Turkcell Iletisim Hizmetleri: Fourth Quarter and Full Year 2017 Results

Turkcell Iletisim Hizmetleri: Fourth Quarter and Full Year 2017 Results

“REMARKABLE RESULTS ON THE BACK OF DIGITAL TRANSFORMATION”

Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) (BIST:TCELL):

• Please note that all financial data is consolidated and comprises that of Turkcell Iletisim Hizmetleri A.S. (the “Company”, or “Turkcell”) and its subsidiaries and associates (together referred to as the “Group”), unless otherwise stated.
• We have three reporting segments:
  • "Turkcell Turkey" which comprises all of our telecom related businesses in Turkey (as used in our previous releases, this term covered only the mobile businesses). All non-financial data presented in this press release is unconsolidated and comprises Turkcell Turkey only figures, unless otherwise stated. The terms "we", "us", and "our" in this press release refer only to Turkcell Turkey, except in discussions of financial data, where such terms refer to the Group, and except where context otherwise requires.
  • “Turkcell International” which comprises all of our telecom related businesses outside of Turkey.
  • “Other subsidiaries” which is mainly comprised of our information and entertainment services, call center business revenues, financial services revenues and inter-business eliminations.
• In this press release, a year-on-year comparison of our key indicators is provided and figures in parentheses following the operational and financial results for December 31, 2017 refer to the same item as at December 31, 2016. For further details, please refer to our consolidated financial statements and notes as at and for December 31, 2017, which can be accessed via our website in the investor relations section (www.turkcell.com.tr).
• Selected financial information presented in this press release for the fourth quarters and for the full year 2016 and 2017 is based on IFRS figures in TRY terms unless otherwise stated.
• In accordance with our strategic approach and IFRS requirements, Fintur is classified as ‘held for sale’ and reported as discontinued operations as of October 2016. Certain operating data that we previously presented with Fintur included has been restated without Fintur.
• In the tables used in this press release totals may not foot due to rounding differences. The same applies to the calculations in the text.
• Year-on-year and quarter-on-quarter percentage comparisons appearing in this press release reflect mathematical calculation.

FINANCIAL HIGHLIGHTS

Note: Net income excluding the impact of the tax settlement within the scope of Law No.7061 has been displayed as a separate line in order to facilitate comparison of current quarter and full year performance to prior periods.

FULL YEAR HIGHLIGHTS

• 2017 has been a remarkable year in terms of both operational and financial results
• Record operational results achieved:
  • Mobile churn at 20.5%, lowest of the past decade
  • 36.7 million total subscriber base in Turkey; 1.5 million net additions
  • 4.5G subscriber penetration at 87%
• Record financial results achieved:
  • Group revenues and EBITDA up 23.4% and 34.8%, respectively
  • Group EBITDA margin of 35.3% up 3.0pp, highest of past 9 years
  • Turkcell Turkey data and digital services revenues, comprising 67% of Turkcell Turkey revenues, up 51.2%
  • Group net income up 32.6% to TRY1,979 million (TRY1,492 million) on solid operational performance
  • Group net income of TRY2,479 million excluding TRY500 million net income impact of tax settlement within the scope of Law No.7061

• Guidance delivered via stellar growth performance at top line, midterm EBITDA margin target achieved a year early, and operational capex over sales ratio³ at 21% with 2018 investments brought forward in Q417
• TRY3 billion dividend distributed to shareholders
• TRY1,240 million dividend proposal for year 2017, subject to approval of General Assembly
• 2018 Group guidance⁴; revenue growth target of 13-15%, EBITDA margin target of 33-35% and operational capex over sales ratio³ target of 18-19%

FOURTH QUARTER HIGHLIGHTS

• Operational momentum continued:
  • Mobile triple play subscribers ratio⁵ reached 55.8%, up 14pp year-on-year; and multiplay with TV subscribers⁶ reached 44.4%, up 9pp year-on-year
  • 72% smartphone penetration, 15 million 4.5G compatible smartphones in our subscriber base
  • Data usage of 4.5G users at 5.9GB in Q417, 6.0GB in December

• Record financial results achieved:
  • All time high quarterly Group revenue and EBITDA, highest EBITDA margin of past 9 years
  • Group revenues and EBITDA up 15.4% and 26.8%, respectively with EBITDA margin of 37.3% up 3.4pp year-on-year
  • Turkcell Turkey’s data and digital services revenues up 22.9%
  • Group net income at TRY216 million (TRY351 million)
  • Group net income doubled to TRY716 million excluding TRY500 million net income impact of tax settlement within the scope of Law No.7061

• On January 25, 2018, Fintur signed a binding agreement with Silknet JSC, a joint stock company in Georgia, to transfer its 100% shareholding in Geocell, for US$153 million.

(1) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(2) Excluding the TRY500 million net income impact of the tax settlement in Q417 and TRY136 million net income impact of the tax amnesty in Q316
(3) Excluding license fee
(4) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2016 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
(5) Share among mobile voice users excluding subscribers who have not used their lines in the last 3 months
(6) Multiplay subscribers with TV: Internet + TV users & internet + TV + voice users
For further details, please refer to our consolidated financial statements and notes as at and for December 31, 2017 which can be accessed via our web site in the investor relations section (www.turkcell.com.tr).

COMMENTS BY KAAN TERZIOGLU, CEO

Digital transformation has been the key driver behind the 23% revenue growth, 35% EBITDA ¹ growth and, excluding the one-off impact of the tax settlement, a 52% net income increase

2017 was a year in which we reached important milestones in Turkcell’s digital transformation, including the launch of a new digital brand and new digital services, realized a record revenue increase and subscriber additions and gained the largest revenue generator status in the Turkish telecoms market. Moreover, solid financial and operational results led to a record high share price performance.

As Turkcell Group we registered the highest top line growth performance of the past 10 years at 23.4%, and an EBITDA margin increase of 3 percentage points in 2017, thanks to our 4.5G investments and successful digitalization model. We thereby, achieved higher results both in revenue growth and operational profitability than our guidance, which we upgraded twice during the year. We have brought forward our investments to meet our customers’ rising digital demands. Accordingly, we registered an operational capex² of 3.7 billion TL, which has allowed us to widen the quality gap between us and our competitors. As we have completed the 20th month of our 4.5G network, one of the main constituents of our growth, we have accelerated efforts towards 5G technology development. With rising customer satisfaction and record customer retention of the past 10 years, Turkcell Turkey now has 36.7 million subscribers on approximately 1.5 million net subscriber adds. Moreover, 56%³ of our mobile subscribers are using at least one of our digital services.

Our digital services that add value to our customers’ 1440 daily minutes…

As Turkey’s leading digital operator, in addition to providing legacy communication services, we continued to advance our existing digital services, while expanding the portfolio that enriches our customers’ 1440 daily minutes. Our digital services and solutions play a bigger part in our customers’ lives than the mere 31-minute⁴ phone call initiated by an average phone user, or the raw data consumed on the OTT services.

Within this framework, we enhanced the messaging, audio and video calling capabilities of our digital communications platform BiP, by adding the group video call feature. With 2 billion messages sent in December 2017 alone, BiP surpassed the number of SMS messages sent, marking a first. Enriched with our telco capabilities, BiP offers a wide variety of solutions and services ranging from multi-screen calls to digitalized customer services, from gaming to money transfer and from app-to-network calls to web-based communication.

For the first time this year, we began live concert broadcasts on fizy, Turkey’s most popular music application. This summer’s concerts, each of which exceeded 200 thousand views, saw fizy rank first in App Store downloads. In total, 2.2 billion songs were streamed on fizy this year. At the time of our 4.5G launch, we said that “we will change the TV experience on the small screen,” a claim we have now delivered on with record viewing times on TV+. The mobile users’ daily average TV+ viewing duration rose by 29 minutes year-on-year to over 63 minutes. Our digital publishing app, Dergilik, which offers users 413 magazines and 75 newspapers, has created a significant revival in the publishing industry. In September, taking courage from the attention received by our digital services, we launched the digital brand, Lifecell, and its accompanying tariffs, swiftly reaching 242 thousand subscribers. Lifecell offers all communication services via mobile internet and the digital platform, including calling and messaging. Our strong presence in the digital space is evidenced by our ranking as the fourth publisher on Google Play, and third in the App Store according to the past twelve months' downloads.

Our search engine Yaani, launched this quarter, positioned Turkey among the countries with their own search engines. Yaani, designed to understand the unique syntax of Turkish, provides its users with easier access to information. Integrated with Turkcell services, Yaani simplifies the lives of its users. With Yaani, downloaded 3.5 million times, Turkcell is well positioned to carve its share of the digital advertising market. In accordance with our targeted contribution to the digital transformation of the economy, along with Yaani, we launched our e-commerce platform, the second phase of our digital operator strategy. On this platform, users are now able to securely log into digital services with GSMA-enabled Mobile Connect technology, and complete their shopping through easy and secure payment using Paycell.

Differentiated financing solutions from Turkcell

Turkcell Finansman A.Ş. (Financell), established to provide flexible financing solutions for our customers’ smart device needs, continued to provide services at Turkcell’s three thousand stores across Turkey. Granting approximately 4.3 million loans, it has reached a total loan portfolio of 4.2 billion TL. With Financell, we have already met our 2018 year-end smartphone penetration target at the end of the second quarter. As of the fourth quarter, this ratio had reached 72%.

Given the sheer scope of techfin, our Paycell brand reached over two thousand member companies and over five million users. Paycell, providing fast and easy payment services, has, among others, offered utility bill payments, fuel payments without leaving the vehicle, and Turkcell tariff purchases.

Leveraging our technology strengths in new business areas

Through Turkcell Enerji Çözümleri (Energy Solutions), a company we established this year, we will provide energy management technologies. Besides providing our customers with uninterrupted electricity through Turkcell’s service quality, we are excited to offer systems and solutions that will enable more efficient energy consumption.

Meanwhile, as one of the five founding participants, we commenced our studies into contribution to the Joint Initiative Group for Turkey’s Automobile Project. The goal is to produce Turkey’s first domestic car, and we will leverage our strong technological infrastructure and software capabilities to this end.

Our technology contributes to the value we place on human life

In accomplishing this work, we are ever aware of the potential to make a tangible difference in the lives of our disabled customers. We developed an app for the hearing impaired, having thus far developed similar apps more for the use of the visually impaired. Our “My Sign Language” app offered to hearing impaired individuals and their families in Turkey has registered one million downloads. Elsewhere, our “Hello Hope” app, developed for our Syrian guests, has registered more than 750 thousand downloads to date since its launch in September 2016. In facilitating the lives of millions of Syrian guests, the opportunity to showcase this effort on international platforms is a source of pride both for Turkcell and Turkey.

We have distributed 54% of our net income since 2010

With the 3 billion TL in dividends paid out in 2017, we have distributed 54% of our net income recorded since 2010, abiding by our dividend policy. Today we also announced TRY1,240 million dividend proposal for year 2017, which reflects our commitment to our dividend policy.

We achieved our targets in 2017, and will continue to grow in 2018 through digital services

The global reach of our digital experience, which has propelled customer loyalty and preferences, is among our focus areas for future periods. We will continue to initiate new projects that strengthen our positioning as the digital operator with global services. Accordingly, we have accelerated our B2B efforts. Our subsidiary, Lifecell Ventures, which is extending Turkcell’s digital footprint to global markets, sold its first digital service (lifebox) to Moldcell of Moldova in the last quarter.

On the back of our solid fundamentals cemented in 2017, and our 2018 strategy, we target⁵ Group revenue growth of 13-15%, an EBITDA margin of 33-35% and an operational capex to sales ratio² of 18-19%. We plan to also announce our mid-term targets at the Turkcell Capital Markets Day on March 14th, 2018 in İstanbul. Meanwhile, we will present our success story, an exemplary among many global operators, at the GSMA Mobile World Congress, one of the key platforms of our industry.

We take this opportunity to once again thank our Board of Directors and the Turkcell team for their outstanding performance, dedication and compassion, which fully embodies the Turkcell spirit. We would also like to express our gratitude to our customers, who have continued to show their trust in us throughout our success story.

(1) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(2) Excluding license fee
(3) Share among mobile voice users excluding subscribers who have not used their lines in the last 3 months
(4) Duration of a phone call initiated by an average phone user per day
(5) Please note that this paragraph contains forward looking statements based on our current estimates and expectations regarding market conditions for each of our different businesses. No assurance can be given that actual results will be consistent with such estimates and expectations. For a discussion of factors that may affect our results, see our Annual Report on Form 20-F for 2016 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.

FINANCIAL AND OPERATIONAL REVIEW

Financial Review of Turkcell Group

(1) Including depreciation and amortization expenses.
(2) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.
(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.
(4) Excluding the TRY500 million net income impact of the tax settlement in Q417 and TRY136 million net income impact of the tax amnesty in Q316

Revenue of the Group rose by 15.4% year-on-year in Q417. Increased ARPU level at Turkcell Turkey with data and digital services growth and a larger subscriber base with a higher postpaid ratio were the main drivers of growth.

Turkcell Turkey revenues, at 87% of Group revenues, grew by 13.0% to TRY4,041 million (TRY3,576 million).

• Data and digital services revenues grew by 22.9% to TRY2,735 million (TRY2,226 million).
  • Rising smartphone penetration, an increased number of data users and higher data consumption per user were the main drivers of data and digital services revenue growth on the mobile side. On the fixed side main drivers were a larger subscriber base, price adjustments, and increased share of multiplay subscribers with TV.
  • Revenues from our digital publishing service Dergilik, TV+, music platform fizy, personal cloud service lifebox and other mobile services helped to boost data and digital services revenues.
• Wholesale revenues grew by 11.4% to TRY153 million (TRY137 million) due to increased carrier traffic and the positive impact of TRY depreciation on FX based revenues.
• We reported revenues of TRY104 million originating from our Universal Service Project, which is aimed at building and operating infrastructure in unserved rural areas. Contractually, this project is financed by the Universal Service Fund on a net cost basis.

Turkcell International revenues, constituting 6% of Group revenues, rose by 14.6% to TRY288 million (TRY252 million) mainly with the increase in lifecell and BeST revenues.

Other subsidiaries' revenues, at 7% of Group revenues, which includes information and entertainment services, call center revenues and revenues from financial services grew by 56.3% to TRY337 million (TRY216 million). This was mainly driven by the increase in the consumer finance company’s revenues to TRY183 million (TRY90 million) in Q417.

For the full year, Turkcell Group revenues rose by 23.4%.

Turkcell Turkey revenues grew by 20.8% to TRY15,450 million (TRY12,788 million).

• Data and digital services revenues, at 67% of Turkcell Turkey revenues, grew by 51.2% to TRY10,304 million (TRY6,814 million).
• Wholesale revenues grew by 29.5% to TRY587 million (TRY453 million).
• We reported revenues of TRY258 million originating from our Universal Service Project.

Turkcell International revenues rose by 22.0% to TRY1,067 million (TRY875 million).

Other subsidiaries' revenues grew by 78.9% to TRY1,115 million (TRY623 million).

Cost of revenue slightly increased to 64.6% (64.5%) as a percentage of revenues in Q417. The increase in consumer finance company funding costs (0.5pp) and other cost items (1.4pp) was offset by the decline in GSM related equipment expenses (1.8pp).

For the full year, cost of revenue decreased to 64.4% (64.7%) as a percentage of revenues. This was mainly due to the decrease in treasury share (1.0pp), radio costs (1.0pp), interconnect costs (0.8pp) and depreciation and amortization (0.7pp), despite the rise in consumer finance company funding costs (1.1pp), GSM related equipment expenses (0.8pp) and other cost items (1.3pp).

Administrative expenses declined to 1.4% (4.7%) as a percentage of revenues in Q417, mainly due to the change we made in our doubtful receivable provision assumptions based on improvement in collection performance which had a positive impact of TRY133 million.

For the full year, administrative expenses declined to 3.7% (5.1%) mainly due to the change made in doubtful receivable provision assumptions as explained above.

Selling and marketing expenses slightly declined to 11.7% (11.8%) as a percentage of revenues in Q417. The decline in prepaid subscriber frequency usage fees (0.7pp) and other cost items (0.2pp) was offset by the increase in marketing expenses (0.8pp).

For the full year, selling and marketing expenses as a percentage of revenues declined to 11.4% (13.4%) on the back of the fall in prepaid subscriber frequency usage fees (0.8pp), marketing expenses (0.6pp), selling expenses (0.2pp) and other cost items (0.4pp).

EBITDA ¹ rose by 26.8% year-on-year in Q417 leading to a 3.4pp improvement in EBITDA margin to 37.3% (33.9%). This was mainly due to the solid rise in revenues and effective management of costs. Cost of revenue (excluding depreciation and amortization) remained unchanged, while administrative expenses and selling and marketing expenses declined by 3.3pp and 0.1pp, respectively as a percentage of revenues.

• Turkcell Turkey’s EBITDA grew by 27.7% to TRY1,566 million (TRY1,227 million) with an EBITDA margin of 38.8% (34.3%) on 4.5pp improvement.
• Turkcell International EBITDA decreased by 6.3% to TRY64 million (TRY68 million), which resulted in an EBITDA margin of 22.2% (27.2%). This was mainly due to the increase in radio costs and device sales.
• The EBITDA of other subsidiaries rose by 42.9% to TRY109 million (TRY76 million) with the increasing contribution of our consumer finance company.

For the full year, EBITDA grew by 34.8% with an EBITDA margin of 35.3% (32.3%) on 3.0pp rise. Direct cost of revenues (excluding depreciation and amortization) rose by 0.4pp, while administrative expenses and selling and marketing expenses fell by 1.4pp and 2.0pp, respectively.

(1) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate Adjusted EBITDA and its reconciliation to net income.

• Turkcell Turkey’s EBITDA rose by 34.4% to TRY5,594 million (TRY4,161 million), while the EBITDA margin rose 3.7pp to 36.2% (32.5%).
• Turkcell International EBITDA grew by 12.1% to TRY264 million (TRY235 million), while the EBITDA margin was at 24.7% (26.9%).
• The EBITDA of other subsidiaries rose by 65.9% to TRY370 million (TRY223 million).

In Q417, we changed our doubtful receivable provision assumptions based on improvement in collection performance, which had a positive impact of TYR133 million on EBITDA.

Net finance expense declined to TRY107 million (TRY198 million) in Q417 year-on-year. This was mainly due to lower translation losses in Q417, despite the decline in interest income from contracted receivables, and rise in interest expense of loans.

For the full year net finance expense rose to TRY323 million (TRY173 million). This was mainly due to the decline in interest income from contracted receivables and the increased interest expense of loans despite lower translation losses and positive impact from the fair market value changes of the swap contracts.

Income tax expense decreased 37.6% year-on-year in Q417. For the full year the income tax expense increased 35.1%. Please see Appendix A for details.

Net income of the Group declined to TRY216 million (TRY351 million) year-on-year in Q417, mainly due to the TRY575 million provision booked for tax settlement within the scope of Law No.7061, which had a TRY500 million impact on net income after tax. Excluding the impact of this provision, net income rose by 104.2% to TRY716 million driven by a solid operational performance and lower translation losses.

Turkcell Turkey’s net income decreased to TRY179 million (TRY386 million) in Q417 mainly due to the provision booked for tax settlement as explained above. Excluding the impact of this provision, net income rose by 75.8% to TRY679 million.

For the full year, Group net income increased to TRY1,979 million (TRY1,492 million), mainly due to solid operational performance and better FX results, despite the provision booked for tax settlement in Q417 and higher depreciation and amortization expenses. In FY16 we also booked provisions for tax amnesty within the scope of Article 6736, which had a TRY136 million impact on net income after tax. Excluding the respective provision amounts booked for each year, net income rose by 52.3% to TRY2,479 million.

Turkcell Turkey’s net income increased to TRY1,962 million (TRY1,480 million) in FY17 mainly due to the drivers explained above with respect to the rise in Group net income. Excluding the respective provision amounts booked for each year, net income rose by 52.4% to TRY2,462 million (TRY1,615 million).

Total cash & debt: Consolidated cash as of December 31, 2017 declined to TRY4,712 million from TRY4,906 million as of September 30, 2017. TRY2,598 million (US$689 million) of consolidated cash was denominated in US$, TRY1,073 million (EUR238 million) in EUR and TRY1,041 million in TRY and other local currencies.

Consolidated debt as of December 31, 2017 rose to TRY12,536 million from TRY11,867 million as of September 30, 2017. This was mainly due to the increased debt portfolio of our consumer finance company and the translation increase in the FX denominated debt portfolio of Turkcell Turkey, due to TRY depreciation against the US$ and EUR.

• Turkcell Turkey’s debt was TRY8,475 million, of which TRY3,768 million (US$999 million) was denominated in US$, TRY4,656 million (EUR1,031 million) in EUR and the remaining TRY51 million in TRY.
• The debt balance of lifecell was TRY521 million, denominated in UAH.
• Our consumer finance company had a debt balance of TRY3,536 million, of which TRY988 million (US$262 million) was denominated in US$, and TRY973 million (EUR215 million) in EUR with the remaining TRY1,575 million in TRY (please note that the figures in parentheses refer to US$ or EUR equivalents).

TRY8,392 million of our consolidated debt is set at a floating rate, while TRY4,278 million will mature within less than a year.

Net debt as of December 31, 2017 was at TRY7,824 million with a net debt to EBITDA ratio of 1.26 times. Excluding consumer finance company consumer loans, our telco only net debt was at TRY3,576 million with a leverage of 0.59 times.

Turkcell Group’s short position was at US$144 million as at the end of Q417, thus within our comfort zone, which is below US$500 million as advised by our Board considering the size of our operations and balance sheet. (Please note that this figure takes into account advance payments, hedging and excluding FX swap transactions for TL borrowing).

Cash flow analysis: Capital expenditures, including non-operational items amounted to TRY1,806.6 million in Q417. The cash flow item noted as “other” in Q417 included mainly the positive impact of the change in working capital.

For the full year, capital expenditures, including non-operational items were at TRY4,090.4 million. The cash flow item noted as “other” included the payment of the final installment of the 4.5G license fee (TRY1,535 million) and mainly the negative impact of the change in working capital (TRY831 million).

In Q417 and FY17, operational capital expenditures (excluding license fees) at the Group level were at 35.7% and 21.0% of total revenues, respectively.

(1) EBITDA is a non-GAAP financial measure. See page 14 for the explanation of how we calculate adjusted EBITDA and its reconciliation to net income.
(2) The impact from the movement of reporting currency (TRY) against local currencies of subsidiaries in other countries is included in these lines.

Operational Review of Turkcell Turkey

(1) In Q117, our churn policy was revised to extend from 9 months to 12 months (the period at the end of which we disconnect prepaid subscribers who have not topped up above TRY10.) Additionally, under our revised policy, prepaid customers who last topped up before March will be disconnected at the latest by year-end. Please note that figures for prior periods have not been restated to reflect this change in churn policy.

Our mobile subscriber base continued to expand and reached 34.1 million in FY17. We registered 1.0 million net subscriber additions during the year, marking the highest net additions of the past 6 years. This was driven by 1.1 million net additions to postpaid subscribers, comprising 54.2% (52.5%) of our total mobile subscriber base. In Q417 the mobile subscriber base declined by 537 thousand as 596 thousand prepaid subscribers, who last topped up between January and March, were disconnected in accordance with our churn policy. Meanwhile, our postpaid subscribers rose by 103 thousand net additions.
Our fixed subscriber base exceeded 2.1 million in Q417 with 52 thousand quarterly net additions. We registered 264 thousand net additions during the year, of which 160 thousand were fiber and 103 thousand were ADSL subscribers. IPTV subscribers reached 506 thousand with 39 thousand quarterly and 146 thousand annual net additions. Total TV users, including OTT TV only subscribers, reached 2.2 million. The Turkcell TV+ mobile application has been downloaded 6.6 million times as of February 2018.
Mobile churn declined 4.1pp for the full year, marking the lowest churn rate of the past 10 years. This was driven by our value focused customer strategy, service quality, an attractive digital services portfolio and targeted retention campaigns in 2017. In Q417, our mobile churn rate rose 1.5pp year-on-year due to the disconnection of prepaid subscribers in line with our churn policy as explained above. Excluding this impact, our mobile churn would have been at 5.5%. Our fixed churn rate was 5.7% for Q417 and 19.6% for the full year.
Mobile ARPU (excluding M2M) rose by 4.5% year-on-year in Q417. For the full year, mobile ARPU (excluding M2M) rose by 11.7%. Mobile ARPU growth was mainly driven by increased data and digital services usage, our upsell efforts, price adjustment and larger postpaid subscriber base. ARPU growth was also supported by the increased share of triple play subscribers, who use voice, data and digital services combined, to 55.8%¹.
Fixed Residential ARPU rose 8.0% in Q417 year-on-year and 4.9% for the full year, positively impacted by the increase in multiplay subscribers with TV² to 44.4% of total residential fiber subscribers, along with upsell efforts.
Average mobile data usage per user rose by 53.6% in Q417 year-on-year and 62.5% for the full year driven by increased usage of data and digital services offerings. Average mobile data usage of 4.5G users was at 5.9GB in Q417 and 6.0GB in December. Our smartphone penetration reached 72% in FY17, while 4.5G enabled smartphones reached 68% of total smartphones.

(1) Share among mobile voice users excluding subscribers who have not used their lines in the last 3 months
(2) Multiplay subscribers with TV: Internet + TV users & internet + TV + voice users

TURKCELL INTERNATIONAL

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

lifecell (Ukraine) revenues declined 3.4% year-on-year in Q417 in local currency terms, mainly due to the MTR cut from UAH0.23/min to UAH0.15/min, effective as of January 1, 2017. lifecell’s EBITDA in local currency terms decreased 8.7% year-on-year leading to an EBITDA margin of 26.1%. This was mainly due to the increase in radio costs in Q417. lifecell’s revenues in TRY terms rose by 7.5%, while EBITDA increased by 1.5% year-on-year in Q417.

For the full year, lifecell revenues in local currency terms rose by 0.8% with an EBITDA margin of 27.2%. In TRY terms, lifecell registered revenue growth of 16.5% while EBITDA rose by 13.0%.

(1) We may occasionally offer campaigns and tariff schemes that have an active subscriber life differing from the one that we normally use to deactivate subscribers and calculate churn.
(2) Active subscribers are those who in the past three months made a revenue generating activity.
(*) Since July 10, 2015, we hold a 100% stake in lifecell.

lifecell maintained its leadership in Ukraine in terms of 3G+ network geographical coverage. lifecell continued to grow three-month active 3G data users, which exceeded 3.8 million as at the end of the quarter. Meanwhile, data usage per 3G user posted 75% growth in Q417 on a year-on-year basis. lifecell continued to lead the market in terms of smartphone penetration, which reached 68% as at the end of Q417.

lifecell’s three-month active subscriber base declined to 8.0 million, mainly due to the declining multiple SIM card usage trend in the country. Blended ARPU (3-month active) rose by 13.7% year-on-year in Q417, mainly on rising mobile data consumption and a greater number of customers with higher ARPU tariffs.

On January 31, 2018, lifecell participated in the 2600 MHz frequency tender as part of the 4G License Tender. lifecell has been awarded the license for 15 years, bidding UAH909 million for the 15 MHz frequency band, the total of Lot 1 and Lot 2. Within the scope of the 4G tender, the 1800 MHz frequency tender is expected to be held in the first quarter of 2018.

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

BeST revenues rose by 14.7% year-on-year in Q417 in local currency terms, driven mainly by growth in voice and mobile data revenues. EBITDA rose by 12.5% leading to an EBITDA margin of 6.0%. BeST’s revenues in TRY terms rose by 30.8% year-on-year in Q417.

For the full year, revenues in local currency terms rose by 13.4%, while EBITDA increased by 10.3% leading to an EBITDA margin of 3.8%. Revenues in TRY terms increased by 40.3%, while EBITDA rose by 29.0%.

BeST continued to offer its 4G services in all regions of Belarus increasing its coverage. The increased number of 4G users and higher data consumption led to increased data revenues. Meanwhile, BeST continued to increase the penetration of its digital services within its customer base in accordance with Turkcell’s global digital services strategy.

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

Kuzey Kıbrıs Turkcell revenues grew by 15.4% year-on-year in Q417 on the back of growing mobile data and device sales revenues. EBITDA declined by 13.8% leading to an EBITDA margin of 25.7%, mainly due to the increase in cost of devices sold and interconnection costs.

For the full year, revenues rose by 16.4%, while EBITDA growth was 6.0%. This led to a 3.3pp decline in EBITDA margin to 33.5% mainly due to increased cost of devices sold.

Fintur has operations in Azerbaijan, Kazakhstan, Moldova and Georgia, and we hold a 41.45% stake in the company. In accordance with our strategic approach and IFRS requirements, Fintur is classified as ‘held for sale’ and reported as discontinued operations as of October 2016.

On January 25^th, 2018, Fintur has signed a binding agreement with Silknet JSC, a joint stock company in Georgia, to transfer its 100% total shareholding in Geocell, for US$153 million. The transaction is expected to be completed once regulatory approvals are received. The transaction has no impact on our financial statements since Fintur is classified as “assets held for sale” in our financials.

Turkcell Group Subscribers

Turkcell Group subscribers amounted to approximately 50.2 million as of December 31, 2017. This figure is calculated by taking the number of subscribers of Turkcell Turkey and each of our subsidiaries. It includes the total number of mobile, fiber, ADSL and IPTV subscribers of Turkcell Turkey, and the mobile subscribers of lifecell and BeST, as well as those of Kuzey Kıbrıs Turkcell and Turkcell Europe.

(1) Subscribers to more than one service are counted separately for each service.
(2) The “wholesale traffic purchase” agreement, signed between Turkcell Europe GmbH operating in Germany and Deutsche Telekom for five years in 2010, had been modified to reflect the shift in business model to a “marketing partnership”. The new agreement between Turkcell and a subsidiary of Deutsche Telekom was signed on August 27, 2014. The transfer of Turkcell Europe operations to Deutsche Telekom’s subsidiary was completed on January 15, 2015. Subscribers are still included in the Turkcell Group Subscriber figure.

OVERVIEW OF THE MACROECONOMIC ENVIRONMENT

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

* The official currency of the Republic of Belarus has been redenominated on July 1, 2016. As a result, BYR10,000 has become BYN1 starting from 1 July 2016. Prior periods have been adjusted accordingly for presentation purposes.

RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS: We believe Adjusted EBITDA, among other measures, facilitates performance comparisons from period to period and management decision making. It also facilitates performance comparisons from company to company. Adjusted EBITDA as a performance measure eliminates potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact of changes in effective tax rates on periods or companies) and the age and book depreciation of tangible assets (affecting relative depreciation expense). We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties in evaluating the performance of other mobile operators in the telecommunications industry in Europe, many of which present Adjusted EBITDA when reporting their results.

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

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

NOTICE: This release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. This includes, in particular, our targets for revenue, EBITDA and capex for 2018. More generally, all statements other than statements of historical facts included in this press release, including, without limitation, certain statements regarding the launch and goals of our payment card business, our operations, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as, among others, "will," "expect," "intend," "estimate," "believe", "continue" and “guidance”.

Although Turkcell believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to be correct. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. For a discussion of certain factors that may affect the outcome of such forward looking statements, see our Annual Report on Form 20-F for 2016 filed with the U.S. Securities and Exchange Commission, and in particular the risk factor section therein. We undertake no duty to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

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

ABOUT TURKCELL: Turkcell is a digital operator headquartered in Turkey, serving its customers with its unique portfolio of digital services along with voice, messaging, data and IPTV services on its mobile and fixed networks. Turkcell Group companies operate in 9 countries – Turkey, Ukraine, Belarus, Northern Cyprus, Germany, Azerbaijan, Kazakhstan, Georgia, Moldova. Turkcell launched LTE services in its home country on April 1 ^st , 2016, employing LTE-Advanced and 3 carrier aggregation technologies in 81 cities. In 2G and 3G, Turkcell’s population coverage in Turkey is at 99.61% and 97.94%, respectively, as of December, 2017. Turkcell offers up to 1 Gbps fiber internet speed with its FTTH services. Turkcell Group reported TRY17.6 billion revenue in FY17 with total assets of TRY34.0 billion as of December 31, 2017. It has been listed on the NYSE and the BIST since July 2000, and is the only NYSE-listed company in Turkey. Read more at www.turkcell.com.tr

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

Appendix A – Tables

Table: Translation gain and loss details

Table: Income tax expense details

Turkcell Iletisim Hizmetleri
Investor Relations
Korhan Bilek, Tel: + 90 212 313 1888
investor.relations@turkcell.com.tr
or
Corporate Communications:
Tel: + 90 212 313 2321
Turkcell-Kurumsal-Iletisim@turkcell.com.tr

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