, its wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. . The proposed acquisition of Digital Platform is subject to approval of the Board of Directors and other approvals. If Turkcell's Board of Directors decides to proceed with the purchase, Turktell will use an option to buy the Digital Platform shares at book value, approximately US$108 million, granted by the Turkish Banking Authority, the controlling entity of YKB, to the Cukurova Group on January 31, 2003. Turkcell management bases its valuations solely on Digital Platform's current business and does not include estimates of potential benefits from future synergies and convergence between Turkcell and Digital Platform. Although Turkcell's management values Digital Platform as an important financial investment regardless of potential future synergies, management also believes that Digital Platform will provide additional strategic value to Turkcell. Digital Platform is regarded as being an attractive acquisition opportunity that will strengthen Turkcell's future market position due to media sector convergence in Turkey, content-related synergies between Turkcell's and Digital Platform's businesses and Digital Platform's overall market potential as a financial investment. Digital Platform offers its subscribers exclusive channels, as well as free-to-air TV channels and radio stations in one compact system through various subscription packages. Digital Platform offers additional services such as pay-per-view channels, Digiturk Magazine, interactive TV applications and enhanced data services, such as home-banking, home shopping Home Shopping commonly refers to the electronic retailing / home shopping channels industry, which includes such billion dollar companies as HSN, QVC, eBay, ShopNBC, Buy.com, and Amazon.com. , games and information services See Information Systems. . Digital Platform holds the exclusive broadcasting rights of the Turkish Super Football League until May 2004. Financial and Operational Review The following discussion focuses principally on the developments and trends in Turkcell's business in the third quarter of 2003 compared to the second quarter of 2003. For your information, selected financial information for the third quarter of 2002 is included at the end of this press release. 1.SUBSCRIBERS Turkcell acquired approximately 932,000 (927,000) net new subscribers in the third quarter of 2003. New gross subscribers acquired in the third quarter of 2003 consisted of 91% prepaid and 9% postpaid subscribers. Turkcell's subscriber base increased 6% to 18.2 million (17.2 million) at September 30, 2003. The overall subscriber base at September 30, 2003 consisted of 13.5 million prepaid and 4.7 million postpaid subscribers. 2.REVENUES Revenues increased 31% to US$764.6 million (US$583.7 million) primarily due to the improvement in mobile usage, the appreciation of the Turkish Lira against the US Dollar and the increase in the subscriber base in the third quarter of 2003. However, revenues were negatively impacted by the interconnection dispute with Turk Telekom as Turk Telekom continued to make partial payments for its monthly interconnection payment to Turkcell during the third quarter 2003. The impact of the dispute on revenues was US$47.7 million excluding taxes for the third quarter of 2003. 3.ARPU Both postpaid and prepaid ARPU were positively impacted by the increase in usage and the appreciation of the Turkish Lira against the US Dollar in the third quarter of 2003. As a result, postpaid ARPU increased by 26% to US$32.1 (US$25.5) and prepaid ARPU increased by 28% to US$7.8 (US$6.1) during the period. Blended ARPU increased by 23% to US$14.2 (US$11.5) in the third quarter of 2003. 4.MoU Turkcell's blended monthly minutes of usage (MoU) increased by 10% to 65.7 minutes (59.9 minutes) in the third quarter of 2003. Seasonality and the improvement in consumer confidence supported by segment based volume campaigns during the quarter positively impacted the mobile usage of its customers. 5.EBITDA In line with the overall improvement in financial results, EBITDA increased 61% to US$351.1 million (US$217.9 million) mainly due to higher revenues, a decline in translation loss and a relatively lower operational cost base in the third quarter of 2003. 6.TRANSLATION LOSS Turkcell incurred a translation loss of US$22.5 million (US$52.5 million) in the third quarter of 2003 due to the appreciation of the Turkish Lira against the US Dollar. As Turkcell carries significant reserves against legal disputes on its balance sheet, and nearly all of the reserves are calculated in Turkish Lira, the appreciation of the Turkish Lira resulted in a translation loss in the third quarter of 2003. However, the translation loss declined significantly in the third quarter of 2003 due to relatively lower appreciation of Turkish Lira during the period compared to the previous quarter. 7.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. Churn refers to disconnected subscribers, both voluntary and involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal. INVOLUNTARY. . Turkcell's quarterly churn rate decreased 3% to 3.9% (4.0%) in the third quarter of 2003. Turkcell believes that it has an adequate bad debt provision in its financial statements for such non-payments and disconnections. 8.PROFIT & LOSS AND BALANCE SHEET STATEMENTS Net income Turkcell posted net income of US$116.8 million (US$73.2 million) for the third quarter of 2003. The increase in net income was due to the increase in revenues and relatively stable cost base. Direct cost of revenues Direct cost of revenues increased 21% to US$441.4 million (US$363.6 million) for the third quarter of 2003. Direct cost of revenues increased mainly due to the increase in treasury share and interconnection expenses in line with the increase in revenues, increase in wages and salaries due to salary increase in July and increase in radio cost due to the full effect of radio network operations started in the second quarter of 2003. Depreciation and amortization Depreciation and amortization expenses remained stable at US$105.1 million (US$104.9 million) for the third quarter of 2003. Selling and marketing expenses Selling and marketing expenses increased 16% to US$67.0 million (US$57.7 million) in the third quarter of 2003 mainly due to the appreciation of the Turkish Lira against the US Dollar, periodical campaigns for distribution network and end-users and the sponsorship expenses related with Turkish premier football league. Acquisition cost per subscriber increased slightly to US$29.6 (US$24.7) in the third quarter of 2003. General and administrative expenses General and administrative expenses increased 14% to US$30.3 million (US$26.6 million) for the third quarter of 2003 mainly due to a one-time cost related to taxes on 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. revenues. Bad debt expense, before deducting collections, as a percentage of revenues, was 1.3% (1.4%) for the third quarter of 2003. Equity in net income of unconsolidated investees Equity in net income of unconsolidated investees was US$6.6 million (US$4.3 million) for the third quarter of 2003. Net interest expense Net interest expense decreased 22% to US$48.9 million (US$59.6 million) for the third quarter of 2003 due to the increase in interest income in line with the increase in average balance of term deposits. Total assets In the third quarter of 2003, Turkcell's total assets increased by 10% to US$3,652.3 million (US$3,378.7 million) at September 30, 2003. Capex (CAPital EXpenditures) Refers to the cost of developing a product or system. OPEX (operating expenditures) are the ongoing costs for running it. For example, the purchase of a printer is the CAPEX, and the annual paper and ink cost is the OPEX. Capital expenditures in the third quarter of 2003 were US$39.0 million (US$39.1 million). Debt As of September 30, 2003, Turkcell had 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$1,011.3 million (US$1,034.9 million). Reconciliation of Non-GAAP Financial Measures The SEC recently adopted new rules regarding the use of non-GAAP financial measures. We believe that EBITDA, a measure commonly used in the telecommunications industry, can enhance the understanding of our operating results. 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.
Q3 2002 Q1 2003 Q2 2003 Q3 2003
-------- -------- -------- --------
EBITDA 230.7 232.3 217.9 351.1
Minority interest 0.1 0.4 0.3 1.8
Equity in net (income) loss of
unconsolidated investees 0.2 2.2 4.3 6.6
Interest expense (67.8) (87.7) (80.6) (85.3)
Net increase in assets and
liabilities 153.6 74.2 70.7 56.4
Net cash provided by operating
activities 316.2 216.2 203.4 313.8
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.
SELECTED FINANCIALS
Nine Months Nine Months
Ended Ended
September September
30, 30,
2002 2003
----------- -----------
Consolidated Statement of Operations Data
Revenues
Communication fees 1,421.4 1,787.6
Monthly fixed fees 31.5 30.1
SIM card sales 9.2 14.5
Call center revenues 6.3 5.4
Other 0.6 1.8
Total revenues 1,469.0 1,839.4
Direct cost of revenues (1,003.5) (1,131.7)
----------- -----------
Gross profit 465.5 707.7
General & administrative expenses (77.3) (79.1)
Selling & marketing expenses (142.7) (173.7)
----------- -----------
Income from operations 245.5 454.9
Income from related parties , net 0.1 3.2
Net interest expense (139.4) (168.7)
Other Income, net 2.7 3.8
Equity in net income (loss) of unconsolidated
investees (23.4) 13.1
Minority interest 0.2 2.5
Translation Loss (20.7) (76.1)
----------- -----------
Income before taxes 65.0 232.7
Income tax expense - (3.2)
----------- -----------
Net income 65.0 229.5
=========== ===========
Net income per share 0.00013 0.000459
Other Financial Data
Gross margin 31.7% 38.5%
EBITDA(*) 592.9 801.3
Capital expenditures 60.4 128.7
Consolidated Balance Sheet Data (at period end)
Cash and cash equivalents 305.4 696.2
Total assets 3,301.5 3,652.3
Long term debt 964.3 525.1
Total debt 1,426.0 1,011.3
Total liabilities 1,953.2 2,091.4
Total shareholders' equity / Net Assets 1,348.3 1,560.9
Capital stock 636.1 636.1
Consolidated Cash Flow Information
Net cash provided by operating activities 396.1 733.4
Net cash used in investing activities (131.1) (154.7)
Net cash used in financing activities (202.7) (276.7)
* Please refer to the notes on reconciliation of Non-GAAP financial
measures on page 11
SELECTED FINANCIALS
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
September March June September
30, 31, 30, 30,
2002 2003 2003 2003
--------- --------- -------- ---------
Consolidated Statement of
Operations Data
Revenues
Communication fees 521.1 475.9 567.2 744.5
Monthly fixed fees 9.2 9.0 10.2 10.9
SIM card sales 1.9 4.3 4.0 6.2
Call center revenues 1.8 1.6 1.6 2.2
Other 0.3 0.3 0.7 0.8
Total revenues 534.3 491.1 583.7 764.6
Direct cost of revenues (347.4) (326.7) (363.6) (441.4)
--------- --------- -------- ---------
Gross profit 186.9 164.4 220.1 323.2
General & administrative
expenses (25.1) (22.2) (26.6) (30.3)
Selling & marketing expenses (44.8) (49.0) (57.7) (67.0)
--------- --------- -------- ---------
Income from operations 117.0 93.2 135.8 225.9
Income from related parties, net - 2.0 0.6 0.6
Net interest expense (45.4) (60.2) (59.6) (48.9)
Other Income, net (2.7) 3.0 3.6 (2.8)
Equity in net income of
unconsolidated investees 0.2 2.2 4.3 6.6
Minority interest 0.1 0.4 0.3 1.8
Translation Loss (10.4) (1.1) (52.5) (22.5)
--------- --------- -------- ---------
Income before taxes 58.8 39.5 32.5 160.7
Income tax benefit (expense) - - 40.7 (43.9)
--------- --------- -------- ---------
Net income 58.8 39.5 73.2 116.8
========= ========= ======== =========
Net income per share 0.00012 0.000079 0.00015 0.000234
Other Financial Data
Gross margin 35.0% 33.5% 37.7% 42.3%
EBITDA(*) 230.7 232.3 217.9 351.1
Capital expenditures 26.7 50.6 39.1 39.0
Consolidated Balance Sheet Data
(at period end)
Cash and cash equivalents 305.4 308.9 443.8 696.2
Total assets 3,301.5 3,071.9 3,378.7 3,652.3
Long term debt 964.3 922.7 830.6 525.1
Total debt 1,426.0 1,048.9 1,034.9 1,011.3
Total liabilities 1,953.2 1,701.3 1,934.5 2,091.4
Total shareholders' equity / Net
Assets 1,348.3 1,370.6 1,444.2 1,560.9
Capital stock 636.1 636.1 636.1 636.1
Consolidated Cash Flow
Information
Net cash provided by operating
activities 316.2 216.2 203.4 313.8
Net cash used in investing
activities (97.4) (60.1) (55.6) (39.0)
Net cash used in financing
activities (81.2) (241.2) (13.0) (22.5)
* Please refer to the notes on reconciliation of Non-GAAP financial
measures on page 11
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