UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
 
Report on Form 6-K dated May 2, 2016
 
 
Commission File Number: 001-15092
 


TURKCELL ILETISIM HIZMETLERI A.S.
(Translation of registrant’s name in English)

Aydınevler Mahallesi İnönü Caddesi No:20
Küçükyalı Ofispark
34854 Maltepe
Istanbul, Turkey

(Address of Principal Executive Offices)


 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F Q                         Form 40-F £
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
 
Yes £                        No Q
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
 
Yes £                        No Q
 
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes £                        No Q
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________
 
Enclosure: A press release dated April 28, 2016 announcing Turkcell’s First Quarter 2016 results and Q1 2016 IFRS Report.
 
 


 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
1

 
 
 
   
First Quarter 2016 Results
 
 
Content
 
 
 
HIGHLIGHTS
 
 
COMMENTS BY KAAN TERZIOGLU, CEO
4
     
 
FINANCIAL AND OPERATIONAL REVIEW OF THE FIRST QUARTER 2016
 
 
FINANCIAL REVIEW OF TURKCELL GROUP
6
 
OPERATIONAL REVIEW IN TURKEY
 9
     
 
TURKCELL INTERNATIONAL
 
 
lifecell
10
 
BeST
11
 
KKTCELL
11
 
FINTUR
11
 
TURKCELL GROUP SUBSCRIBERS
12
     
 
OVERVIEW OF THE MACROECONOMIC ENVIRONMENT
13
     
 
RECONCILIATION OF NON-GAAP FINANCIAL MEASUREMENTS
13
     
 
Appendix A – Tables
15
 

 
·
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.
 
 
·
As previously announced, starting from Q115, we now have three reporting segments:
 
 
o
“Turkcell Turkey” which comprises all of our telecom related businesses in Turkey (as used in our previous releases, this term covered only 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.
 
 
o
“Turkcell International” which comprises all of our telecom related businesses outside of Turkey.
 
 
o
“Other subsidiaries” which is mainly comprised of our information and entertainment services, call center business revenues, financial services revenues and inter-business eliminations. Call centers were previously included in Turkcell Turkey but are, with effect from the fourth quarter of 2015, now included in “Other subsidiaries”. We have made this change because we believe that our third party call center revenues are not telecom related. All figures presented in this document for prior periods have been restated to reflect this change.
 
 
·
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 March 31, 2016 refer to the same item as at March 31, 2015. For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2016, which can be accessed via our website in the investor relations section (www.turkcell.com.tr).
 
 
·
With effect from Q4 2015, our financial statements are presented in TRY only, the currency in which we recognize the majority of our revenues and expenses. We will no longer present financial statements in USD. This change allows us align our Turkish and US reporting.
 
 
·
In the tables used in this press release totals may not foot due to rounding differences. The same applies for the calculations in the text.
 
 
·
Year-on-year and quarter-on-quarter percentage comparisons appearing in this press release reflect mathematical calculation.
 
 
2

 
 
First Quarter 2016 Results
 
FIRST QUARTER SUMMARY
 
 
·
Another all-time-high first quarter revenue and EBITDA1 performance from Turkcell Turkey and the Group
 
 
·
Turkcell Turkey’s revenues and EBITDA up 10.0% and 10.6%, respectively with an EBITDA margin of 31.3%; data and services revenues, comprising 42% of Turkcell Turkey revenues, up 31.1%
 
 
·
Group revenues and EBITDA up 8.3% and 8.1%, respectively with an EBITDA margin of 31.1%
 
 
·
Group net income as per IFRS up 298.8% to TRY563 million. Group proforma net income2 up 15.1% to TRY544 million
 
 
·
Turkcell International revenues up 2.1%, with positive growth after 7 quarters of decline, on an EBITDA margin of 27.2%
 
 
·
4.5G launch on April 1st with over 70% population coverage in 81 cities; around 5.0 million3 customers
 
 
·
First real converged offers in Turkey; single invoice, single call center and uninterrupted connection
 
 
·
Full year guidance4 maintained; Turkcell Turkey and Group revenue growth targeted at 8% - 10%, Group EBITDA margin targeted at 31% - 33% and Group operational capex over sales targeted at ~20%
 
FINANCIAL HIGHLIGHTS

TRY million
Q115
Q4155
Q116
y/y %
q/q %
Revenue
2,978.2
3,334.5
3,225.4
8.3%
(3.3%)
      Turkcell Turkey
2,662.2
2,997.8
2,927.5
10.0%
(2.3%)
EBITDA1
926.8
1,058.2
1,001.5
8.1%
(5.4%)
      Turkcell Turkey
828.2
955.8
916.1
10.6%
(4.2%)
EBITDA Margin
31.1%
31.7%
31.1%
-
(0.6pp)
Net Income
141.1
584.2
562.7
298.8%
(3.7%)
           
Proforma Net Income2
472.5
567.1
543.7
15.1%
(4.1%)

(1) EBITDA is a non-GAAP financial measure. See page 13 for the reconciliation and the explanation of how we calculate Adjusted EBITDA to net income.
 
(2) We use “proforma net income” as a means of presenting our net income net of certain non-operating items and items that we believe are non-recurring. We define “proforma net income” in this document as net Income excluding FX gain / (loss) (including tax and minority impact), interest Income on time deposits of Turkcell Iletisim Hizmetleri, share of profit of equity accounted investees (Fintur), and one-off items. Please note that this is a non-GAAP measure and that we may in future presentations change the scope of items that we deduct from net income to arrive at “proforma net income.”
 
(3) Customers with 4.5G compatible devices and SIM cards
 
(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 2015 filed with U.S. Securities and Exchange Commission, and in particular, the risk factor section therein.
 
For further details, please refer to our consolidated financial statements and notes as at and for March 31, 2016 which can be accessed via our web site in the investor relations section (www.turkcell.com.tr).
 
(5) For our full Q4 15 results, please find our Q4 15 press release, which is available at http://www.turkcell.com.tr/en/aboutus/investor-relations/key-financial-and-operational-data/investor-kit   and is incorporated herein by reference (without update from the original release date).
 
 
3

 
 
First Quarter 2016 Results
 
COMMENTS BY KAAN TERZIOGLU, CEO
 
Turkcell had a solid start to 2016, focused on data and digital services, following a customer centric approach with differentiation through 4.5G
 
We made a strong start to 2016, in line with our plans. We registered all-time-high first quarter revenue and EBITDA, both at the Turkcell Turkey and Turkcell Group level. Turkcell Turkey, comprising 91% of Group revenues, continued its double-digit growth at 10.0% year-on-year, recording an EBITDA margin of 31.3%. Group revenues rose 8.3% to TRY3.2 billion, while EBITDA increased 8.1% to TRY1.0 billion, achieving a 31.1% EBITDA margin. Proforma Group net income1 rose by 15.1% to TRY544 million, while net income as per IFRS increased 298.8% to TRY563 million.
 
In the first quarter of 2016, our key agenda item was the launch of 4.5G services on April 1st, which will underpin Turkey’s digital transformation. The Turkcell team has established a strong 4.5G network and made mobile broadband with 4.5G speed available in 81 cities with a population coverage of over 70%, within a short period of time. And since the launch, Turkcell customers have registered high demand for 4.5G. As of today 4.5G customers have reached 5.0 million2, while 4.5G data traffic on our network reached 22%.
 
We have started to implement our action plans across the dealer network, at our call center and on digital channels to meet all our customers’ needs through a single point of service with offers that bolster Turkcell’s positioning as a converged communications and technology services company. We are working to provide our customers a unique convergence experience on the back of our strength in mobile and fixed services. In this regard, having declared a list of ten principles, we are using every means to ensure customer satisfaction.
 
Turkcell Turkey: Continued growth in Postpaid, Fiber and TV
 
In the first quarter of 2016, the total number of subscribers in the five countries where we have direct operations reached 50.8 million, of which 35.2 million3 were in Turkey. Turkcell continued to gain postpaid, fiber and TV subscribers in the quarter. Postpaid customers rose by 1.2 million year on year, reaching 50% of our subscriber base. Fiber subscribers rose by 159 thousand year-on-year to 935 thousand, while total fixed subscribers amounted to 1.6 million. Turkcell TV+, which continues its rapid growth with 514 thousand yearly increase, reached 679 thousand total subscribers.
 
In accordance with our convergence strategy, the mobile triple play ratio, which includes voice, data and service users reached 17%4 while multiplay with TV service users increased to 30% of fiber residential customers.
 
Mobile ARPU rose by 8.8% to TRY24.7 and fixed residential ARPU rose 6.8% to TRY50.3 in the first quarter of 2016 due to a larger postpaid subscriber base, and increased data and services revenues.
 
Turkcell Consumer Financing solution to our customers’ technology needs
 
In March, our consumer financing company commenced operations across Turkey to facilitate the financing of our customers’ technology needs, and to improve the Group balance sheet, which is among our strategic priorities. Within a short period of time, Turkcell Consumer Financing Company has provided more than 400 thousand loans of approximately TRY500 million worth and supported the penetration of smart devices.  Indeed, smartphone penetration on our network rose by 13 percentage points to 55% year-on-year. With the increase in the number of smartphones, our data and service revenues grew 31% to TRY1.2 billion year-on-year, and accounted for 42% of Turkcell Turkey revenues.
 
 
4

 
 
First Quarter 2016 Results
 
Additionally, through our mobile payment platform, named Paycell, we provide our customers various alternative means of payment, including via Turkcell invoice.  Over the past 12 months, this platform has seen 16 million transactions amounting to TRY440 million. Paycell, redefined with advanced technological capabilities, will serve both Turkcell and non-Turkcell customers.
 
We are opening services to all-access, providing globally competitive services
 
Our innovative services continued to expand rapidly during this quarter as well. We opened BiP, Turkcell TV+, Smart Storage, Goals on Your Mobile and our renamed music service fizy, to all-access.
 
Our new generation communication platform BiP has been downloaded 7.5 million times to date, and in 192 countries. BiP is one of the world’s most innovative applications with 39% of its users being from other operators.
 
Smart Storage, the most widely used personal cloud service in Turkey, has been downloaded 2.6 million times, while downloads on Turkey’s most popular music platform, fizy, have reached 5.7 million. Meanwhile, Goals on Your Mobile services has been downloaded 2.1 million times. As a result, our service revenues increased 57.2% year-on-year.
 
We are advancing in line with our plans in 2016
 
Having seen a solid start to the year, we believe that we can achieve our 2016 targets by providing a strong 4.5G network, along with our converged services. We would like to congratulate the Turkcell team and all of our stakeholders for their contribution to our success, and to thank our Board of Directors for their continued support. We would also like to express our gratitude towards our customers, who have shown their trust in us throughout our success story.
 
 
 
 
 
 
(1) We use “proforma net income” as a means of presenting our net income net of certain non-operating items and items that we believe are non-recurring. We define “proforma net income” in this document as net Income excluding FX gain / (loss) (including tax and minority impact), interest Income on time deposits of Turkcell Iletisim Hizmetleri, share of profit of equity accounted investees (Fintur), and one-off items. Please note that this is a non-GAAP measure and that we may in future presentations change the scope of items that we deduct from net income to arrive at “proforma net income.”
(2) Customers with 4.5G compatible devices and SIM cards
(3) Total of mobile, fixed and IPTV subscribers
(4) Breakdown among mobile voice users which excludes subscribers who do not use their line in the last 3 months
 
 
5

 
 
First Quarter 2016 Results
 
FINANCIAL AND OPERATIONAL REVIEW OF THE FIRST QUARTER 2016
 

The following discussion focuses principally on the developments and trends in our business in the first quarter of 2016 in TRY terms. Selected financial information presented in this press release for the first and fourth quarters of 2015, and the first quarter of 2016 is based on IFRS figures.

Selected financial information for the first and fourth quarters of 2015, and the first quarter of 2016 prepared in accordance with IFRS and Turkish Accounting standards, is also included at the end of this press release.

Financial Review of Turkcell Group

Profit & Loss Statement (million TRY)
Q115
Q415
Q116
y/y %
q/q %
Total Revenue
2,978.2
3,334.5
3,225.4
8.3%
(3.3%)
Direct cost of revenues1
(1,828.6)
(2,054.8)
(2,018.8)
10.4%
(1.8%)
Direct cost of revenues1/revenues
(61.4%)
(61.6%)
(62.6%)
(1.2pp)
(1.0pp)
Depreciation and amortization
(394.3)
(437.0)
(454.8)
15.3%
4.1%
Gross Margin
38.6%
38.4%
37.4%
(1.2pp)
(1.0pp)
Administrative expenses
(140.8)
(165.9)
(178.7)
26.9%
7.7%
Administrative expenses/revenues
(4.7%)
(5.0%)
(5.5%)
(0.8pp)
(0.5pp)
Selling and marketing expenses
(476.3)
(492.6)
(481.2)
1.0%
(2.3%)
Selling and marketing expenses/revenues
(16.0%)
(14.8%)
(14.9%)
1.1pp
(0.1pp)
EBITDA2
926.8
1,058.2
1,001.5
8.1%
(5.4%)
EBITDA Margin
31.1%
31.7%
31.1%
-
(0.6pp)
EBIT3
532.5
621.2
546.7
2.7%
(12.0%)
Net finance income / (expense)
(483.4)
12.5
166.2
n.m.
n.m.
    Finance expense
(735.7)
(141.0)
(55.0)
(92.5%)
(61.0%)
    Finance income
252.3
153.5
221.2
(12.3%)
44.1%
Share of profit of associates
94.8
98.4
15.2
(84.0%)
(84.6%)
Other income / (expense)
(53.0)
(31.1)
(11.1)
(79.1%)
(64.3%)
Non-controlling interests
284.4
(7.6)
(10.9)
(103.8%)
43.4%
Income tax expense
(234.2)
(109.2)
(143.4)
(38.8%)
31.3%
Net Income
141.1
584.2
562.7
298.8%
(3.7%)
           
Proforma Net Income4
472.5
567.1
543.7
15.1%
(4.1%)


(1) Including depreciation and amortization expenses.
(2) EBITDA is a non-GAAP financial measure. See page 13 for the reconciliation and an explanation of how we calculate Adjusted EBITDA to net income.
(3) EBIT is a non-GAAP financial measure and is equal to EBITDA minus depreciation and amortization expenses.
(4) We use “proforma net income” as a means of presenting our net income net of certain non-operating items and items that we believe are non-recurring. We define “proforma net income” in this document as net Income excluding FX gain / (loss) (including tax and minority impact), interest Income on time deposits of Turkcell Iletisim Hizmetleri, share of profit of equity accounted investees (Fintur), and one-off items. Please note that this is a non-GAAP measure and that we may in future presentations change the scope of items that we deduct from net income to arrive at “proforma net income.”
 

Revenues of the Group rose by 8.3% year-on-year.

Turkcell Turkey revenues, comprising 91% of Group revenues, grew by 10.0% to TRY2,928 million (TRY2,662 million) due to a 10.0% rise in consumer segment revenues to TRY2,338 million (TRY2,124 million) and an 8.7% increase in corporate segment revenues to TRY525 million (TRY483 million).

 
·
Consumer and corporate segment revenues of Turkcell Turkey in total rose by 9.8%:
 
 
6

 
 
First Quarter 2016 Results
 
 
-
Voice revenues fell 4.1% to TRY1,398 million (TRY1,459 million) in line with the global trend.
 
 
-
Data & services revenues, at 42% of Turkcell Turkey revenues, rose by 31.1% to TRY1,229 million (TRY937 million).
 
Data revenues grew by 26.4% to TRY1,003 million (TRY794 million). This was driven by a 25.8% rise in mobile broadband and 28.4% increase in fixed broadband revenues with higher smartphone penetration, more data users and a rise in data consumption.

Services and solutions revenues rose by 57.2% to TRY226 million (TRY144 million) mainly due to increased usage of Turkcell TV and fizy, along with other mobile services.

 
-
SMS revenues fell 2.9% to TRY132 million (TRY136 million). The slowdown in SMS revenue decline was driven by higher bundle offer penetration.
 
 
-
Other revenues comprising mainly hardware and software sales rose by 37.0% to TRY103 million (TRY75 million).
 
 
·
Wholesale revenues grew by 13.9% to TRY81 million (TRY71 million).
 
Turkcell International revenues, constituting 6% of Group revenues, rose by 2.1% to TRY197 million (TRY193 million), turning to positive growth after 7 quarters of year-on-year decline.

Other subsidiaries’ revenues, comprising 3% of Group revenues, which includes information and entertainment services in Turkey and Azerbaijan, call center revenues and revenues from financial services declined by 18.0% to TRY101 million (TRY123 million), due to lower revenues from Azerbaijan, partly driven by currency devaluation.

Direct cost of revenues rose to 62.6% (61.4%) as a percentage of revenues, mainly due to the rise in depreciation and amortization expenses (0.9pp) along with increase in various other cost items (0.3pp).

Administrative expenses rose to 5.5% (4.7%) as a percentage of revenues, mainly due to various cost items including new headquarters rental expense and performance related payments to personnel.

Selling and marketing expenses fell by 1.1pp to 14.9% (16.0%) as a percentage of revenues, driven by the decline in selling expenses (0.9pp) with our value focused customer acquisition strategy and other costs items (1.1pp). This was despite the rise in marketing expenses (0.9pp), mainly due to 4.5G launch costs.

EBITDA*rose by 8.1% year-on-year, while the EBITDA margin was at 31.1% (31.1%). The decline in selling and marketing expenses of 1.1pp was offset by the increase in direct cost of revenues (excluding depreciation and amortization) of 0.3pp and administrative expenses of 0.8pp.

 
·
Turkcell Turkey’s EBITDA rose by 10.6% to TRY916 million (TRY828 million), while the EBITDA margin improved by 0.2pp to 31.3% (31.1%).
 
 
·
Turkcell International EBITDA grew 0.9% to TRY54 million (TRY53 million), despite the impact of year-on-year devaluation in Ukraine and Belarus, while the EBITDA margin was at 27.2% (27.5%).
 
 
·
The EBITDA of other subsidiaries declined by 30.0% to TRY32 million (TRY46 million), mainly on lower revenues in Azerbaijan.
 
Net finance income of TRY166 million (net finance expense of TRY483 million) was recorded in Q116. This was mainly driven by lower translation losses of TRY5 million (TRY698 million) registered in Q116. This positive impact more than offset the decline in interest income from time deposits, due to a lower cash balance, and the rise in interest expense in relation to loans and 4.5G payables. Please see Appendix A for translation gain and loss details.

Income tax expense declined 38.8% year-on-year. Please see Appendix A for details.
 
 
7

 
 
First Quarter 2016 Results
 
(*)EBITDA is a non-GAAP financial measure. See page 13 for the reconciliation of an explanation of how we calculate Adjusted EBITDA to net income.
 
Net income of the Group as per IFRS rose 298.8% to TRY563 million (TRY141 million) in Q116 year-on-year. This was mainly driven by higher EBITDA, lower translation losses and tax expense, despite the decline in interest income on time deposits, a lower contribution from Fintur and increased interest expense on loans and 4.5G payables. Proforma net income* rose 15.1% to TRY544 million (TRY473 million) in Q116. Please see Appendix A for a reconciliation of Group proforma net income to net income per IFRS.
 
Total debt as of March 31, 2016 declined to TRY4,028 million from TRY4,214 million as of December 31, 2015, in consolidated terms. The decrease in debt balance was mainly due to Turkcell Turkey’s loan payments.
 
 
·
Turkcell Turkey’s debt balance was TRY3,630 million, of which TRY1,610 million (US$568 million) was denominated in US$, TRY1,651 (EUR515 million) in EUR and the remaining TRY369 million in TRY.
 
 
·
The debt balance of lifecell was TRY393 million, denominated in UAH.
 
 
·
BeST had a debt balance of TRY5 million, denominated in BYR.
 
TRY1,795 million of our consolidated debt is set at a floating rate, while TRY655 million will mature within less than a year. (Please note that the figures in parentheses refer to US$ or EUR equivalents).
 
Cash flow analysis: Capital expenditures, including non-operational items, amounted to TRY738 million in Q116. The net change in debt mainly relates to Turkcell Turkey loan payments. The cash flow item noted as “other” includes regulatory fee payments (TRY491 million) and the negative impact of the change in working capital (TRY195 million).
 
In Q116, operational capital expenditures at the Group level stood at 20%** of total revenues.

Consolidated Cash Flow (million TRY)
Q115
Q415
Q116
EBITDA1
926.8
1,058.2
1,001.5
LESS:
     
Capex and License
(755.5)
(6,188.9)
(738.4)
      Turkcell Turkey
(343.9)
(6,218.1)
(675.4)
      Turkcell International2
(408.4)
28.1
(61.7)
      Other Subsidiaries2
(3.2)
1.1
(1.3)
Net interest Income/ (expense)
214.9
(32.8)
171.5
Other
(1,290.6)
3,220.9
(685.8)
Net Change in Debt
46.3
958.9
(145.2)
Cash generated
(858.0)
(983.7)
(396.4)
Cash balance
8,173.8
2,918.8
2,522.4
2
 
(1) EBITDA is a non-GAAP financial measure. See page 13 for the reconciliation of an explanation of how we calculate Adjusted EBITDA 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.
 
(*)We use “proforma net income” as a means of presenting our net income net of certain non-operating items and items that we believe are non-recurring. We define “proforma net income” in this document as net Income excluding FX gain / (loss) (including tax and minority impact), interest Income on time deposits of Turkcell Iletisim Hizmetleri, share of profit of equity accounted investees (Fintur), and one-off items. Please note that this is a non-GAAP measure and that we may in future presentations change the scope of items that we deduct from net income to arrive at “proforma net income.”
 
(**) Excluding license fees
 
 
8

 
 
First Quarter 2016 Results
 
Operational Review in Turkey
 
Summary of Operational data
Q115
Q415
Q116
y/y %
q/q %
Number of subscribers
35.6
35.8
35.2
(1.1%)
(1.7%)
Mobile Postpaid (million)
15.5
16.6
16.7
7.7%
0.6%
   Mobile M2M (million)
1.6
1.9
2.0
25.0%
5.3%
Mobile Prepaid (million)
18.7
17.4
16.6
(11.2%)
(4.6%)
Fiber (thousand)
776.1
899.4
935.4
20.5%
4.0%
ADSL (thousand)
495.5
620.8
646.2
30.4%
4.1%
IPTV (thousand)
98.7
223.7
268.1
171.6%
19.8%
Churn (%)
         
Mobile Churn (%)1
7.7%
7.9%
7.5%
(0.2pp)
(0.4pp)
Fixed churn (%)
4.0%
5.2%
5.0%
1.0pp
(0.2pp)
ARPU (Average Monthly Revenue per User)
         
Mobile ARPU, blended (TRY)
22.7
25.1
24.7
8.8%
(1.6%)
Postpaid
36.9
38.5
37.3
1.1%
(3.1%)
   Postpaid (excluding M2M)
40.8
42.8
41.7
2.2%
(2.6%)
Prepaid
11.3
12.8
12.4
9.7%
(3.1%)
Fixed Residential ARPU, blended (TRY)
47.1
50.3
50.3
6.8%
-
Mobile MOU (Avg. Monthly Minutes of usage per subs) blended
275.7
299.3
298.1
8.1%
(0.4%)
 
(1) As per our churn policy, prepaid subscribers are disconnected from the system if they do not top-up above TRY10 during a nine month period. Additionally, in the first quarter of 2016, 196 thousand subscriptions which had not topped-up at all within the stipulated period were also disconnected.
 
Mobile customers in Turkey declined by 673 thousand during the quarter to 33.3 million in total, mainly on losses in the more price-sensitive prepaid segment. We continued to disconnect subscriptions that had not topped-up at all within the stipulated period, which amounted to 196 thousand during the first quarter and reached 575 thousand in total in the last two quarters. Meanwhile, the postpaid customer base continued to expand by 124 thousand quarterly net additions to 16.7 million, to 50.1% (45.3%) of the total.

The fixed customer base reached 1.6 million supported by a strong fiber network, dedicated sales force and customer care. We recorded 61 thousand quarterly net additions, of which 36 thousand were fiber and 25 thousand were ADSL subscribers. The Turkcell TV platform reached 268 thousand customers on 44 thousand quarterly net additions. Including mobile TV and web TV users, Turkcell TV customers amounted to 679 thousand.

Mobile churn improved by 0.2pp year-on-year on the back of value focused customer acquisitions and targeted retention actions.

Mobile ARPU rose by 8.8% year-on-year with the continued favorable change in subscriber mix, our upsell strategy and a focus on high value customer groups, as well as increased package penetration. Fixed ARPU increased by 6.8% year-on-year with growth of multiplay customers with TV1, comprising 30% of total residential fiber customers.

Mobile MoU rose by 8.1% driven by our increased postpaid base and upsell strategy.
 
 
9

 

First Quarter 2016 Results
 
Smartphone penetration on our network reached 55% as we registered 5142 thousand quarterly net additions. Accordingly, there were 16.6 million smartphones on our network at the end of the quarter, where 42% are 4.5G enabled.


(1) Multiplay customers with TV: Internet + TV users & internet + TV + voice users

(2)Approximately 80 thousand of these smartphone net additions were due to an adjustment in relation to devices which were not previously classified as smartphones.

TURKCELL INTERNATIONAL
 
lifecell*
Q115
Q415
Q116
y/y%
q/q %
Number of subscribers (million)1
13.7
13.5
13.3
(2.9%)
(1.5%)
    Active (3 months)2
10.3
10.6
10.4
1.0%
(1.9%)
MOU (minutes) (12 months)
155.9
146.0
141.4
(9.3%)
(3.2%)
ARPU (Average Monthly Revenue per User), blended (UAH)
25.5
28.4
28.2
10.6%
(0.7%)
    Active (3 months) (UAH)
34.3
36.2
36.1
5.2%
(0.3%)
Revenue (million UAH)
1,059.0
1,158.9
1,132.6
6.9%
(2.3%)
EBITDA (million UAH)
327.5
421.0
356.1
8.7%
(15.4%)
EBITDA margin (UAH)
30.9%
36.3%
31.4%
0.5pp
(4.9pp)
Net loss (million UAH)
(5,630.0)
(130.2)
(67.6)
n.m
n.m
Capex (million UAH)
3,621.6
490.3
456.9
(87.4%)
(6.8%)
Revenue (million TRY)
126.1
146.9
128.5
1.9%
(12.5%)
EBITDA (million TRY)
39.0
53.3
40.4
3.6%
(24.2%)
EBITDA margin (TRY)
31.0%
36.3%
31.4%
0.4pp
(4.9pp)
Net loss (million TRY)
(675.2)
(16.8)
(8.4)
n.m
n.m
 
 
(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 revenues grew by 6.9% in local currency terms reflecting rising mobile broadband revenues on the back of 3G+ services and increased smartphone tariff subscriptions with higher ARPU. lifecell’s EBITDA rose by 8.7% in local currency terms leading to an EBITDA margin improvement of 0.5pp to 31.4%, driven by effective cost management efforts and an increased share of mobile broadband in the revenue mix of lifecell. Meanwhile, the 4.9pp quarter-on-quarter decline in EBITDA margin was due to increased network related costs and marketing expenses.

In Q116, lifecell’s revenues in TRY terms rose by 1.9% year-on-year turning to positive growth following a series of quarters of declining revenue trend. Meanwhile, lifecell’s EBITDA in TRY terms grew by 3.6%.

lifecell has continued its 3G+ network roll-out, reaching 16 regional cities and smaller towns in 49 districts. 3G+ adoption momentum continued, reaching 2.3 million three-month active data users. Meanwhile, with a smartphone penetration of 48%, lifecell has almost doubled data usage per user post introduction of 3G+. lifecell’s investment in 3-carrier technology allows it to provide the fastest 3G speed of 63.3 Mbps in Ukraine

In Q116, lifecell’s three-month active subscriber base declined to 10.4 million on 199 thousand quarterly net losses. This was mainly due to increased competition and tension in the eastern part of the country, which led to temporary interruptions to the lifecell network.

Blended ARPU (3-month active) rose by 5.2% driven by increased mobile broadband usage. MoU (12-month active) fell by 9.3% due to changing consumer behavior.
 
 
10

 
 
First Quarter 2016 Results
 
BeST*
Q115
Q415
Q116
y/y%
q/q %
Number of subscribers (million)1
1.5
1.5
1.6
6.7%
6.7%
    Active (3 months)
1.0
1.1
1.1
10.0%
-
Revenue (billion BYR)
176.6
232.3
230.9
30.7%
(0.6%)
EBITDA (billion BYR)
0.4
8.7
3.9
875.0%
(55.2%)
EBITDA margin (BYR)
0.2%
3.7%
1.7%
1.5pp
(2.0pp)
Net loss (billion BYR)
(2,163.5)
(123.7)
(97.2)
n.m
n.m
Capex (billion BYR)
20.2
53.4
33.9
67.8%
(36.5%)
Revenue (million TRY)
30.0
38.1
32.8
9.3%
(13.9%)
EBITDA (million TRY)
0.1
1.4
0.5
400.0%
(64.3%)
EBITDA margin (TRY)
0.3%
3.7%
1.7%
1.4pp
(2.0pp)
Net loss (million TRY)
(378.5)
(20.3)
(13.7)
n.m
n.m
Capex (million TRY)
3.6
7.3
4.8
33.3%
(34.2%)
 
(1) Starting from Q116, subscriber figure for BeST includes suspended subscriptions whose contracts are still in place. All figures presented in this document for prior periods have been restated to reflect this change.
 
(*)BeST, in which we hold an 80% stake, has operated in Belarus since July 2008.
 

BeST registered solid year-on-year revenue growth of 30.7% in Q116 in local currency terms with the increasing active subscriber base and increased voice and terminal revenues. EBITDA margin improved by 1.5pp to 1.7% (0.2%), mainly driven by top-line growth and strict cost management.
 
In TRY terms, its performance remained impacted by yearly devaluation of the local currency. Revenues rose by 9.3% to TRY33 million (TRY30 million), while EBITDA improved to TRY0.5 million (TRY0.1 million).
 

KKTCELL (million TRY)*
Q115
Q415
Q116
y/y%
q/q%
Number of subscribers (million)1
0.5
0.5
0.5 
-
-
Revenue
31.4
33.4
32.4
3.2%
(3.0%)
EBITDA
12.2
12.4
11.3
(7.4%)
(8.9%)
EBITDA margin
38.9%
37.1%
34.8%
(4.1pp)
(2.3pp)
Net income
6.8
7.9
6.1
(10.3%)
(22.8%)
Capex
1.2
14.1
2.8
133.3%
(80.1%)
 
(1) Starting from Q116, subscriber figure for KKTCELL includes M2M subscriptions as well. All figures presented in this document for prior periods have been restated to reflect this change.
(*) KKTCELL, in which we hold a 100% stake, has operated in Northern Cyprus since 1999.
 
KKTCELL’s revenues increased by 3.2% year-on-year to TRY32 million (TRY31 million), reflecting strong mobile broadband growth driven by higher data demand. EBITDA declined by 7.4% to TRY11 million (TRY12 million) leading to an EBITDA margin of 34.8% (38.9%). This was driven by regulatory amendment regarding the termination rates and additional frequency fees.
 
Fintur’s consolidated revenues declined by 50.1% year-on-year, mainly due to tough competitive environment especially in Kazakhstan and pressure on currencies due to macroeconomic challenges.
 
 
11

 
 
First Quarter 2016 Results
 
Fintur’s subscribers declined to 16.8 million during the quarter driven by the decrease in Kcell subscribers due to the competitive environment. The contribution of Fintur to Group’s net income decreased to US$5 million (US$38 million) year-on-year mainly driven by significant negative currency effects in reported figures and lower earnings impacted by negative revenue development in the several markets.

Fintur*
Q115
Q415
Q116
y/y %
q/q %
Subscribers (million) 1
17.8
17.3
16.8
(5.6%)
(2.9%)
  Kazakhstan
10.8
10.4
9.9
(8.3%)
(4.8%)
  Azerbaijan
4.2
4.1
4.1
(2.4%)
-
  Moldova
0.9
0.9
0.9
-
-
  Georgia
1.9
1.9
1.9
-
-
Revenue (million US$)
387
219
193
(50.1%)
(11.9%)
  Kazakhstan
233
92
100
(57.1%)
8.7%
  Azerbaijan
113
90
59
(47.8%)
(34.4%)
  Moldova
15
15
14
(6.7%)
(6.7%)
  Georgia
25
22
21
(16.0%)
(4.5%)
Fintur’s contribution to Group’s net income (million US$)
38
34
5
(86.8%)
(85.3%)
 
(1) Telia Company disclosed a change to the definition of prepaid mobile subscription for all countries of operations in its Q115 results announcement on April 21, 2015. Prepaid subscriptions are counted if the subscriber has been active during the last three months. In line with Telia Company’s reporting, we disclose Fintur operations’ subscriber numbers as three-month active. Prior periods are restated accordingly.
(*) We hold a 41.45% stake In Fintur, which has interests in Kazakhstan, Azerbaijan, Moldova and Georgia.

Turkcell Group Subscribers

Turkcell Group subscribers amounted to approximately 67.6 million as of March 31, 2016. This figure is calculated by taking the number of subscribers of Turkcell Turkey and each of our subsidiaries and unconsolidated investees. It includes the total number of mobile, fiber, ADSL and IPTV subscribers of Turkcell Turkey, the mobile subscribers of lifecell and BeST, as well as KKTCELL, Turkcell Europe and Fintur.

Turkcell Group Subscribers
Q115
Q415
Q116
y/y %
q/q %
Mobile Postpaid (million)
15.5
16.6
16.7
7.7%
0.6%
Mobile Prepaid (million)
18.7
17.4
16.6
(11.2%)
(4.6%)
Fiber (thousand)
776.1
899.4
935.4
20.5%
4.0%
ADSL (thousand)
495.5
620.8
646.2
30.4%
4.1%
IPTV (thousand)
98.7
223.7
268.1
171.6%
19.8%
Turkcell Turkey subscribers (million)1
35.6
35.8
35.2
(1.1%)
(1.7%)
Ukraine
13.7
13.5
13.3
(2.9%)
(1.5%)
Belarus2
1.5
1.5
1.6
6.7%
6.7%
KKTCELL3
0.5
0.5
0.5
-
-
Turkcell Europe4
0.3
0.3
0.3
-
-
Consolidated Subscribers (million)
51.6
51.6
50.8
(1.6%)
(1.6%)
Fintur5
17.8
17.3
16.8
(5.6%)
(2.9%)
Turkcell Group Subscribers* (million)
69.5
68.9
67.6
(2.7%)
(1.9%)

 
(*) Turkcell Group subscribers figure includes the subscriber figures of our non-consolidated subsidiaries.
(1) Subscribers to more than one service are counted separately for each service.
 
 
12

 
 
First Quarter 2016 Results
 
(2) Starting from Q116, subscriber figure for BeST includes suspended subscriptions whose contracts are still in place. All figures presented in this document for prior periods have been restated to reflect this change.
(3) Starting from Q116, subscriber figure for KKTCELL includes M2M subscriptions as well. All figures presented in this document for prior periods have been restated to reflect this change.
(4) 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.
(5)Telia Company disclosed a change to the definition of prepaid mobile subscription for all countries of operations in its Q115 results announcement on April 21, 2015. Prepaid subscriptions are counted if the subscriber has been active during the last three months. In line with Telia Company’s reporting, we disclose Fintur operations’ subscriber numbers as three-month active. Prior periods are restated accordingly.
 
OVERVIEW OF THE MACROECONOMIC ENVIRONMENT

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

 
Q115
Q415
Q116
y/y %
q/q %
US$ / TRY rate
         
   Closing Rate
2.6102
2.9076
2.8334
8.6%
(2.6%)
   Average Rate
2.4633
2.9366
2.9202
18.5%
(0.6%)
EUR / TRY rate
         
   Closing Rate
2.8309
3.1776
3.2081
13.3%
1.0%
   Average Rate
2.7934
3.2000
3.2172
15.2%
0.5%
Consumer Price Index (Turkey)
3.0%
2.5%
1.8%
(1.2pp)
(0.7pp)
GDP Growth (Turkey)
2.5%
5.7%
n.a
n.a
n.a
US$ / UAH rate
         
   Closing Rate
23.44
24.00
26.22
11.9%
9.3%
   Average Rate
21.18
23.18
25.77
21.7%
11.2%
US$ / BYR rate
         
   Closing Rate
14,740
18,569
20,133
36.6%
8.4%
   Average Rate
14,528
17,909
20,552
41.5%
14.8%
 
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, Direct Cost of Revenue excluding depreciation and amortization, Selling and Marketing expenses and Administrative expenses, but excludes translation gain/(loss), finance income, share of profit of equity accounted investees, gain on sale of investments, income/(loss) from related parties, 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.

Turkcell Group (million TRY)
Q115
Q415
Q116
y/y %
q/q %
Adjusted EBITDA
926.8
1,058.2
1,001.5
8.1%
(5.4%)
Finance income
252.3
153.5
221.2
(12.3%)
44.1%
Finance costs
(735.7)
(141.0)
(55.0)
(92.5%)
(61.0%)
Other income / (expense)
(53.0)
(31.1)
(11.1)
(79.1%)
(64.3%)
Share of profit of equity accounted investees
94.8
98.4
15.2
(84.0%)
(84.6%)
Depreciation and amortization
(394.3)
(437.0)
(454.8)
15.3%
4.1%
Consolidated profit before income tax & minority interest
90.9
701.0
717.0
688.8%
2.3%
Income tax expense
(234.2)
(109.2)
(143.4)
(38.8%)
31.3%
Consolidated profit before minority interest
(143.3)
591.8
573.6
n.m.
(3.1%)
 
 
13

 
 
First Quarter 2016 Results
 
FORWARD-LOOKING STATEMENTS: 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 in 2016 and our 4.5G development in Turkey. More generally, 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, 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 2015 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.

ABOUT TURKCELL: Turkcell is a converged telecommunication and technology services provider, founded and headquartered in Turkey. It serves its customers with voice, data, TV and value-added consumer and enterprise services on mobile and fixed networks. Turkcell launched LTE services in its home country on April 1st, 2016, employing LTE-Advanced and 3 carrier aggregation technologies in 81 cities.  In 2G and 3G, Turkcell’s population coverage is at 99.85% and 95.05%, respectively, as of March 2016. It offers up to 1 Gbps fiber internet speed with its FTTH services. Turkcell Group companies serve 67.6 million subscribers in 9 countries – Turkey, Ukraine, Belarus, Northern Cyprus, Germany, Azerbaijan, Kazakhstan, Georgia, Moldova – as of March 31, 2016. Turkcell Group reported a TRY3.2 billion revenue with total assets of TRY26.2 billion as of March 31, 2016. 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


For further information please contact Turkcell

Investor Relations
Tel: + 90 212 313 1888
investor.relations@turkcell.com.tr
Corporate Communications:
Tel: + 90 212 313 2321
Turkcell-Kurumsal-Iletisim@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.
 
 
 
 
14

 
 
 
 
 
 
 
 
 
 
 
Appendix A – Tables

Table: Translation gain and loss details

Million TRY
Q115
Q415
Q116
Turkcell Turkey
308.2
45.9
(6.9)
Turkcell International
(1,008.2)
2.2
3.2
Other Subsidiaries
1.7
(2.9)
(1.6)
Turkcell Group
(698.3)
45.2
(5.3)

 
Table: Income tax expense details

Million TRY
Q115
Q415
Q116
y/y %
q/q %
Current Tax expense
(251.9)
(46.3)
(113.6)
(54.9%)
145.4%
Deferred Tax income/expense
17.7
(62.9)
(29.8)
(268.4%)
(52.6%)
Income Tax expense
(234.2)
(109.2)
(143.4)
(38.8%)
31.3%

 
Table: Reconciliation of Group proforma net income to net income per IFRS

Net income impacts (million TRY)
 
Q115
 
Net income impacts (million TRY)
 
Q116
             
Proforma net income
 
473
 
Proforma net income
 
544
FX impact
 
(467)
 
FX impact
 
(3)
Interest income (net off tax)
 
106
 
Interest income (net off tax)
 
14
             
One-off impacts
     
One-off impacts
   
             
  Provision for commercial agreements
 
(46)
       
  Fintur contribution
 
95
 
  Fintur contribution
 
15
  Other impacts
 
(20)
 
  Other impacts
 
(7)
Net income - IFRS
 
141
 
Net income -IFRS
 
563
 
 
15

 
 
TURKCELL DAHILI

   
TURKCELL ILETISIM HIZMETLERI A.S.
IFRS SELECTED FINANCIALS (TRY Million)
 
 
                         
   
Quarter Ended
   
Quarter Ended
   
Year Ended
   
Quarter Ended
 
   
March 31,
   
December 31,
   
December 31,
   
March 31,
 
   
2015
   
2015
   
2015
   
2016
 
                         
                         
Consolidated Statement of Operations Data
                       
Turkcell Turkey
    2,662.2       2,997.8       11,480.9       2,927.5  
Consumer
    2,124.4       2,391.0       9,127.3       2,337.9  
Corporate
    482.7       529.2       2,031.7       524.5  
Other
    55.1       77.6       321.9       65.1  
Turkcell International
    192.9       223.8       856.1       196.9  
Other
    123.1       112.9       432.4       101.0  
Total revenues
    2,978.2       3,334.5       12,769.4       3,225.4  
Direct cost of revenues
    (1,828.6 )     (2,054.8 )     (7,769.5 )     (2,018.8 )
Gross profit
    1,149.6       1,279.7       4,999.9       1,206.6  
    Administrative expenses
    (140.8 )     (165.9 )     (625.3 )     (178.7 )
    Selling & marketing  expenses
    (476.3 )     (492.6 )     (1,901.9 )     (481.2 )
    Other Operating Income / (Expense)
    (53.0 )     (31.1 )     (225.9 )     (11.1 )
                                 
Operating profit before financing costs
    479.5       590.1       2,246.8       535.6  
Finance costs
    (735.7 )     (141.0 )     (799.5 )     (55.0 )
Finance income
    252.3       153.5       756.1       221.2  
Share of profit of equity accounted investees
    94.8       98.4       367.3       15.2  
Income before taxes and minority interest
    90.9       701.0       2,570.7       717.0  
Income tax expense
    (234.2 )     (109.2 )     (667.1 )     (143.4 )
Income before minority interest
    (143.3 )     591.8       1,903.6       573.6  
Non-controlling interests
    284.4       (7.6 )     164.1       (10.9 )
Net income
    141.1       584.2       2,067.7       562.7  
                                 
Net income per share
    0.06       0.27       0.94       0.26  
                                 
Other Financial Data
                               
                                 
Gross margin
    38.6 %     38.4 %     39.2 %     37.4 %
EBITDA(*)
    926.8       1,058.2       4,140.5       1,001.5  
Capital expenditures
    755.5       6,188.9       8,536.2       738.4  
                                 
Consolidated Balance Sheet Data (at period end)                                
Cash and cash equivalents
    8,173.8       2,918.8       2,918.8       2,522.4  
Total assets
    23,977.7       26,207.3       26,207.3       26,175.2  
Long term debt
    549.7       3,487.8       3,487.8       3,373.2  
Total debt
    4,127.3       4,214.2       4,214.2       4,028.3  
Total liabilities
    11,050.4       11,788.4       11,788.4       11,273.4  
Total shareholders’ equity / Net Assets
    12,927.3       14,418.9       14,418.9       14,901.8  
 
 
 

 
 
TURKCELL SIR
 
   
TURKCELL ILETISIM HIZMETLERI A.S.
TURKISH ACCOUNTING STANDARDS SELECTED FINANCIALS (TRY Million)
 
 
                         
   
Quarter Ended
   
Quarter Ended
   
Year Ended
   
Quarter Ended
 
   
March 31,
   
December 31,
   
December 31,
   
March 31,
 
   
2015
   
2015
   
2015
   
2016
 
                         
                         
Consolidated Statement of Operations Data
                       
Turkcell Turkey
    2,662.2       2,997.8       11,480.9       2,927.5  
Consumer
    2,124.4       2,391.0       9,127.3       2,337.9  
Corporate
    482.7       529.2       2,031.7       524.5  
Other
    55.1       77.6       321.9       65.1  
Turkcell International
    192.9       223.8       856.1       196.9  
Other
    123.1       112.9       432.4       101.0  
Total revenues
    2,978.2       3,334.5       12,769.4       3,225.4  
Direct cost of revenues
    (1,828.0 )     (2,054.2 )     (7,766.5 )     (2,018.3 )
Gross profit
    1,150.2       1,280.3       5,002.9       1,207.1  
    Administrative expenses
    (140.8 )     (165.9 )     (625.3 )     (178.7 )
    Selling & marketing  expenses
    (476.3 )     (492.6 )     (1,901.9 )     (481.2 )
    Other Operating Income / (Expense)
    569.9       (15.9 )     925.0       220.4  
Operating profit before financing and investing costs
    1,103.0       605.9       3,400.7       767.6  
Income from investing activities
    3.6       6.2       14.9       9.3  
Expense from investing activities
    (22.4 )     (27.5 )     (74.3 )     (7.0 )
Share of profit of equity accounted investees
    94.8       98.4       367.3       15.2  
Income before financing costs
    1,179.0       683.0       3,708.6       785.1  
Finance expense
    (1,087.5 )     18.6       (1,135.1 )     (67.6 )
Income before tax and non-controlling interest
    91.5       701.6       2,573.5       717.5  
Income tax expense
    (234.3 )     (109.4 )     (667.7 )     (143.5 )
Income before non-controlling interest
    (142.8 )     592.2       1,905.8       574.0  
Non-controlling interest
    284.4       (7.6 )     164.1       (10.9 )
Net income
    141.6       584.6       2,069.9       563.1  
                                 
Net income per share
    0.06       0.27       0.94       0.26  
                                 
Other Financial Data
                               
                                 
Gross margin
    38.6 %     38.4 %     39.2 %     37.4 %
EBITDA(*)
    926.8       1,058.2       4,140.5       1,001.5  
Capital expenditures
    755.5       6,188.9       8,536.2       738.4  
                                 
Consolidated Balance Sheet Data (at period end)
                               
Cash and cash equivalents
    8,173.8       2,918.8       2,918.8       2,522.4  
Total assets
    23,952.5       26,184.2       26,184.2       26,152.6  
Long term debt
    549.7       3,487.8       3,487.8       3,373.2  
Total debt
    4,127.3       4,214.2       4,214.2       4,028.3  
Total liabilities
    11,046.5       11,784.9       11,784.9       11,270.1  
Total shareholders’ equity / Net Assets
    12,906.0       14,399.3       14,399.3       14,882.5  
 
 
 

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
   
Note
   
 
31 March 2016
   
 
31 December 2015
 
Assets
                 
Property, plant and equipment
    8       7,073,495       6,821,494  
Intangible assets
    9       8,150,841       8,232,637  
GSM and other telecommunication operating licenses
            2,425,071       2,520,785  
4.5G license not yet available for use
            4,018,270       3,984,954  
Computer software
            1,526,039       1,570,346  
Other intangible assets
            181,461       156,552  
Investment properties
            47,451       49,572  
Investments in equity accounted investees
    10       974,390       981,939  
Other non-current assets
            371,054       441,940  
Trade receivables
    11       750,938       836,256  
Receivables from financial services
            129,339       -  
Deferred tax assets
            32,487       48,615  
Total non-current assets
            17,529,995       17,412,453  
                         
Inventories
            82,862       75,471  
Due from related parties
    19       10,529       11,760  
Trade receivables and accrued income
    11       4,071,300       4,098,928  
Receivables from financial services
            139,864       -  
Other current assets
    12       1,818,200       1,689,902  
Cash and cash equivalents
    13       2,522,412       2,918,796  
Total current assets
            8,645,167       8,794,857  
                         
Total assets
            26,175,162       26,207,310  
                         
Equity
                       
Share capital
            2,200,000       2,200,000  
Share premium
            269       269  
Capital contributions
            35,026       35,026  
Reserves
            781,915       861,111  
Retained earnings
            11,818,533       11,258,411  
Total equity attributable to equity holders of
Turkcell Iletisim Hizmetleri AS
            14,835,743       14,354,817  
Non-controlling interests
            66,014       64,085  
Total equity
            14,901,757       14,418,902  
                         
Liabilities
                       
Loans and borrowings
    15       3,373,229       3,487,786  
Employee benefits
            122,628       114,869  
Provisions
            124,942       130,619  
Other non-current liabilities
            372,202       366,670  
Trade and other payables
            1,291,143       1,270,610  
Deferred tax liabilities
            230,318       113,437  
Total non-current liabilities
            5,514,462       5,483,991  
                         
Loans and borrowings
    15       658,155       728,744  
Income taxes payable
    7       18,748       12,855  
Trade and other payables
            4,901,959       5,283,070  
Due to related parties
    19       4,632       6,555  
Deferred income
            115,226       121,078  
Provisions
            60,223       152,115  
Total current liabilities
            5,758,943       6,304,417  
                         
Total liabilities
            11,273,405       11,788,408  
                         
Total equity and liabilities
            26,175,162       26,207,310  
 
 
The accompanying notes on page 7 to 38 are an integral part of these condensed interim consolidated financial statements.
 
1

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
         
Three months ended
 
   
Note
   
2016
   
2015
 
                   
Revenue
          3,223,035       2,978,163  
Direct costs of revenue
          (2,018,426 )     (1,828,551 )
Gross profit from business operations
          1,204,609       1,149,612  
                       
Revenue from financial services
          2,347       -  
Direct cost of revenue from financial services
          (344 )     -  
Gross profit from financial operations
          2,003       -  
                       
Gross profit
          1,206,612       1,149,612  
                       
Other income
          6,005       16,345  
Selling and marketing expenses
          (481,248 )     (476,267 )
Administrative expenses
          (178,672 )     (140,796 )
Other expenses
          (17,109 )     (69,380 )
Results from operating activities
          535,588       479,514  
                       
                       
Finance income
    6       221,247       252,261  
Finance costs
    6       (55,000 )     (735,690 )
Net finance (costs) / income
            166,247       (483,429 )
                         
Share of profit of equity accounted investees
    10       15,180       94,830  
Profit before income tax
            717,015       90,915  
                         
Income tax expense
    7       (143,434 )     (234,205 )
Profit for the year
            573,581       (143,290 )
                         
Profit / (loss) attributable to:
                       
Owners of Turkcell Iletisim Hizmetleri AS
            562,718       141,117  
Non-controlling interests
            10,863       (284,407 )
Profit / (Loss) for the period
            573,581       (143,290 )
                         
Basic and diluted earnings per share
            0.26       0.06  
   (in full TL)
                       
 
The accompanying notes on page 7 to 38 are an integral part of these condensed interim consolidated financial statements.
 
2

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
 
   
Three months ended 31 March
 
   
2016
   
2015
 
             
Profit / (Loss) for the period
    573,581       (143,290 )
 
               
                 
Other comprehensive income / (expense):
               
                 
Items that will not be reclassified to profit or loss:
               
Actuarial (loss) / gain   arising from employee benefits
    (887 )     (992 )
Tax effect of actuarial gain / (loss) from employee benefits
    183       157  
      (704 )     (835 )
Items that will or may be reclassified subsequently
   to profit or loss:
               
Change in cash flow hedge reserve
    -       459  
Foreign currency translation differences
    (54,781 )     438,686  
Share of foreign currency translation differences of the equity accounted investees
    (11,871 )     (387,392 )
Tax effect of foreign currency translation differences
    (1,600 )     7,892  
      (68,252 )     59,645  
Other comprehensive (expense) / income for the  year, net of income tax
    (68,956 )     58,810  
                 
                 
Total comprehensive income for the year
    504,625       (84,480 )
                 
Total comprehensive income attributable to:
               
Owners of Turkcell Iletisim Hizmetleri AS
    492,170       59,257  
Non-controlling interests
    12,455       (143,737 )
Total comprehensive income for the year
    504,625       (84,480 )
 
The accompanying notes on page 7 to 38 are an integral part of these condensed interim consolidated financial statements.
 
3

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the three months ended 31 March 2016
(Amounts expressed in thousands of US Dollars unless otherwise indicated except share amounts)

 
       Attributable to equity holders of the Company            
   
Share Capital
   
Capital Contribution
   
Share Premium
   
Legal Reserves
   
Cash Flow Hedge Reserves
   
Reserve for Non-Controlling Interest Put Option
   
Translation Reserve
   
Retained
Earnings
   
Total
   
Non-Controlling Interest
   
Total
Equity
 
                                                                   
Balance at 1 January 2015
    2,200,000       35,026       269       839,284       (719 )     (758,432 )     350,254       14,427,741       17,093,423       (382,778 )     16,710,645  
Total comprehensive income/(expense)
                                                                                       
Profit/(loss) for the period
    -       -       -       -       -       -       -       141,117       141,117       (284,407 )     (143,290 )
Other comprehensive income/(expense)
                                                                                       
Foreign currency translation differences, net of tax
    -       -       -       -       -       (113,399 )     31,915               (81,484 )     140,670       59,186  
Defined benefit plan actuarial losses
    -       -       -       -       -       -       -       (835 )     (835 )     -       (835 )
Change in cash flow hedge reserve
    -       -       -       -       459       -       -       -       459       -       459  
Total other comprehensive income/(expense)
    -       -       -       -       459       (113,399 )     31,915       (835 )     (81,860 )     140,670       58,810  
Total comprehensive income/(expense)
    -       -       -       -       459       (113,399 )     31,915       140,282       59,257       (143,737 )     (84,480 )
Increase in legal reserves
    -       -       -       337,500       -       -       -       (337,500 )     -       -       -  
Dividend paid
    -       -       -       -       -       -       -       (3,925,000 )     (3,925,000 )     (3,313 )     (3,928,313 )
Change in fair value of minority put option
    -       -       -       -       -       229,548       -       -       229,548       -       229,548  
Change in non-controlling interests
    -       -       -       -       -       -       -       -       -       -       -  
Balance at 31 March 2015
    2,200,000       35,026       269       1,176,784       (260 )     (642,283 )     382,169       10,305,523       13,457,228       (529,828 )     12,927,400  
Total comprehensive income/(expense)
                                                                                       
Profit / (loss) for the period
    -       -       -       -       -       -       -       1,926,537       1,926,537       120,304       2,046,841  
Other comprehensive income/(expense)
                                                                                       
Foreign currency translation differences, net of tax
    -       -       -       -       -       (115,774 )     (243,345 )     -       (359,119 )     (90,282 )     (449,401 )
Defined benefit plan actuarial losses
    -       -       -       -       -       -       -       (10,068 )     (10,068 )     -       (10,068 )
Change in cash flow hedge reserve
    -       -       -       -       260       -       -               260       -       260  
Total other comprehensive income/(expense), net of tax
    -       -       -       -       260       (115,774 )     (243,345 )     (10,068 )     (368,927 )     (90,282 )     (459,209 )
Total comprehensive income/(expense)
    -       -       -       -       260       (115,774 )     (243,345 )     1,916,469       1,557,610       30,022       1,587,632  
Increase in legal reserves
    -       -       -       34,568       -       -       -       (34,568 )     -       -       -  
Dividend paid
    -       -       -       -       -       -       -       -       -       (97,202 )     (97,202 )
Change in fair value of minority put option
    -       -       -       -       -       268,992       -       -       268,992       -       268,992  
Change in non-controlling interest
    -       -       -       -       -       -       -       -       -       -       -  
Acquisition of non-controlling interest
    -       -       -       -       -       -       -       (929,013 )     (929,013 )     661,093       (267,920 )
Balance at 31 December 2015
    2,200,000       35,026       269       1,211,352       -       (489,065 )     138,824       11,258,411       14,354,817       64,085       14,418,902  
                                                                                         
Balance at 1 January 2016
    2,200,000       35,026       269       1,211,352       -       (489,065 )     138,824       11,258,411       14,354,817       64,085       14,418,902  
Total comprehensive income/(expense)
                                                                                       
Profit/(loss) for the period
    -       -       -       -       -       -       -       562,718       562,718       10,863       573,581  
Other comprehensive income/(expense)
                                                                                       
Foreign currency translation differences, net of tax
    -       -       -       -       -       16,163       (86,007 )     -       (69,844 )     1,592       (68,252 )
Defined benefit plan actuarial losses
    -       -       -       -       -       -       -       (704 )     (704 )     -       (704 )
Total other comprehensive income/(expense)
    -       -       -       -       -       16,163       (86,007 )     (704 )     (70,548 )     1,592       (68,956 )
Total comprehensive income/(expense)
    -       -       -       -       -       16,163       (86,007 )     562,014       492,170       12,455       504,625  
Transfer to legal reserves
    -       -       -       1,892       -       -       -       (1,892 )     -       -       -  
Net change in fair value of minority put option
    -       -       -       -       -       (11,244 )     -       -       (11,244 )     -       (11,244 )
Change in non-controlling interests
    -       -       -       -       -       -       -       -       -       (10,526 )     (10,526 )
Balance at 31 March 2016
    2,200,000       35,026       269       1,213,244       -       (484,146 )     52,817       11,818,533       14,835,743       66,014       14,901,757  
 
The accompanying notes on page 7 to 38 are an integral part of these condensed interim consolidated financial statements.
 
4

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
         
Three months ended 31 March
 
   
Note
   
2016
   
2015
 
Cash flows from operating activities
                 
Profit for the year
          573,581       (143,290 )
Adjustments for:
                     
Depreciation and impairment of fixed assets and investment property
    8       289,193       269,155  
Amortization of intangible assets
    9       165,622       125,144  
Net finance (income)
    6       (102,358 )     (214,135 )
Income tax expense
    7       143,434       234,205  
Share of profit of equity accounted investees
    10       (15,180 )     (94,830 )
(Gain)/loss on sale of property, plant and equipment
            (3,862 )     (2,090 )
Unrealized foreign exchange and monetary (loss)/ gain on operating assets
            (148,540 )     571,240  
Allowance for trade receivables and due from related parties
    11,19       52,941       95,246  
Deferred income
            (1,065 )     928  
              953,766       841,573  
                         
Change in trade receivables
    11       67,788       (408,805 )
Change in due from related parties
    19       974       (15,293 )
Change in receivables from financial operations
            (269,203 )     -  
Change in inventories
            (7,474 )     125  
Change in other current assets
    12       (308,382 )     (436,569 )
Change in other non-current assets
            69,039       95,862  
Change in due to related parties
    19       (1,904 )     (3,934 )
Change in trade and other payables
            (371,529 )     (356,613 )
Change in other non-current liabilities
            3,411       2,571  
Change in employee benefits
            6,872       5,607  
Change in provisions
            (90,549 )     (82,658 )
              52,809       (358,134 )
                         
Interest paid
            (10,399 )     (13,536 )
Income tax paid
            (13,223 )     (181,294 )
Net cash generated by operating activities
            29,187       (552,964 )
 
Cash flows from investing activities
                       
Acquisition of property, plant and equipment
    8       (585,740 )     (284,682 )
Acquisition of intangible assets
    9       (109,790 )     (464,851 )
Proceeds from sale of property, plant and equipment
            12,914       3,410  
Proceeds from currency option contracts
            1,144       596  
Proceeds from sale of financial asset
            -       12,620  
Change in property, plant and equipment advances
            1,718       (21,664 )
Interest received
            171,683       240,727  
Net cash provided/(used in) investing activities
            (508,071 )     (513,844 )
                         
Cash flows from financing activities
                       
Proceeds from issuance of loans and borrowings
            117,721       1,571,427  
Repayment of borrowings
            (262,938 )     (1,525,095 )
Dividends paid
            -       (3,313 )
Decrease/(increase) in cash collateral related to loans
            160,722       (130,510 )
Net cash generated (used in) by  financing activities
            15,505       (87,491 )
                         
Net increase/ (decrease) in cash and cash equivalents
            (463,379 )     (1,154,299 )
                         
Cash and cash equivalents at 1 January
            2,918,796       9,031,881  
                         
Effects of foreign exchange rate fluctuations on cash and cash equivalents
            66,883       296,251  
                         
Cash and cash equivalents at 31 March
    13       2,522,300       8,173,833  
 
The accompanying notes on page 7 to 38 are an integral part of these condensed interim consolidated financial statements.
 
5

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
Notes to the consolidated financial statements
 
 
Page
1. Reporting entity
7
2. Basis of preparation
7
3. Significant accounting policies
8
4. Operating segments
11
5 .Seasonality of operations
15
6. Finance income and costs
16
7. Income tax expense
16
8. Property, plant and equipment
17
9. Intangible assets
19
10. Investments in equity accounted investees
22
11. Trade receivables and accrued income
22
12. Other current assets
23
13. Cash and cash equivalents
24
14. Dividends
24
15. Loans and borrowings
25
16. Financial instruments
28
17. Guarantees and purchase obligations
32
18. Commitments and contingencies
32
19. Related parties
34
20. Subsidiaries
38
21. Subsequent events
38
 
 
 
 
 
 
 
 
 
6

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
1.
Reporting entity
 
Turkcell Iletisim Hizmetleri Anonim Sirketi (the “Company”) was incorporated in Turkey on 5 October 1993 and commenced its operations in 1994. The address of the Company’s registered office is Maltepe Aydinevler Mahallesi Inonu Caddesi No: 20, Kucukyali Ofispark / Istanbul. It is engaged in establishing and operating a Global System for Mobile Communications (“GSM”) network in Turkey and regional states.
 
The condensed interim consolidated financial statements of the Company as at and for the three months ended 31 March 2016 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in one associate.
 
The consolidated financial statements of the Company as at and for the year ended 31 December 2015 are available upon request from the Company’s registered office at Maltepe Aydinevler Mahallesi Inonu Caddesi No: 20, Kucukyali Ofispark / Istanbul or at www.turkcell.com.tr.
 
2.
Basis of preparation
 
The same accounting policies, presentation and methods of computation have been followed in these condensed interim consolidated financial statements as were applied in the preparation of the Group’s consolidated financial statements as at and for the year ended 31 December 2015 other than the adoption of the following new standards or amendments to the standards which are effective for the annual periods on or after 1 January 2016 and accounting policies for new transactions (Note 3a).
 
The effects of the new standards or amendments to the standards adopted are explained in Note 3c.
 
The condensed interim consolidated financial statements are presented in Turkish Lira (“TL”), rounded to the nearest thousand. Moreover, all financial information expressed in US Dollars (“USD” or “$”), Euro (“EUR”) and Ukranian Hryvnia (“UAH”) and Belarusian Ruble (“BYR”) has been rounded to the nearest thousand. The functional currency of the Company and its consolidated subsidiaries located in Turkey and Turkish Republic of Northern Cyprus is TL. The functional currency of Euroasia Telecommunications Holding BV (“Euroasia”) and Financell BV (“Financell”) is USD. The functional currency of Eastasian Consortium BV (“Eastasia”), Beltur Coöperatief UA, and Turkcell Europe is EUR. The functional currency of lifecell LLC (“lifecell”), LLC Global Bilgi (“Global LLC”) and UkrTower LLC (“UkrTower”) is UAH. The functional currency of Belarusian Telecommunication Network (“Belarusian Telecom”) and LLC Lifetech is BYR. The functional currency of Azerinteltek QSC (“Azerinteltek”) is Azerbaijan Manat (“AZN”).
 
The condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2015.
 
The Group’s condensed interim consolidated financial statements as at and for the period ended 31 March 2016 were approved by the Board of Directors on 28 April 2016.
 
The Company selected the presentation form of “function of expense” for the statement of comprehensive income in accordance with IAS 1 “Presentation of Financial Statements”.
 
 
7

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
3.
Significant accounting policies
 
 
a)
Receivables and revenue from financial services
 
Receivables from financial operations comprise of contracted receivables from subscribers, related to consumer financing activities of Turkcell Finansman A.S (“TFS”). These receivables are measured at amortized cost, using effective interest rate method.
 
Revenue from financial operations comprise of interest income generated from consumer financing activities. Interest income is recognized as it accrues, using the effective interest method.
 
 
b)
Comparative Information and Revision of Prior Period Financial Statements
 
The condensed interim consolidated financial statements of the Group have been prepared with the prior periods on a comparable basis in order to give consistent information about the financial position and performance. If the presentation or classification of the financial statements is changed, in order to maintain consistency, the financial statements of the prior periods are also reclassified in line with the related changes.
 
 
(c)
New standards and interpretations
 
 
(i)
Amendments to IFRSs affecting amounts reported and/or disclosures in the consolidated financial statements
 
None.
 
 
(ii)
Standards, amendments and interpretations applicable as at 31 March 2016
 
 
-
Amendment to IFRS 11, “Joint arrangements” on acquisition of an interest in a joint operation is effective from annual periods beginning on or after 1 January 2016. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions.
 
 
-
Amendments to IAS 16, “Property, plant and equipment”, and IAS 41, “Agriculture”, regarding bearer plants are effective from annual periods beginning on or after 1 January 2016. These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. It has been decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41.
 
 
-
Amendment to IAS 16, “Property, plant and equipment” and IAS 38, “Intangible assets”, on depreciation and amortization are effective from annual periods beginning on or after 1 January 2016. In this amendment, it has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. It is also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.
 
 
-
IFRS 14 “Regulatory deferral accounts” is effective from annual periods beginning on or after 1 January 2016. IFRS 14, “Regulatory deferral accounts” permits first–time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items.
 
 
8

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
3.
Significant accounting policies (continued)
 
 
(ii)
Standards, amendments and interpretations applicable as at 31 March 2016 (continued)
 
 
-
Amendments to IAS 27, “Separate financial statements” on the equity method is effective from annual periods beginning on or after 1 January 2016. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.
 
 
-
Amendments to IFRS 10, “Consolidated financial statements” and IAS 28, “Investments in associates and joint ventures” are effective from annual periods beginning on or after 1 January 2016. These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.
 
 
-
Annual improvements 2014 are effective from annual periods beginning on or after 1 January 2016. These set of amendments impacts 4 standards:
 
• IFRS 5, “Non-current assets held for sale and discontinued operations” regarding methods of disposal.
• IFRS 7, “Financial instruments: Disclosures”, (with consequential amendments to IFRS 1) regarding servicing contracts.
• IAS 19, “Employee benefits” regarding discount rates.
• IAS 34, “Interim financial reporting” regarding disclosure of information.
 
 
-
Amendment to IAS 1, “Presentation of financial statements” on the disclosure initiative is effective from annual periods beginning on or after 1 January 2016, these amendments are as part of the IASB initiative to improve presentation and disclosure in financial reports
 
 
-
Amendment to IFRS 10 “Consolidated financial statements” and IAS 28, “Investments in associates and joint ventures” are effective from annual periods beginning on or after 1 January 2016. These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries.
 
 
9

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
3.
Significant accounting policies (continued)
 
 
(iii)
Standards, amendments and interpretations effective after 31 March 2016:
 
 
-
IAS 7 “Statement of Cash flows” is effective from annual periods beginning on or after 1 January 2017. The improvements are part of the Board’s Disclosure Initiative. The amendments require companies to provide information about changes in their financing liabilities and come as a response to requests from investors for information that helps them better understand changes in a company’s debt. The amendments will help to evaluate changes in liabilities arising from financing activities, including changes from cash flows and non-cash changes (such as foreign exchange gains or losses).
 
 
-
IAS 12 “Income Taxes” is effective from annual periods beginning on or after 1 January 2017. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. It also clarify certain other aspects of accounting for deferred tax assets.
 
 
-
IFRS 15 “Revenue from contracts with customers” is effective from annual periods beginning on or after 1 January 2018. IFRS 15, “Revenue from contracts with customers” is a converged standard from the IASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally.
 
 
-
IFRS 9 “Financial instruments” is effective from annual periods beginning on or after 1 January 2018. This standard replaces the guidance in IAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model.
 
 
-
IFRS 16 “Leases” is effective from annual periods beginning on or after 1 January 2019, with earlier application permitted if IFRS 15, “Revenue from Contracts with Customers”, is also applied. New standard requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same.
 
The Group is evaluating the effects of these standards on the condensed interim consolidated financial statements.
 
 
10

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
4.
Operating Segments
 
The Group has two main reportable segments in accordance with its integrated communication and technology services strategy as Turkcell Turkey and Turkcell International. Some of these strategic segments offer the same types of services, however they are managed separately because they operate in different geographical locations and are affected by different economic conditions.
 
Turkcell Turkey reportable segment includes the operations of Turkcell, Superonline İletisim Hizmetleri A.S. (“Turkcell Superonline”), Turkcell Satis ve Dagitim Hizmetleri A.S. (“Turkcell Satis”), group call center operations of Global Bilgi Pazarlama Danisma ve Cagri Servisi Hizmetleri A.S. (“Turkcell Global Bilgi”), Turktell Bilisim Servisleri A.S. (“Turktell”), Turkcell Teknoloji Arastirma ve Gelistirme A.S. (“Turkcell Teknoloji”), Turkcell Interaktif Dijital Platform ve Icerik Hizmetleri A.S. (“Turktell Interaktif”), Kule Hizmet ve Isletmecilik A.S. (“Global Tower”), Rehberlik Hizmetleri Servisi A.S. (“Rehberlik”), Turkcell Odeme Hizmetleri A.S. (“Turkcell Odeme”), Turkcell Gayrimenkul Hizmetleri A.S. (“Turkcell Gayrimenkul”). Turkcell International reportable segment includes the operations of Kibris Mobile Telekomunikasyon Limited Sirketi (“Kibris Telekom”), Eastasia, Euroasia, lifecell, Beltur, Beltel, Belarusian Telecom, UkrTower, Global LLC, Turkcell Europe, Lifetech LLC and Fintur Holdings B.V. (“Fintur”). The operations of these legal entities aggregated into one reportable segment as the nature of services are similar and most of them share similar economic characteristics. Other reportable segment mainly comprises the information and entertainment services in Turkey and Azerbaijan,  non-group call center operations of Turkcell Global Bilgi and Turkcell Finansman AS (“TFS”).
 
In first, second and third quarter of the year 2015, the operations of Turkcell Global Bilgi were included in Turkcell Turkey reportable segment. Since the Group changed its reportable segments which are the dominant source of information to evaluate the performance and to allocate resources in the fourth quarter of 2015, group call center operations of Global Bilgi were included in Turkcell Turkey reportable segment whereas non-group call center operations of Global Bilgi were included in other reportable segment.  Corresponding information for prior years have been also restated in the current period according to the new reportable segments. Since the assets and liabilities of Turkcell Global Bilgi could not be allocated to group and non-group operations and are mainly related to group operations, total assets and liabilities of Turkcell Global Bilgi are reported under Turkcell Turkey reportable segment except trade receivables.
 
Information regarding the operations of each reportable segment is included below. Adjusted EBITDA is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Adjusted EBITDA definition includes revenue, direct cost of revenues excluding depreciation and amortization, selling and marketing expenses and administrative expenses.
 
Adjusted EBITDA is not a financial measure defined by IFRS as a measurement of financial performance and may not be comparable to other similarly-titled indicators used by other companies. Reconciliation of Adjusted EBITDA to consolidated profit before income tax and profit for the period in the accompanying notes.
 
 
11

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
4.
Operating segments (continued)

   
Three months ended 31 March
 
   
Turkcell Turkey
   
Turkcell International
   
Other
   
Intersegment Eliminations
   
Consolidated
 
   
2016
   
2015
   
2016
   
2015
   
2016
   
2015
   
2016
   
2015
   
2016
   
2015
 
                                                             
Consumer segment revenue
    2,337,864       2,124,452       -       -       -       -       -       -       2,337,864       2,124,452  
Corporate segment revenue
    524,534       482,661       -       -       -       -       -       -       524,534       482,661  
Other Turkcell Turkey revenue
    65,117       55,081       -       -       -       -       -       -       65,117       55,081  
Turkcell International revenue
    -       -       196,897       192,873       -       -       -       -       196,897       192,873  
Other revenue
    -       -       -       -       107,085       129,155       -       -       107,085       129,155  
Eliminations
    -       -       -       -       -       -       (6,115 )     (6,059 )     (6,115 )     (6,059 )
Total Revenue
    2,927,515       2,662,194       196,897       192,873       107,085       129,155       (6,115 )     (6,059 )     3,225,382       2,978,163  
Contribution to consolidated revenue*
    2,924,468       2,658,585       193,833       190,428       107,081       129,150       -       -       3,225,382       2,978,163  
Reportable segment adjusted EBITDA
    916,096       828,192       53,555       53,078       31,305       45,485       551       93       1,001,507       926,848  
Finance income
    207,332       250,815       3,633       5,077       10,282       35,432       -       (39,063 )     221,247       252,261  
Finance cost
    (40,362 )     294,074       (15,960 )     (1,069,678 )     44       (15,057 )     1,278       54,971       (55,000 )     (735,690 )
Depreciation and amortization
    (407,350 )     (350,186 )     (44,356 )     (41,841 )     (3,152 )     (2,327 )     43       55       (454,815 )     (394,299 )
Share of profit of equity accounted investees
    -       -       15,180       94,830       -       -       -       -       15,180       94,830  
Capital expenditure
    675,393       343,895       61,712       408,442       1,298       3,167       -       (33 )     738,403       755,471  
Bad debt expense
    (51,052 )     (44,728 )     (1,937 )     (2,478 )     48       -       -       -       (52,941 )     (47,206 )
 
(*)
“Contribution to the consolidated revenue” represents operating segments’ revenues from companies other than those included in the consolidated financial statements. Group management monitors financial performance of the segments based on their separate financial statements. Contribution of operating segments on the Group’s revenue is presented to give additional information to the reader of the financial statements.
 
 
12

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

4. 
Operating segments (continued)
 
   
As at 31 March 2016 and 31 December 2015
 
   
Turkcell Turkey
   
Turkcell International
   
Other
   
Intersegment Eliminations
   
Total
 
   
2016
   
2015
   
2016
   
2015
   
2016
   
2015
   
2016
   
2015
   
2016
   
2015
 
Reportable segment assets
    20,892,188       20,701,617       1,364,750       1,460,983       364,534       85,884       (13,652 )     (10,921 )     22,607,820       22,237,563  
Investment in associates
    -       -       974,390       981,939       -       -       -       -       974,390       981,939  
Reportable segment liabilities
    6,325,114       6,868,877       477,493       481,338       203,580       105,460       (13,235 )     (10,089 )     6,992,952       7,445,586  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
4.
Operating segments (continued)
 
   
Three months ended 31 March
 
   
2016
   
2015
 
             
Turkcell Turkey adjusted EBITDA
    916,096       828,192  
Turkcell International adjusted EBITDA
    53,555       53,078  
Other
    31,305       45,485  
Intersegment eliminations
    551       93  
Consolidated adjusted EBITDA
    1,001,507       926,848  
Finance income
    221,247       252,261  
Finance costs
    (55,000 )     (735,690 )
Other income
    6,005       16,345  
Other expenses
    (17,109 )     (69,380 )
Share of profit of equity accounted investees
    15,180       94,830  
Depreciation and amortization
    (454,815 )     (394,299 )
Consolidated profit before income tax
    717,015       90,915  
Income tax expense
    (143,434 )     (234,205 )
Profit for the period
    573,581       (143,290 )
                 
 
 
Assets
 
31 March
2015
   
31 December
2015
 
Total assets for reportable segments
    22,256,938       22,162,600  
Other assets
    364,534       85,884  
Intersegment eliminations
    (13,652 )     (10,921 )
Investments in equity accounted investees
    974,390       981,939  
Other unallocated assets
    2,592,952       2,987,808  
Consolidated total assets
    26,175,162       26,207,310  
 
 
Liabilities
 
31 March
 2016
   
31 December 2015
 
Total liabilities for reportable segments
    6,802,607       7,350,215  
Other liabilities
    203,580       105,460  
Intersegment eliminations
    (13,235 )     (10,089 )
Other unallocated liabilities
    4,280,453       4,342,822  
Consolidated total liabilities
    11,273,405       11,788,408  
 
 
14

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
4.
Operating segments (continued)
 
Geographical information
 
In presenting the information on the basis of geographical segments, segment revenue is based on the geographical location of operations and segment assets are based on the geographical location of the assets.
 
   
Three months ended 31 March
 
   
2016
   
2015
 
Revenues
           
Turkey
    3,012,481       2,743,540  
Ukraine
    129,475       127,099  
Belarus
    32,695       29,909  
Turkish Republic of Northern Cyprus
    30,941       30,398  
Azerbaijan
    19,068       44,195  
Germany
    722       3,022  
      3,225,382       2,978,163  
 

Non-current assets
 
31 March
 2016
   
31 December 2015
 
Turkey
    15,171,463       15,032,659  
Ukraine
    918,863       993,546  
Belarus
    303,901       224,784  
Turkish Republic of Northern Cyprus
    114,556       116,127  
Azerbaijan
    14,630       14,727  
Unallocated non-current assets
    1,006,582       1,030,610  
      17,529,995       17,412,453  
 
5.
Seasonality of operations
 
The Turkish mobile communications market is affected by seasonal peaks and troughs. Historically, the effects of seasonality on mobile communications usage had positively influenced the Company’s results in the second and third quarters of the fiscal year and negatively influenced the results in the first and fourth quarters of the fiscal year. Recently, however, due to changing market dynamics, such as the Information Technologies and Communications Authority ( “ICTA”)’s intervention in tariffs and increasing competition in the Turkish telecommunications market, the effects of seasonality on the Company’s subscribers’ mobile communications usage has decreased. Local and religious holidays in Turkey also affect the Company’s operational results.
 
 
 
 
 
 
 
 
15

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
6.
Finance income and costs
 
Net finance income or expense amounts to TL 166,247 and TL (483,429) for the three months ended  31 March 2016 and 2015, respectively.
 
The foreign exchange income amounting to TL 9,863 and TL 349,546 have been presented on net basis with foreign exchange losses for the three months ended 31 March 2016 and 2015, respectively.
 
Net finance income for the three months ended 31 March 2016 is mainly attributable to interest income from contracted handset sales.
 
Net finance expense for the three months ended 31 March 2016 is mainly attributable to financing cost of loans and borrowings and payable for 4.5G license.
 
Net foreign exchange loss for the three months ended 31 March 2015 is mainly attributable to the foreign exchange losses in Belarusian Telecom operating in Belarus amounting to TL 337,768 and foreign exchange loss in lifecell operating in Ukraine amounting to TL 654,081. Foreign exchange losses from Belarusian Telecom and lifecell exclude foreign exchange losses arising in the foreign operations’ individual financial statements which have been recognized directly in equity in the foreign currency translation differences in the consolidated financial statements in accordance with accounting policy for net investment in foreign operations.
 

7.
Income tax expense
 
Effective tax rates are 20% and 258% for the three months ended 31 March 2016 and 2015, respectively.
 
Since it is not probable that taxable profit will be available against which the unused tax losses or unused tax credits of lifecell and Belarusian Telecom can be utilized, no deferred tax asset is recognized on any loss incurred as a result of Ukraine and Belarus.
 
When the effects of unused tax losses of lifecell and Belarusian Telecom are excluded, the effective tax rate is 20% for the three months ended 31 March 2015.
 
 
16

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
8.
Property, plant and equipment
 
Cost or deemed cost
 
Balance as at 1 January 2016
   
Additions
   
Disposals
   
Transfers
   
Impairment expenses/ (reversals)
   
Effects of movements in exchange rates
   
Balance as at
31March 2016
 
Network infrastructure (All operational)
    11,302,326       87,046       (11,789 )     364,540       -       (194,596 )     11,547,527  
Land and buildings
    389,366       3,349       -       -       -       (1,810 )     390,905  
Equipment, fixtures and fittings
    586,463       3,383       (1,080 )     69       -       (2,505 )     586,330  
Motor vehicles
    33,676       234       (252 )     -       -       (421 )     33,237  
Leasehold improvements
    306,176       1,895       -       -       -       (378 )     307,693  
Construction in progress
    1,005,358       500,797       -       (365,100 )     (467 )     (9,792 )     1,130,796  
Total
    13,623,365       596,704       (13,121 )     (491 )     (467 )     (209,502 )     13,996,488  
                                                         
Accumulated depreciation
                                                       
Network infrastructure (All operational)
    5,976,699       256,246       (3,375 )     186       8,157       (157,526 )     6,080,387  
Land and buildings
    140,627       3,250       -       -       122       (593 )     143,406  
Equipment, fixtures and fittings
    462,618       11,276       (776 )     -       11       (2,221 )     470,908  
Motor vehicles
    29,704       590       (246 )     -       -       (453 )     29,595  
Leasehold improvements
    192,223       6,952       -       -       -       (478 )     198,697  
Total
    6,801,871       278,314       (4,397 )     186       8,290       (161,271 )     6,922,993  
                                                         
Total property, plant and equipment
    6,821,494       318,390       (8,724 )     (677 )     (8,757 )     (48,231 )     7,073,495  
 
 
Depreciation expenses for the periods ended 31 March 2016 and 2015 are TL 287,071 and TL 269,330 respectively including impairment losses and recognized in direct costs of revenues.
 
The impairment losses on property, plant and equipment for the years ended 31 March 2016 and 2015 are TL 8,757 and TL 1,759 respectively and recognized in depreciation expense.
 
 
17

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
8.
Property, plant and equipment (continued)
 
Cost or deemed cost
 
Balance as at 1 January 2015
   
Additions
   
Disposals
   
Transfers
   
Impairment expenses/ (reversals)
   
Transfers to Investment Property
   
Effects of movements in exchange rates
   
Balance as at
31 December 2015
 
Network infrastructure (All operational)
    10,918,769       358,297       (652,051 )     1,061,692       -       -       (384,381 )     11,302,326  
Land and buildings
    516,724       20,167       -       310       -       (144,268 )     (3,567 )     389,366  
Equipment, fixtures and fittings
    564,429       57,204       (30,632 )     1,467       -       -       (6,005 )     586,463  
Motor vehicles
    35,807       883       (1,609 )     -       -       -       (1,405 )     33,676  
Leasehold improvements
    228,530       30,008       (23,575 )     72,460       -       -       (1,247 )     306,176  
Construction in progress
    444,200       1,715,044       (877 )     (1,136,521 )     (2,523 )     -       (13,965 )     1,005,358  
Total
    12,708,459       2,181,603       (708,744 )     (592 )     (2,523 )     (144,268 )     (410,570 )     13,623,365  
                                                                 
Accumulated depreciation
                                                               
Network infrastructure (All operational)
    5,900,269       1,016,762       (647,280 )     -       17,990       -       (311,042 )     5,976,699  
Land and buildings
    231,044       15,950       -       -       (2,851 )     (101,634 )     (1,882 )     140,627  
Equipment, fixtures and fittings
    456,100       42,062       (29,998 )     -       9       -       (5,555 )     462,618  
Motor vehicles
    29,615       2,872       (1,474 )     -       -       -       (1,309 )     29,704  
Leasehold improvements
    197,835       15,826       (20,610 )     -       896       -       (1,724 )     192,223  
Total
    6,814,863       1,093,472       (699,362 )     -       16,044       (101,634 )     (321,512 )     6,801,871  
                                                                 
Total property, plant and equipment
    5,893,596       1,088,131       (9,382 )     (592 )     (18,567 )     (42,634 )     (89,058 )     6,821,494  
 
 
18

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
9.
Intangible assets
 
Cost
 
Balance at 1 January 2016
   
Additions
   
Disposals
   
Transfers
   
 
 
Impairment
   
Effects of movements in exchange rates
   
Balance at
 31 March 2016
 
GSM and other telecommunication operating licenses
    3,950,729       785       (3 )     2,352       -       (50,962 )     3,902,901  
Computer software
    5,342,056       13,928       (863 )     57,715       -       (20,035 )     5,392,801  
Transmission lines
    71,506       -       -       -       -       -       71,506  
Central betting system operating right
    11,907       -       -       -       -       -       11,907  
Indefeasible right of usage
    42,132       3,885       -       -       -       -       46,017  
Brand name
    7,040       -       -       -       -       -       7,040  
Customer base
    15,512       -       -       -       -       -       15,512  
Goodwill
    32,834       -       -       -       -       -       32,834  
Other
    29,713       78       (4 )     1,534       -       -       31,321  
4.5G license not yet available for use
    3,984,954       33,316       -       -       -       -       4,018,270  
Construction in progress
    52,597       91,114       -       (61,110 )     -       (5,633 )     76,968  
Total
    13,540,980       143,106       (870 )     491       -       (76,630 )     13,607,077  
                                                         
Accumulated amortization
                                                       
GSM and other telecommunication operating licenses
    1,429,944       52,701       (3 )     -       -       (4,812 )     1,477,830  
Computer software
    3,771,710       108,027       (522 )     (251 )     -       (12,202 )     3,866,762  
Transmission lines
    52,058       939       -       -       -       -       52,997  
Central betting system operating right
    9,663       243       -       -       -       -       9,906  
Indefeasible right of usage
    15,446       804       -       -       -       -       16,250  
Brand name
    5,104       176       -       -       -       -       5,280  
Customer base
    10,111       137       -       -       -       -       10,248  
Other
    14,307       1,944       (4 )     65       651       -       16,963  
Total
    5,308,343       164,971       (529 )     (186 )     651       (17,014 )     5,456,236  
                                                         
Total intangible assets
    8,232,637       (21,865 )     (341 )     677       (651 )     (59,616 )     8,150,841  

 
Amortization expenses on intangible assets other than goodwill for the three months ended 31 March 2016 and 2015 are TL 165,622 and TL 125,290 respectively including impairment losses and recognized in direct cost of revenues.
 
The impairment losses on intangible assets for the three months ended 31 March 2016 and 2015 are TL 651 and nil respectively and recognized in depreciation expense.
 
Computer software includes internally generated capitalized software development costs that meet the definition of an intangible asset. The amount of internally generated capitalized cost is TL 31,890 for the three months ended 31 March 2016 (31 March 2015: TL 28,378).
 
 
19

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
9.
Intangible assets (continued)
 
Cost
 
Balance at 1 January 2015
   
Additions
   
Disposals
   
Transfers
   
Effects of movements in exchange rates
   
Balance at
 31 December 2015
 
GSM and other telecommunication operating licenses
    2,334,822       9,092       (31,263 )     1,653,536       (15,458 )     3,950,729  
Computer software
    4,730,454       377,853       (4,155 )     279,213       (41,309 )     5,342,056  
Transmission lines
    62,789       8,717       -       -       -       71,506  
Central betting system operating right
    11,758       149       -       -       -       11,907  
Indefeasible right of usage
    42,132       -       -       -       -       42,132  
Brand name
    7,040       -       -       -       -       7,040  
Customer base
    15,512       -       -       -       -       15,512  
Goodwill
    32,834       -       -       -       -       32,834  
Other
    22,370       7,111       -       232       -       29,713  
4.5G license not yet available for use
    -       5,230,471       -       (1,245,517 )     -       3,984,954  
Construction in progress
    3,414       736,817       -       (686,872 )     (762 )     52,597  
Total
    7,263,125       6,370,210       (35,418 )     592       (57,529 )     13,540,980  
                                                 
Accumulated amortization
                                               
GSM and other telecommunication operating licenses
    1,332,732       125,258       (31,263 )     -       3,217       1,429,944  
Computer software
    3,393,650       406,652       (2,297 )     -       (26,295 )     3,771,710  
Transmission lines
    48,530       3,528       -       -       -       52,058  
Central betting system operating right
    8,786       877       -       -       -       9,663  
Indefeasible right of usage
    12,552       2,894       -       -       -       15,446  
Brand name
    4,400       704       -       -       -       5,104  
Customer base
    8,690       1,421       -       -       -       10,111  
Other
    6,390       7,917       -       -       -       14,307  
Total
    4,815,730       549,251       (33,560 )     -       (23,078 )     5,308,343  
                                                 
Total intangible assets
    2,447,395       5,820,959       (1,858 )     592       (34,451 )     8,232,637  
 
 
20

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
9.
Intangible assets (continued)
 
Turkcell 4.5G License
 
On 26 August 2015, “Authorization Tender on IMT Services and Infrastructure” publicly known as 4.5G, license tender, was held by the Information Technologies and Communication Authority. The Company has been awarded for 13 years with; 172.4 MHz frequency band for EUR 1,623,460 (equivalent to TL 5,208,222 as at 31 March 2016) (excluding VAT).
 
IMT authorization period expires on 30 April 2029 and operators will be able to commence service delivery starting from 1 April 2016. 2x1.4 MHz frequency band in 900MHz spectrum and 2 units of 2x5 MHz frequency band in 2100 MHz spectrum are in operation as at 1 December 2015 and have been recorded as GSM and other telecommunication operating licenses. Remaining packages amounting to EUR 1,235,520 (equivalent to TL 3,963,672 as at 31 March 2016) will be ready to use on 1 April 2016 and have been recorded as 4.5G license not yet available for use. As at 31 March 2016, the carrying amount of 4.5G License is TL 5,232,649 (31 December 2015: TL 5,222,687).
 
Tender price amounting to EUR 1,623,460 (equivalent to TL 5,208,222 as at 31 March 2016) (excluding VAT of 18%) will be paid semi-annually by four equal installments total of which are amounting to EUR 1,655,290 (equivalent to TL 5,310,336 as at 31 March 2016) including interest and excluding VAT of 18%. On 26 October 2015, the Company made the payment amounting to TL 1,321,873 for the original amount of EUR 413,823 as first installment and total VAT amounting to TL 933,447 for the original amount of EUR 292,223 in cash. Second installment payment was made on 25 April 2016 amounting to EUR 413,823 (equivalent to TL 1,327,586 as at 31 March 2016). Last installment will be paid on 27 April 2017.
 
lifecell 3G License
 
3G License tender in Ukraine was held on 23 February 2015. lifecell submitted a bid of UAH 3,355,400 (equivalent to TL 362,620 as at 31 March 2016) and was awarded the first lot for 15 years, which is the 1920-1935 / 2110-2125 MHz frequency band. The license payment was made on 19 March 2015. The cost of 3G license has been presented in GSM and other telecommunication operating licenses as at 31 March 2016.
 
In May 2015, lifecell made the payment amounting to UAH 357,568 (equivalent to TL 38,643 as at 31 March 2016) for the first installment of conversion of spectrum from military use and committed approximately UAH 428,427 (equivalent to TL 46,300 as of 31 March 2016) for the remaining installments of the conversion. Committed amount will be subject to change according to the inflation rates at the date of the payments.
 
 
21

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
10.
Investments in equity accounted investees
 
The Group’s share of profit in its equity accounted investees for the three months ended31 March 2016 and 2015 are TL 15,180 and TL 94,830, respectively.
 
The Company’s investment in Fintur Holdings BV (“Fintur”) amounts to TL 974,390 as at 31 March 2016 (31 December 2015: TL 981,939).
 
As of 26 February 2016, the Company has submitted a binding offer to acquire TeliaSonera’s 58.55% stake in Fintur and its 24% direct stake in Kcell JSC (Kazakhstan).
 
11.
Trade receivables and accrued income
 
   
31 March
2016
   
31 December
2015
 
Undue assigned contracted receivables
    2,178,877       2,216,010  
Receivables from subscribers
    1,222,656       1,218,126  
Accrued income
    411,164       393,049  
Accounts and checks receivable
    258,603       271,743  
      4,071,300       4,098,928  
 
Trade receivables are shown net of allowance for doubtful debts amounting to TL 867,384 as at 31 March 2016 (31 December 2015: TL 816,071). The change in allowance for trade receivables and due from related parties is disclosed in Note 16.
 
The undue assigned contracted receivables are the remaining portion of the assigned receivables from the distributors related to the handset campaigns which will be collected from subscribers in instalments by the Company. When monthly instalment is invoiced to the subscriber, related portion is transferred to “receivables from subscribers”. The Company measures the undue assigned contracted receivables at amortized cost, bears the credit risk and recognizes interest income throughout the contract period.
 
The accrued income represents revenue accrued for subscriber calls (air-time) which have not been billed and will be billed within one year. Due to the volume of subscribers, there are different billing cycles; accordingly, an accrual is made at each period end to accrue revenue for rendered but not yet billed. Contracted receivables related to handset campaigns, which will be invoiced after one year is presented under non-current trade receivables amounting to TL 749,402 (31 December 2015:  TL 834,833).
 
The Group’s exposure to currency risks and impairment losses related to trade receivables are disclosed in Note 16.
 
 
22

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
 12.
Other current assets
 
   
31 March
2016
   
31 December
2015
 
Prepaid expenses
    770,093       290,063  
VAT receivable
    565,581       763,844  
Restricted cash
    183,710       349,243  
Prepayment for subscriber acquisition cost
    97,441       98,656  
Advances to suppliers
    40,591       34,554  
Special communication tax to be collected from subscribers
    32,800       32,755  
Currency swap contracts(*)
    117       -  
Currency forward contracts (*)
    -       216  
Other
    127,867       120,571  
      1,818,200       1,689,902  
 
Prepaid expenses mainly comprises prepaid rent expenses and frequency usage fees.
 
VAT receivable mainly results from 4.5G license VAT payment made as at 26 October 2015 amounting to TL 933,447.
 
As at 31 March 2016, restricted cash amounting to TL 183,710 represents the time deposits at a local bank as guarantees in connection with the loans utilized by lifecell (Note 15) (31 December 2015: 349,243).
 
Subscriber acquisition costs are subsidies paid to dealers for engaging a fixed term contract with the subscriber that require a minimum consideration.
 
(*) Details of currency swap contracts as at and for the period ended 31 March 2016 and details of currency forward contracts as at and for the period ended 31 December 2015 are given below:
 
   
Currency Swap Contracts
         
   
Buy
 
Sell
         
Exchange Rate
 
Foreign currency
 
Notional Amount
 
Foreign currency
 
Notional Amount
   
Fair value
 
Maturity
                           
2.8294
 
USD
    8,500  
TL
    24,050       62  
5 April 2016
2.8289
 
USD
    12,129  
TL
    34,312       55  
1 April 2016
          20,629         58,362       117    
 
   
Currency Forward Contracts
         
   
Buy
         
Exchange Rate
(TL)
 
Foreign currency
 
Notional Amount
   
Fair value
 
Maturity
                   
        2.9144
 
USD
    57,732       216  
4 January 2016
 
 
23

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
13.
Cash and cash equivalents
 
   
31 March
2016
   
31 December
2015
 
Cash in hand
    249       453  
Cheques received
    3       3  
Banks
    2,518,976       2,912,741  
- Demand deposits
    626,538       572,895  
- Time deposits
    1,892,438       2,339,846  
Investment funds, bonds and bills
    3,184       5,599  
Cash and cash equivalents
    2,522,412       2,918,796  
Bank overdrafts
    (112 )     -  
Cash and cash equivalents in the statement of cash flows
    2,522,300       2,918,796  
 
As at 31 March 2016, the average maturity of time deposits is 25 days (31 December 2014: 27 days).
 
The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 16.
 
14.
Dividends
 
Turkcell:
 
On 25 March 2015, the Company’s Board of Directors has proposed a dividend distribution for the year ended 31 December 2010, 2011, 2012, 2013 and 2014 amounting to TL 3,925,000 (equivalent to $1,535,903  as at 26 March 2015, date of Ordinary General Assembly Meeting), which represented 42.5% of distributable income. This represents a net cash dividend of full TL 1.784091 (equivalent to full $0.70 as at 26 March 2015, date of Ordinary General Assembly Meeting) per share. This dividend proposal was discussed and approved at the Ordinary General Assembly of Shareholders held on 26 March 2015. The dividend was paid in three installments on 6 April, 8 April and 13 April 2015 to the shareholders. Due to the seizure on all receivables of Cukurova Holding AS. including its dividend receivables dividend payables to Çukurova Holdings AS. was paid to SDIF.
 
On 23 March 2016, the Company’s Board of Directors has proposed a dividend distribution for the year ended 31 December 2015 amounting to TL 1,200,000 (equivalent to $423,519  as at 31 March 2016), which represented approximately 58% of distributable income. This represents a net cash dividend of full TL 0.5454545 (equivalent to full $0.19 as at 31 March 2016) per share. This dividend proposal was discussed and rejected at the Ordinary General Assembly of Shareholders held on 29 March 2016.
 
 
24

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
15.
Loans and borrowings
 
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortized cost. For more information about the Group’s exposure to foreign currency for interest bearing loans, see Note 16.
 
   
31 March
2016
   
31 December
2015
 
Non-current liabilities
           
Unsecured bank loans
    1,988,542       2,086,871  
Secured bank loans
    3,500       4,262  
Finance lease liabilities
    35,921       36,449  
Debt securities issued
    1,345,266       1,360,204  
      3,373,229       3,487,786  
Current liabilities
               
Unsecured bank facility
    226,209       130,109  
Secured bank facility
    166,746       311,682  
Current portion of unsecured bank loans
    175,504       196,385  
Current portion of secured bank loans
    1,706       1,930  
Current portion of finance lease liabilities
    4,832       5,389  
Debt securities issued
    80,070       80,959  
Currency swap contracts
    3,062       2,290  
Currency forward contracts
    26       -  
      658,155       728,744  
 
 
25

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
15.
Loans and borrowings (continued)
 
Terms and conditions of outstanding loans are as follows:
 
 
             
31 March 2016
   
31 December 2015
 
 
Currency
 
Interest rate type
   
Nominal interest rate
   
Year of maturity
   
Carrying amount
   
Nominal interest
rate
   
Year of maturity
   
Carrying amount
 
                                             
Unsecured bank loans
USD
 
Floating
   
Libor+2.6%
   
2017
      184,732    
Libor+2.6%
      2017       189,542  
Unsecured bank loans
EUR
 
Floating
   
Euribor+2.2%
      2019-2025       1,610,493    
Euribor+2.2%
      2019-2025       1,585,939  
Unsecured bank loans
TL
 
Fixed
     10.4%-10.9%       2017       368,821      8.3%-10.9%       2016-2017       507,775  
Unsecured bank loans*
TL
    -      -       2016       112      -       -       -  
Unsecured bank loans
UAH
 
Fixed
     18.3%-20%       2016       226,097      20%       2016       130,109  
Secured bank loans**
UAH
 
Fixed
     19%       2016       166,746      25%       2016       311,682  
Secured bank loans***
BYR
 
Fixed
     12%-16%       2016-2020       5,206      12%-16%       2016-2020       6,192  
Debt securities issued
USD
 
Fixed
     5.8%       2025       1,425,336      5.8%       2025       1,441,163  
Finance lease liabilities
EUR
 
Fixed
     3.4%       2017-2024       40,679      3.4%       2016-2024       41,750  
Finance lease liabilities
USD
 
Fixed
     18%-28%       2016-2018       74      18%-28%       2016-2018       88  
                              4,028,296                     4,214,240  
 
(*)
Interest free spot loan utilized by Superonline.
(**)
Secured by the blocked time deposits at a local bank amounting to USD 64,837 (equivalent to TL 183,710), in connection with the loans utilized by lifecell.
(***)
Secured by the Government of the Republic of Belarus.
 
 
26

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
15.
Loans and borrowings (continued)
 
   
Currency Swap Contracts
         
   
Buy
 
Sell
         
Exchange Rate
 
Foreign currency
 
Notional Amount
 
Foreign currency
 
Notional Amount
   
Fair value
 
Maturity
                           
3.2110
 
EUR
    50,000  
TL
    160,551       (145 )  
1 April 2016
3.2111
 
EUR
    50,000  
TL
    160,553       (148 )  
1 April 2016
3.2116
 
EUR
    93,458  
TL
    300,147       (324 )  
1 April 2016
3.2124
 
EUR
    30,000  
TL
    96,371       (128 )  
1 April 2016
3.2125
 
EUR
    27,400  
TL
    88,023       (121 )  
1 April 2016
1.1371
 
EUR
    161,000  
USD
    183,075       (2,196 )  
1 April 2016
          411,858         988,720       (3,062 )    
               
 
   
Currency Swap Contracts
         
   
Buy
 
Sell
         
Exchange Rate
 
Foreign currency
 
Notional Amount
 
Foreign currency
 
Notional Amount
   
Fair value
 
Maturity
                           
1.0942
 
EUR
    180,000  
USD
    196,961       (769 )
4 January 2016
1.0947
 
EUR
    277,000  
USD
    303,218       (1,521 )
4 January 2016
          457,000         500,179       (2,290 )  
 
 
 
    Currency Forward Contracts          
   
Buy
         
Exchange Rate
(TL)
 
Foreign currency
 
Notional Amount
   
Fair value
 
Maturity
                   
        3.2100
 
EUR
    15,000       (29 )
1 April 2016
3.2080
 
EUR
    25,000       3  
1 April 2016
          40,000       (26 )  
 
 
27

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
16.
Financial instruments
 
Credit risk
 
Impairment losses
 
The change in allowance for trade receivables and due from related parties as at 31 March 2016 and 31 December 2015 is as follows:
 
   
31 March 2016
   
31 December 2015
 
Opening balance
    816,373       727,732  
Impairment loss recognized
    52,941       196,588  
Effect of change in foreign exchange rate
    (1,473 )     (2,563 )
Amounts written-off
    (132 )     (105,384 )
Closing balance
    867,709       816,373  
 
The impairment loss recognized of TL 52,941 for the three months ended 31 March 2016 relates to its estimate of incurred losses in respect of trade receivables and due from related parties(31March2015: TL 47,206).
 
Trade receivables and due from related parties are reserved in an allowance account until the Group can determine that the amounts are no longer collectible. When this becomes probable the Group reverses the allowance and writes-off the receivable.
 
 
 
 
 
 
 
 
 
28

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
16.
Financial instruments (continued)
 
Exposure to currency risk
 
The Group’s exposure to foreign currency risk based on notional amounts is as follows:
 
   
31 December 2015
 
   
USD
   
EUR
 
Foreign currency denominated assets
           
Other non-current assets
    2,576       2,131  
Due from related parties-current
    3,553       207  
Trade receivables and accrued income
    21,536       29,947  
Other current assets
    141,385       6,200  
Cash and cash equivalents
    618,831       17,911  
      787,881       56,396  
Foreign currency denominated liabilities
               
Loans and borrowings-non current
    (63,152 )     (499,911 )
Debt securities issued-non- current
    (467,810 )     -  
Other non-current liabilities
    (96,481 )     -  
Loans and borrowings-current
    (2,066 )     (12,328 )
Debt securities issued-current
    (27,844 )     -  
Trade and other payables-current
    (264,091 )     (833,791 )
Trade and other payables-non-current
    -       (399,865 )
Due to related parties
    (312 )     (141 )
      (921,756 )     (1,746,036 )
Exposure related to derivative instruments
               
Currency swap contracts
    (500,179 )     457,000  
   Buy
    -       457,000  
   Sell
    (500,179 )     -  
Currency forward contracts
    57,732       -  
   Buy
    57,732       -  
                 
Net exposure
    (576,322 )     (1,232,640 )
 
   
31 March 2016
       
   
USD
   
EUR
 
Foreign currency denominated assets
           
Other non-current assets
    2,679       2,131  
Due from related parties-current
    2,856       88  
Trade receivables and accrued income
    22,255       31,146  
Other current assets
    78,649       1,931  
Cash and cash equivalents
    410,918       8,628  
      517,357       43,924  
Foreign currency denominated liabilities
               
Loans and borrowings-non current
    (19,454 )     (502,485 )
Debt securities issued-non- current
    (474,788 )     -  
Other non-current liabilities
    (99,295 )     -  
Loans and borrowings-current
    (45,771 )     (12,203 )
Debt securities issued-current
    (28,259 )     -  
Trade and other payables-current
    (248,911 )     (837,969 )
Trade and other payables-non-current
    -       (402,463 )
Due to related parties
    (213 )     (256 )
      (916,691 )     (1,755,376 )
                 
Exposure related to derivative instruments
               
Currency swap contracts
    (162,446 )     411,858  
   Buy
    20,629       411,858  
   Sell
    (183,075 )     -  
Currency forward contracts
    -       40,000  
   Buy
    -       40,000  
                 
Net exposure
    (561,780 )     (1,259,594 )
 
 
29

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
16.
Financial instruments (continued)
 
Exposure to currency risk (continued)
 
The following significant exchange rates are applied during the period:
 
   
Average Rate
   
Closing Rate
 
   
31 March
   
31 March
   
31 March
   
31 December
 
   
2016
   
2015
   
2016
   
2015
 
                         
 USD/TL
    2.9202       2.4633       2.8334       2.9076  
 EUR/TL
    3.2172       2.7934       3.2081       3.1776  
 USD/BYR
    20,552       14,528       20,133       18,569  
 USD/UAH
    25.7718       21.1755       26.2181       24.0007  
 
Sensitivity analysis
 
The basis for the sensitivity analysis to measure foreign exchange risk is an aggregate corporate-level currency exposure. The aggregate foreign exchange exposure is composed of all assets and liabilities denominated in foreign currencies. The analysis excludes net foreign currency investments.
 
10% strengthening of the TL, UAH, BYR against the following currencies as at 31 March 2016 and 31 December 2015 would have increased / (decreased) profit or loss before by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
 
   
Profit or loss
 
   
31 March
2016
   
31 December
2015
 
             
USD
    159,175       167,572  
EUR
    404,090       391,683  
 
10% weakening of the TL, UAH, BYR against the following currencies as at 31 March 2016 and 31 December 2015 would have increased / (decreased) profit or loss before tax by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.
 
   
Profit or loss
 
   
31 March 2016
   
31 December
2015
 
             
USD
    (159,175 )     (167,572 )
EUR
    (404,090 )     (391,683 )
 
 
 
 
 
 
 
30

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
16.
Financial instruments (continued)
 
Fair values
 
Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis
 
Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).
 
   
Fair values
   
                   
   
31 March 2016
   
31 December 2015
 
Fair Value hierarchy
 
Valuation Techniques
                   
Consideration payable in relation to acquisition of Belarusian Telecom
    (237,306 )     (235,281 )
Level 3
 
Net present value (*)
Currency swap contracts
    (2,945 )     (2,290 )
Level 3
 
Pricing models based on discounted cash flow analysis using the applicable yield curve
Currency forward contracts
    (26 )     216  
Level 3
 
Pricing models based on discounted cash flow analysis using the applicable yield curve
                       
There were no transfers between Level 2 and 3 in the period.
 
(*)
Discount rate of  4.5% was used for the present value calculation for the consideration payable in relation to acquisition of Belarusian Telecom as of 31 March 2016 (31 December 2015: 5.1%). Company management expects consideration payable to be paid during the first quarter of 2020 (31 December 2015: the first quarter of 2020).
 
Relationship of unobservable inputs to fair value is the higher the discount rate, the lower the fair value.
 
Consideration payable in relation to acquisition of Belarusian Telecom:
 
   
31 March
2016
   
31 December
2015
 
Opening balance
    235,281       163,234  
Total gains or losses: in profit or loss
    2,025       72,047  
Closing balance
    237,306       235,281  
 
 
31

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
17.
Guarantees and purchase obligations
 
As at 31 March 2016, outstanding purchase commitments with respect to the acquisition of property, plant and equipment, inventory and purchase of sponsorship, rent and advertisement services amount to TL 2,326,346 (31 December 2015: TL 2,752,139). Payments for these commitments are going to be made in a 5 year period.
 
As at 31 March 2016, the Group is contingently liable in respect of bank letters of guarantee obtained from banks given to customs authorities, private companies and other public organizations, provided guarantees to private companies and financial guarantees to subsidiaries totaling to TL 1,874,870 as at 31 March 2016 (31 December 2015: TL 2,058,810).
 
As at 31 March 2016, the amounts the Company has commitments regarding lifecell’s 3G license purchases amounted to UAH 428,427 (equivalent to TL 46,300 as of 31 March 2016).
 
18.
Commitments and Contingencies
 
The following disclosures comprise of material legal lawsuits, investigations and in-depth investigations against the Company.
 
18.1
Onerous Contracts
 
Universal Project, executed from 17 January 2013 by the Company, regarding setting up and operation of mobile communication infrastructure by the Ministry of Transport, Maritime Affairs and Communications in rural areas that are not in the coverage area, has ended as of 3 March 2016.
 
18.2
Dispute on Treasury Share Amounts
 
The Company pays Treasury Share to Undersecretariat of Treasury calculated over its telecommunication revenues. Undersecretariat of Treasury time to time claimed that the Company underpaid Treasury Share in the past and requested additional payments. The Company objected to these claims and initiated legal processes which are still pending. The maximum loss, excluding accrued interest, of the company arising from several disputes could be TL 339,385.
 
Based on the management opinion, the probability of an outflow of resources embodying economic benefits to settle the obligation is uncertain, thus, no provision is recognized in the consolidated financial statements as at and for the period ended 31 March 2016 (31 December 2015: None).
 
18.3
Dispute on Special Communication Tax
 
Large Tax Payers Office levied Special Communication Tax and tax penalty on Turkcell in the amount of TL 211,056 principal and TL 316,583 totaling to TL 527,639 based upon the claim, stated on Tax Investigation Reports prepared for the years 2008-2012, that Turkcell should pay Special Communication Tax over the prepaid card sales made by the distributors. Turkcell filed 60 lawsuits before the Tax Courts for the cancellation of each tax and tax penalty demand.
 
Respective Courts accepted 24 of the cases filed for the cancellation of the fined tax assessment prepared for the year 2008 and 2009. Large Taxpayer Office appealed the decisions. Turkcell replied this requests.
 
The Court partially accepted 12 of the cases filed for the cancellation of the fined tax assessment prepared for the year 2011. Turkcell appealed the decisions regarding the parts against Turkcell. The Large Tax Payers Office appealed the decisions regarding the parts against the Large Tax Payers Office. The Council of State rejected the stay of execution requests, made during the appeal process by Turkcell.
 
The Large Tax Payers Office has collected TL 80,355 (TL 77,480 and TL 2,875 overdue interest) calculated for the parts against Turkcell for the year 2011 by offsetting the receivables of Turkcell from Public Administrations.
 
 
32

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
18.
Commitments and Contingencies (continued)
 
18.3
Dispute on Special Communication Tax (continued)
 
The Court partially accepted 12 of the cases filed for the cancellation of the fined tax assessment prepared for the year 2010 (TL 65,950). The Company appealed the decisions regarding the parts against Turkcell.
 
The Court rejected the other 12 cases filed for the cancellation of the fined tax assessment (TL 122,802), related to the year 2012. Turkcell appealed the respective decisions.
 
In the case of payments, Turkcell shall pay the amounts subject to aforementioned lawsuits with their accrued interest. This interest would be calculated as a case by case basis. Accordingly, the interest that may be paid in some or all of the cases, could amount to a significant portion of the tax assessment.
 
Limited tax investigation has been performed for the year 2013, regarding the aforementioned case and any notification has been received regarding the result of the investigation by Turkcell.
 
Based on the management opinion, the probability of an outflow of resources embodying economic benefits to settle the obligation is uncertain, thus, no provision is recognized in the consolidated financial statements as at and for the period ended 31 March 2016 (31 December 2015: None).
 
18.4
Investigation initiated by ICTA on subscription numbers and radio utilization and usage fees
 
ICTA commenced in-depth investigations, against the GSM operators, on the accuracy of the subscriber numbers report for the terms, 2004-2009, 2010-2011 and 2012 which are the essential for the payment of radio utilization and usage fees. As result of the investigations, ICTA imposed 3 dividual administrative fine to the Company in the total amount of TL 8,251. The administrative fines were paid within 1 month following the notification of the decision of ICTA, with 25% discount.  The Company filed lawsuits for the cancellation of aforementioned administrative fines and ICTA’s administrative acts implied on the Company for the collection of the radio utilization and usage fees which was claimed to have been paid deficiently. The cases are pending.
 
ICTA filed 4 lawsuits on 13 October 2014, 23 December 2014, 3 March 2015 and 11 April 2016 for the collection of the total amount of TL 196,383. The amount which was alleged that the Company paid deficiently by the ICTA decision took upon the investigation for the periods 2004 – 2009, 2010 – 2011, 2012 and July – December 2013 on the radio utilization and usage fees, with its accrued interest, which will be calculated. The Courts decided to take expert report for the cases dated 13 October 2014, 23 December 2014 and 3 March 2015. The Courts decided to consolidate the lawsuits filed by ICTA on 13 October 2014 and 23 December 2014. The cases are pending.
 
On the other hand, the related investigations on the same subjects for periods of 2013 and 2014 are currently pending and according to the inquiry of investigations which are notified to the Company, it is alleged that the amount of 21,315 TL have been paid deficiently. The inquiry of investigation for the period of 2013 was notified to the Company and the Company’s written defense was submitted to ICTA within due date. The inquiry of investigation for the period of 2014 was notified to the Company and Company’s written defense will be submitted to ICTA within due date.
 
Based on the management opinion, the probability of an outflow of resources embodying economic benefits is uncertain, thus, no provision is recognized in the consolidated financial statements as at and for the period ended 31 March 2016 (31 December 2015: None).
 
 
33

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
18.
Commitments and Contingencies (continued)
 
18.5
Other ongoing lawsuits
 
Within brief consolidated financial statements prepared as of 31March 2016, obligations which are related to following ongoing disputes have been evaluated.
 
In the consolidated financial statements regarding the probability of an outflow of resources embodying economic benefits to settle the obligation, provisions amounting to TL 3,517 TL was recognized.
 
Subject
 
Anticipated Maximum Risk
(excluding accrued interest)
   
Provision
 
Disputes related with Law on the Protection of Competition
    204,026       -  
Disputes related with ICTA
    28,725       3,517  
Other disputes
    5,225       -  
 
 
19.
Related parties
 
Transactions with key management personnel:
 
Key management personnel comprise the Group’s directors and key management executive officers.
 
As at 31 March 2016 and 31 December 2015, none of the Group’s directors and executive officers has outstanding personnel loans from the Group.
 
In addition to their salaries, the Group also provides non-cash benefits to directors and executive officers and contributes to a post-employment defined plan on their behalf. The Group is required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits.
 
Total compensation provided to key management personnel is TL 11,906 and TL 25,853 for the three months ended 31 March 2016 and 2015, respectively.
 
The Company has agreements or protocols with several of its shareholders, consolidated subsidiaries and affiliates of the shareholders.
 
Due from related parties – short term
 
31 March
2016
   
31 December
2015
 
Vimpelcom OJSC (“Vimpelcom”)
    4,207       5,223  
Megafon OJSC (“Megafon”)
    2,051       1,592  
Krea Icerik Hizmetleri ve Produksiyon AS (“Krea”)
    1,525       83  
Azercell Telekom MMC (“Azercell”)
    609       633  
GSM Kazakhstan Ltd (“Kazakcell”)
    331       1,662  
Millenicom Telekomunikasyon AS (“Millenicom”)
    -       784  
Other
    1,806       1,783  
      10,529       11,760  
 
 
34

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
19.
Related parties (continued)
 
Due from related parties short term is shown net of allowance for doubtful debts amounting to TL 325 as at 31 March 2016 (31 December 2015: TL 302).
 
Due from Vimpelcom, Megafon, Azercell and Millenicom resulted from telecommunications services such as interconnection and roaming.
 
Due from Krea resulted from rental circuit system, corporate internet services and data center services.
 
Due from Kazakcell, mainly resulted from the software services and telecommunications services such as interconnection and roaming.
 
Millenicom shares held by Cukurova Group were acquired by EWE Turkey Holding on 21 January 2016.
 
Due to related parties – short term
 
31 March
2016
   
31 December
2015
 
Kyivstar GSM JSC (“Kyivstar”)
    1,433       1,375  
Hobim Bilgi Islem Hizmetleri AS (“Hobim”)
    1,253       3,491  
Other
    1,946       1,689  
      4,632       6,555  
 
Due to Kyivstar mainly resulted from rendering telecommunications services such as interconnection and roaming.
 
Due to Hobim resulted from invoice printing services and subscription documents services rendered by this company.
 
The Group’s exposure to currency risk related to due from / (due to) related parties is disclosed in Note 16.
 
Transactions with related parties
 
Intragroup transactions that have been eliminated are not recognized as related party transaction in the following table:
 
   
Three months ended 31 March
 
Revenues from related parties
 
2016
   
2015
 
Sales to Vimpelcom
           
Telecommunications services
    7,471       5,123  
Sales to Kyivstar
               
Telecommunications services
    6,423       11,993  
Sales to Megafon
               
Telecommunications services
    4,678       4,415  
Sales to Teliasonera International
               
Telecommunications services
    2,677       5,457  
Sales to Krea
               
Call center, fixed line services, rent and interest charges
    1,121       1,296  
Sales to Millenicom Telekomunikasyon AS (“Millenicom”) (*)
               
Telecommunications services
    997       1,919  
Sales to KVK Teknoloji(**)
               
Simcard and prepaid card sales
    -       96,108  
 
 
35

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
19.
Related parties (continued)
 
   
Three months ended 31 March
 
Related party expenses
 
2016
   
2015
 
Charges from Kyivstar
           
Telecommunications services
    9,790       14,446  
Charges from Hobim
               
Invoicing and archiving services
    6,547       7,224  
Charges from Krea
               
Digital television broadcasting services
    2,988       2,573  
Charges from Teliasonera International
               
Telecommunications services
    1,375       1,463  
Charges from Megafon
               
Telecommunications services
    623       1,457  
Charges from Vimpelcom
               
Telecommunications services
    540       1,952  
Charges from Millenicom (*)
               
Telecommunications services
    180       939  
Charges from KVK Teknoloji (**)
               
Dealer activation fees and others
    -       34,861  
 
(*)  Millenicom’s shares held by Cukurova Group have been acquired by EWE Turkey Holding on 21 January 2016. Millenicom income and expenses include the transactions until 21 January 2016.
 
(**) KVK Teknoloji’s shares held by Cukurova Group have been acquired by MV Holding on 6 July 2015. KVK Teknoloji expenses include the transactions until 6 July 2015.
 
The significant agreements are as follows:
 
Transactions with Vimpelcom:
 
Vimpelcom, a subsidiary of Alfa Group, is rendering and receiving telecommunications services such as interconnection and roaming.
 
Transactions with Kyivstar:
 
Alfa Group, one of the shareholders of the Company, holds the majority shares of Kyivstar. Kyivstar is rendering and receiving telecommunications services such as interconnection and roaming.
 
Transactions with Megafon:
 
Megafon, a subsidiary of Sonera Holding, is rendering and receiving telecommunications services such as interconnection and roaming.
 
Transactions with Teliasonera International:
 
Teliasonera International, one of the shareholders of the Company, is rendering and receiving telecommunications services such as interconnection and roaming.
 
 
36

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
19.
Related parties (continued)
 
Transactions with Krea:
 
Krea, a direct-to-home digital television service company under the Digiturk brand name, is a subsidiary of one of the Company’s shareholders, Cukurova Group. SDIF took over the management of Krea in 2013.
 
There are no specific agreements between Turkcell and digital channels branded under Digiturk name. Every year, as in every other media channel, standard ad spaces are purchased on a spot basis. Also, Krea provides instant football content related to Spor Toto Super League to the Company to be delivered to mobile phones and tablets.
 
The Company has agreements for fixed telephone, leased line, corporate internet, and data center services provided by the Company’s subsidiary Turkcell Superonline.
 
The Company’s subsidiary Global Bilgi is also providing call center services for Krea.
 
Çukurova Holding has signed a share purchase agreement with BeIN Media Group related to the sale of their shares in Krea. Share transfer is not finalized as at 31 March 2016.
 
Transactions with Millenicom:
 
European Telecommunications Holding AG, a subsidiary of Cukurova Group, holds the majority shares of Millenicom. Millenicom is rendering and receiving telecommunications services such as interconnection and roaming.
 
Millenicom shares held by Cukurova Group were acquired by EWE Turkey Holding on 21 January 2016.
 
Transactions with Hobim:
 
Hobim, one of the leading data processing and application service provider companies in Turkey, is owned by Cukurova Group. The Company has entered into invoice printing and archiving agreements with Hobim under which Hobim provides the Company with monthly invoice printing services, manages archiving of invoices and subscription documents. Prices of the agreements are determined through alternative proposals’ evaluation.
 
 
37

 
 
TURKCELL ILETISIM HIZMETLERI AS AND ITS SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended 31 March 2016
(Amounts expressed in thousands of Turkish Liras unless otherwise indicated except share amounts)

 
20.
Subsidiaries
 
The Group’s ultimate parent company is Turkcell. Subsidiaries of the Company as at 31 March 2016 and 31 December 2015 are as follows:
 
     
Effective Ownership Interest
         
Subsidiaries
Country of
 
31 March
31 December
Name
Incorporation
Business
2016 (%)
2015 (%)
Kibris Telekom
Turkish Republic of Northern Cyprus
Telecommunications
100
100
Global Bilgi
Turkey
Customer relations management
100
100
Turktell Bilisim
Turkey
Information technology, value
   added GSM services investments
100
100
Turkcell Superonline
Turkey
Telecommunications
100
100
         
Turkcell Satis
Turkey
Telecommunications
100
100
Eastasia
Netherlands
Telecommunications investments
100
100
Turkcell Teknoloji
Turkey
Research and Development
100
100
Global Tower
Turkey
Telecommunications infrastructure
   business
100
100
Turkcell Interaktif
Turkey
Radio and television broadcasting
100
100
Financell
Netherlands
Financing business
100
100
Rehberlik
Turkey
Telecommunications
100
100
Beltur
Netherlands
Telecommunications investments
100
100
Beltel
Turkey
Telecommunications investments
100
100
Turkcell Gayrimenkul
Turkey
Property investments
100
100
Global LLC
Ukraine
Customer relations management
100
100
UkrTower
Ukraine
Telecommunications infrastructure
   business
100
100
Turkcell Europe
Germany
Telecommunications
100
100
Turkcell Odeme
Turkey
GSM services
100
100
Euroasia
Netherlands
Telecommunications
100
100
lifecell (*)
Ukraine
Telecommunications
100
100
Turkcell Finansman A.Ş (**)
Turkey
Consumer financing services
100
100
Belarusian Telecom
Republic of Belarus
Telecommunications
80
80
Lifetech LLC
Republic of Belarus
Research and Development
78
78
Inteltek
Turkey
Information and Entertainment Services
55
55
Azerinteltek
Azerbaijan
Information and Entertainment Services
28
28
 
 (*)
The trade name of Astelit has changed  as “lifecell LLC” as at 2 February 2016.
 (**)
As at 22 October 2015, the consumer financing company is incorporated  and has received official authorization as at 21 January 2016.
 
 
According to resolution of Extraordinary General Assembly Meeting of Inteltek, the shareholders have resolved capital decrease amount of TL 20,000 on 24 March 2016 (Including inflation adjustment equivalent to TL 23,391). The payment to the shareholders is planned to be executed subsequent to completion of capital decrease procedure.
 
  21.
Subsequent events
 
None.
 
 
38

 
 
SIGNATURES


 
Pursuant to the requirements of the Securities Exchange Act of 1934, Turkcell Iletisim Hizmetleri A.S. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
       
  TURKCELL ILETISIM HIZMETLERI A.S.  
     
     
Date: May 2, 2016
By:
/s/Murat Dogan Erden
 
  Name: Murat Dogan Erden  
  Title: Chief Financial Officer  
       
 

       
  TURKCELL ILETISIM HIZMETLERI A.S.  
     
     
Date: May 2, 2016
By:
/s/Nihat Narin
 
  Name: Nihat Narin  
  Title: Investor Relations and Business Development