Turkcell Misses Estimates

Turkcell Iletisim Hizmetleri AS (TKC - Analyst Report) reported third quarter 2009 earnings per share of 15 cents per share, sharply down from the Zacks Consensus Estimate of 49 cents per share.
 
In the quarter, revenue contracted by 3.7% year on year to TRY2,368.0 million as a result of the declining revenue from outgoing calls due to the unlimited offers in the market and the lower contribution of its consolidated subsidiaries. The contribution from Turkcell’s consolidated subsidiaries was adversely affected by two key developments: the volatile macroeconomic environment in Ukraine that continued to have a negative impact on Astelit mainly due to the 62% depreciation of the hryvnia against the US dollar, resulting in a 27.1% revenue decrease in US dollar terms to $93.2 million from $127.8 million at the same time in 2008; and a decrease in the revenue contribution of the company’s betting business, Inteltek, due to the lower commission rates compared to the same period of last year.
 
Direct cost of revenues including depreciation and amortization decreased 10.6% to $836.4 million in the quarter. During the same period, direct cost of revenues as a percentage of total revenues increased to 52.7% from 45.5%. This was due to the increase in interconnection costs (4.4%) as a result of increasing off-net
traffic, network related expenses (1.3 %), higher depreciation and amortization expenses (1.1%) and other expenses (0.4%) as a percentage of revenues.
 
Earnings before interest, tax depreciation and amortization (EBITDA), in nominal terms, decreased 34.9% to $545.4 million and the EBITDA margin by 6.5 pp to 34.3%. This was mainly due to the decline in revenue coupled with 4.4% increase in interconnection costs, network related expenses higher by 1.3%, a slight increase of 0.4% in selling and marketing expenses, and increase in other items by 0.4% as a percentage of revenues.
 
Net income decreased by 44.9% year on year to $332.9 million and net income margin by 8.4% to 21.0% mainly due to lower EBITDA.
 
Turkcell recorded free cash flow (cash flow from operating activities minus capital expenditure) of $191.2 million, compared to $478.3 million in the same period of 2008, primarily due to an increase in capital expenditure and a decrease in EBITDA.
 
Total cash and equivalents were $3.1 billion with long-term debt of $9.5 billion and shareowner’s equity of $6.6 billion.
 
Turkcell is the leading mobile operator in Turkey. The company operates in a three player market with a share of approximately 56%, with 36.0 million postpaid and prepaid customers as of Sep 30, 2009 (source: operators’ announcements). Turkcell is the technology leader providing EDGE technology across the country. The company also provides high quality data and voice services to 65% of the population (as at Sep 30, 2009) through the implementation of its 3G technology. Its major competitor is Vodafone Group plc (VOD - Analyst Report).

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