Turkcell’s Profit Takes a Dive

Turkcell Iletisim Hizmetleri A.S. (TKC - Analyst Report) reported second-quarter net income of $245.8 million, a decline of 42.6% year over year. This decline was due to lower EBITDA, higher finance expense and translation loss.

In the second quarter, revenues grew 1.1% year over year in Turkish Lira while in dollar terms it fell 20.3% year over year. Turkcell revenues grew mainly due to strong performance in Turkey, a growing subscriber base and upward price adjustments.
Contribution from Turkcell’s consolidated subsidiary was affected by drop in GDP and local currency devaluations. The company’s betting business Inteltek was affected by lower commission rates and excess payout.

Subscriber base went up slightly driven by the company’s focus on increasing its post-paid subscriber base. The share of postpaid subscribers increased to 23.7% from 19.5% a year ago. The number of voluntarily and involuntarily disconnected subscribers increased in the quarter due to competitive pressure. Minutes of usage increased by 38.1% year over year while average revenue per user remained flat in the second quarter.

Direct cost of revenues increased due to the increase in interconnection rates. General and administrative expenses remained broadly flat in the quarter. The company recorded a net finance expense due to increase in currency translation loss and the interest component of litigation provisions.

Consolidated debt amounted to $776.2 million as of June 30, 2009, $542.6 million of which related to Turkcell’s Ukrainian operations. All of its consolidated debt is at a floating rate and $607.7 million will mature in less than a year. The decrease in cash balance to $2.0 billion from $2.8 billion a quarter ago was mainly due to a significant cash outflow during the quarter for major items such as 3G license fee of $476 million (excluding VAT) and dividend of $713.3 million.
 
Capital expenditures in the second quarter amounted to $789.5 million of which $35.1 million related to the Ukrainian operations. Turkcell recorded free cash flow of negative $452.1 million, compared to $35.5 million a year ago primarily due to an increase in capital expenditures and decrease in gross margin due to litigation provision.
 
Turkcell is the dominant provider of Global System for Mobile Communications (GSM) and General Packet Radio Service (GPRS) mobile communications services in Turkey with 36.3 million subscribers. The company was formed in 1994 and has been operating under a 25-year license since 1998.