Turkcell Iletisim Hizmetleri AS (TKC) reported fourth quarter 2009 earnings per share of 38 cents per share, up from the Zacks Consensus Estimate of 34 cents per share.

In the quarter, revenue contracted by 3.0% year on year to TRY2,260.6 million ($1,473 million) as a result of customer reimbursements to the tune of TRY39 million and repayments to other operators of TRY 21 million based on the Telecommunications Authority’s decisions, and lower contributions from its consolidated subsidiaries.
Cost of operations including depreciation and amortization increased by 12.0% to TRY1, 321.2 million in the fourth quarter of 2009. During the same period, direct cost of revenues as a percentage of total revenues increased to 58.4% from 50.6% in the fourth quarter of 2008. This was due to the increase in interconnection costs (6.0 percentage points) as a result of increasing off-net traffic and increase in depreciation and amortization expenses due to fixed asset write-offs related to operations in Belarus and Turkey (3.4 percentage points) as a percentage of revenues.
Earnings before interest, tax depreciation and amortization (EBITDA), in actual terms, declined 34.9% to $545.4 million and the EBITDA margin by 6.5 percentage points to 34.3%. This was mainly due to the decline in revenue along with 4.4% increase in interconnection costs, network related expenses higher by 1.3%, a marginal increase of 0.4% in selling and marketing expenses, and increase in other items by 0.4% as a percentage of revenues.
In the fourth quarter, net income declined by 45.3% year-on-year to TRY252.8 million ($164.7 million) due to the lower EBITDA, the impact of provisions, impairment charges and fixed assets write-offs, as well as decline in minority income from its wholly owned subsidiary Astelit despite the increase in net finance income. Turkcell recorded free cash flow (defined as cash flow from operating activities minus capital expenditures) 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. 

Operational Characteristics
Subscriber base in Turkey totaled 35.4 million as of Dec 31, 2009, down by 1.7% compared to the third quarter of 2009 and by 4.3% on an annual basis. In total, the postpaid subscriber base made up 26.6% of its overall subscriber base, up from 20.2% in the same period last year. Churn refers to voluntarily and involuntarily disconnected subscribers. In the fourth quarter of 2009, its churn rate slightly improved to 9.7%, down from 10.2% a quarter ago. Minutes of usage continued to increase and up by 3.4% compared to the third quarter of 2009 to 153.6 minutes in the fourth quarter, mainly due to the positive impact of new and existing tariffs and offers despite seasonal trends. 

Balance Sheet Highlights 

Total cash and equivalents were $3.0 billion with long-term debt of $805.6 million and shareowner’s equity of $5.8 billion. 

Turkcell is the leading communications and technology company in Turkey with 35.4 million postpaid and prepaid customers and a market share of approximately 56% as of Dec 31, 2009 (Source: the Turkish Telecommunications Authority). Turkcell provides high quality data and voice services to approximately 70% of the Turkish population with its 3G and EDGE technology supported network. Turkcell reported TRY 8.9 billion ($ 5.8 billion) net revenue for the year ended Dec 31, 2009 and its total assets reached TRY 14.0 billion ($ 9.3 billion) as of Dec 31, 2009. Its major competitor is Vodafone Group plc (VOD). 

Rating Action 

Very recently, International Credit Rating Agency Fitch Ratings has affirmed Turkcell’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB-‘ respectively. The outlook on both the IDRs indicate Stability.
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