Turkcell Iletisim Hizmetleri AS

IST:TCELL.E

Earnings Call Analysis

Turkcell Q1 2024: Strong Growth and Upward Revision

In Q1 2024, Turkcell reported a 12% increase in top-line revenues to TRY 31 billion and a 23% rise in EBITDA, driven by price adjustments and operational efficiencies. Mobile ARPU grew by 17% and fiber residential ARPU by 14%, with EBITDA margins expanding by 3.8 percentage points to 41.4%. The company added 333,000 net new postpaid and fiber customers. Net income reached TRY 2.6 billion. Given these results, Turkcell revised its 2024 revenue growth guidance to low double digits, maintaining its EBITDA margin and CapEx intensity targets.

Introduction and Overview

Turkcell celebrated its 30th anniversary with an impressive first quarter of 2024, demonstrating strong operational and financial performance. Despite global economic challenges, the company’s timely actions ensured robust digital growth. Revenue increased by 12% to TRY 31 billion, with EBITDA soaring by 23%, driven by strategic price adjustments and a focus on value-added services.

Revenue and Profit Growth

The company's consolidated revenue for Q1 2024 rose by 11.8% year-on-year to TRY 30.8 billion. This growth was mainly supported by the Turkcell Türkiye segment, which saw a 13% increase. Notably, the Techfin segment contributed TRY 460 million to the top-line, with Paycell and Financell showing strong performances. Overall, these factors led to a net profit of TRY 2.6 billion.

Operational Highlights

Turkcell achieved significant growth in its subscriber base, particularly in the postpaid segment, adding 472,000 subscribers during the quarter. This brought the postpaid base to over 27.6 million. The churn rate in the mobile segment hit a six-year low at 1.5%, showcasing strong customer retention. Additionally, blended mobile ARPU rose by 95% year-on-year.

Fixed Broadband Performance

In the fixed broadband market, Turkcell added 48,000 new fiber customers and 41,000 IPTV subscribers in Q1 2024. The TV Plus service proved crucial for retaining fiber subscribers, contributing to a fixed churn rate of only 1.3%. Investments in higher-speed packages and 12-month contracts helped drive residential fiber ARPU growth by 90% year-on-year.

Digital Services and Solutions

Revenue from Turkcell's digital services and solutions grew by 32% year-on-year, mainly due to a 29% rise in digital OTT services. TV Plus continued to gain market share, reaching 17.6% by the end of 2023. The digital business services segment generated TRY 2.8 billion in revenue, strengthening Turkcell's market position.

Guidance and Future Outlook

Given the strong first-quarter results, Turkcell revised its 2024 revenue growth guidance to low double-digit growth, while maintaining its EBITDA margin and CapEx intensity targets. The company plans to accelerate investments in data centers and renewable energy, aiming for 23% CapEx intensity in 2024.

Financial Position and Risks

Turkcell ended Q1 2024 with a cash position of TRY 49 billion and gross debt at TRY 98 billion, resulting in a net debt position of TRY 33 billion. The net leverage slightly increased to 0.6x. The company holds significant FX-denominated financial assets and is exploring funding alternatives for future obligations.

Challenges with Corporate Revenues

Corporate revenue saw a 3% decline in the first quarter, primarily due to reduced hardware sales and lower revenues from public sector clients. Despite this, the company is focusing on value-added and recurring services, such as data centers and cloud businesses, to mitigate the impact.

Strategic Focus and Investments

Turkcell remains committed to expanding its fiber network, aiming for a 41% fiberization target by year-end and increasing data center capacity. The company is also investing in Eurobonds for effective cash management and is optimistic about closing its Ukrainian asset sale, with plans to use proceeds for further investments in data centers and renewable energy.

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am [ Vassilios ], your Chorus Call operator. Welcome and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell first quarter 2024 financial results. [Operator Instructions]At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed.

[Ozlem Yardim, executive]

Thank you, [ Vassilios ]. Hello, everyone. Welcome to Turkcell's first quarter 2024 earnings call. Today, our CEO, Ali Taha Koc; and CFO, Kamil Kalyon, will be delivering a brief presentation covering operational and financial results, which will be followed by a Q&A session. Before we begin, I would like to kindly remind you to review our safe harbor statements available at the end of our presentation.Now, I'm handing the meeting over to Mr. Ali Taha.

[Ali Koç, executive]

Thank you, Ozlem. Good afternoon, everyone, and thank you for joining us today. As Turkcell, we are celebrating our 30th anniversary with great pride, having pioneered numerous milestones from our first call to becoming Turkey's leading technology provider.In the first quarter of 2024, we are delighted to share our successful results. By taking timely actions, we have delivered robust digital -- double-digit real growth, despite global central banks tightening policies and reaccelerating inflation in Türkiye.our top-line grew 12% to TRY 31 billion with a remarkable 23% increase in EBITDA. These results have been driven by relational price increases since 2021, which enabled mobile ARPU growth to reach 17% and fiber residential ARPU growth to reach 14%. Supported by lower energy and interconnection expenses, operating leveraged expanded the EBITDA margin by 3.8 percentage points to 41.4%.Additionally, our commitment to focusing on value-generating postpaid and fiber customer acquisition resulted in 333,000 net additions in the first quarter of the year.Overall, our strong operational performance resulted in a remarkable net profit of TRY 2.6 billion. Our strong first quarter performance enabled us to revise our 2024 revenue growth upwards, which I will elaborate on later.Next slide, please. Let's take a look at our operational performance in the first quarter. Unlike previous quarters, competition in the mobile market was relatively less aggressive in this quarter. On the mobile front, we sustained our focus on the postpaid segment, which contributes more value to our financials, resulting in a net increase of 472,000 subscribers.Over the past 12 months, our postpaid base has grown with 1.7 million additions. Our postpaid customer base exceeded 27.6 million, reflecting 72% of the total on a 3-point rise year-over-year.Disconnections from previous year's tourist lines, rising new acquisition price levels, and demand to alternative data solutions were the main factors behind the prepaid net loss of 243,000 subscribers.Our customer-centric and innovative approach contributed to a low churn rate this quarter. The churn rate in the mobile segment was at 1.5%, marking the lowest rate in the past 6 years.Driven by sequential price adjustments, upsell efforts, and an increased share of postpaid subscribers in the portfolio, blended mobile ARPU rose by 95% year-on-year and continued to outpace CPI. The base effect from last year's earthquake contributed to the widening ARPU inflation gap in this quarter. Taking into account inflation adjustments, mobile ARPU recorded 17% yearly growth.Next slide, please, Ozlem. In the fixed broadband market, this year started with price adjustment in December, and the market has become more rational compared to the previous year. In the first quarter, we had 48,000 fiber customer additions to our portfolio following focused investments in expanding our fiber footprint over past years. We are pleased to have added 41,000 IPTV subscribers, reaching the homes of 1.5 million customers.TV Plus is a premier solution for fiber subscriber retention, enabling us to implement effective price adjustments, thanks to its rich content. With the contributions of TV Plus, our pure fiber technology and a rational market we achieved a fixed churn rate of 1.3%, marking the lowest level since 2007.Widening the gap with CPI, residential fiber ARPU growth continued to rise, achieving a 90% year-on-year growth on a historical basis.Our off-sale efforts to higher speed packages and an increase in 12-month contract share within the customer portfolio were the main components of this outstanding performance. Similar to the mobile side, the base effect from last year's earthquake contributed to the widening ARPU inflation gap in this quarter.Lastly, we will be prioritizing fiber subscriber net additions over increasing home passes this year. Therefore, it is reasonable to anticipate lower new home pass figures compared to last year.Next slide. Let's discuss our strategic focus areas, starting with digital services and solutions. Standalone revenue from our digital services and solutions grew an impressive 32% year-on-year, primarily driven by a 29% revenue increase in digital OTT services, which has a 5.5 million paid user base. Among these offerings our TV services and personal cloud service were particularly instrumental.TV Plus' success is remarkable, as it has been the only platform consistently growing its market share since 2014. According to the ICTA report, the TV Plus market share increased to 17.6%, cementing its second position as of '23 year end.In the first quarter, digital business services generated TRY 2.8 billion in revenue and secured more than 1,200 contracts. We remain committed to maintaining our leading position in the data center market. Combined with our cloud services, revenues from those grew by 48% to TRY 470 million.Next slide. Paycell, our innovative payment service platform, registered a remarkable quarter, delivering 33% year-on-year growth. Rising interest rates and commission on post-solutions, as well as volume growth, supported the top-line. The 57% surge in pay later volume was positively affected by a 16% increase in the number of active users.Paycell EBITDA rose 47% year-on-year. The primary factor behind the rise in the EBITDA margin is post-expense growth lagging behind its revenue increase.Financing customers' technological needs, Financell's revenues rose 53% on a surging loan portfolio. Higher average interest rate and the contribution of insurance business revenues. The higher cost of funding stemming from tight monetary policies, secures financial profitability, similar to the banking sector. This was reflected in the net interest margin, which narrowed by 2.4 percent point this quarter.Since Financell issues loans with relatively shorter maturities, we expect this pressure to decline in the second half of the year. Meanwhile, our cost of risk is at 1.7%, which is lower than first quarter of 2023.Next slide. Lastly, our performance in the international markets. Turkcell's international revenues, which account for 3% of group revenues, rose 2.2% to TRY 815 million. BeST revenues rose 24% on a yearly basis in local currency terms, primarily driven by higher data, SMS, and service revenues. The 3.2 percent point improvement in EBITDA margin was sustained by dedicated cost management.Next slide. I would like to end by sharing our revision for 2024 guidance. Given our first quarter performance, we revise our 2024 revenue growth guidance to low double-digit growth. For EBITDA margin and CapEx intensity, we maintain our guidance.I will now leave the floor to our CFO, Mr. Kamil Kalyon.

[Kamil Kalyon, executive]

Thank you very much, Ali Ta bey. Now, let's move on to our financial results. Our consolidated revenue increased by 11.8% on a yearly basis to TRY 30.8 billion. Turkcell Türkiye segment was the biggest supporter of the group top-line growth, with a 13% rise on a year-on-year basis. This was driven mainly by an expanding subscriber base, particularly on the postpaid side, and strong ARPU growth, thanks to sequential price adjustments with successful upselling efforts.The Techfin segment contributed TRY 460 million to the top-line with the strong performances of Paycell and Financell, which grew 33% and 54% respectively.Next slide, please. In the first quarter of 2024, EBITDA rose 23% on a yearly basis to TRY 12.8 billion thanks to strong revenue growth. The EBITDA margin expanded 3.8 percentage points year-on-year. Despite the increase in personal expenses due to the biannual wage rise and the increased funding cost of our financing operation, the group EBITDA margin benefited from a decline in the cost of goods sold, energy expenses, and interconnection expenses as a percentage of revenues.After the electricity prices increased in 2023, which was relatively low compared to inflation, and our corresponding price adjustments in line with the inflation, the proportion of energy expenses to our revenue decreased, thereby supporting the EBITDA margin. Additionally, the continued decline in MTR positively impacted our profitability, a trend expected to persist throughout 2024.Next slide, please. Now, let's dive into the net income performance. Thanks to a robust operational performance, EBITDA has contributed TRY 2.4 billion to net income. The net FX loss item has pressured net profit by TRY 1.8 billion due to higher foreign exchange rate change, which is partially offset by mark-to-market of financial derivatives.By the first quarter, the increased weight of nonmonetary assets on the balance sheet, the dividend distribution, which decreased retained earnings, and higher inflation indexation resulted in a positive impact of TRY 3.1 billion on net profit marked under the monetary gain and loss items.Despite the positive impact of indexation between statutory reporting and IFRS, deferred tax decreased compared to the previous period, lower corporate tax also supported the net profit.Next slide, please. Let's take a closer look at our CapEx management. The CapEx to sales ratio for the first quarter of 2024 was 18.2% with accelerated revenue. As we plan to accelerate our data center and renewable energy investments in the upcoming quarters, and given the seasonality of the second half, we expect to reach 23% CapEx intensity for 2024.In this quarter, we primarily focused our investments on mobile and fixed assets. Fixed side investments are primarily driven by tower fiberization. We remain committed to achieving our fiberization target of 41% within this year.The share of data center investments within the total investments for this quarter appears small. Yet, we expect this proportion to increase over the coming quarters in line with our target of installing an additional 9.1 megawatt capacity. Thanks to the modular structure of our data centers, we simply add new modules as demand arises.Next slide, please. Now, let's turn our attention to the balance sheet. In Q1 2024, our cash position is at TRY 49 billion. Note that a total of TRY 5.2 billion wireless usage tax payments, the second installment of the earthquake donation, and employee bonuses had a negative effect on our cash position. Additionally, we have invested in euro bonds for effective cash management.Our gross debt was at TRY 98 billion and we ended this quarter with a net debt position of TRY 33 billion. Due to the decrease in cash position, our net leverage slightly increased to 0.6x.This year, our FX debt service is around USD 340 million, which we consider quite manageable given our strong cash position. We possess an adequate cash reserve to fulfill the 10-year Eurobond redemption in 2025 and are exploring a range of funding alternatives for the reissues. The majority of our cash remains denominated in hard currencies. Excluding FX swaps, 49% of our cash is in U.S. dollars and 24% in euros.Next slide, please. Lastly, let's look into the management of foreign currency risk. In the first quarter of this year, our balance sheet had around USD 2 billion equivalent in FX financial liabilities. In addition to the USD 1.6 billion equivalent FX denominated financial assets, we have a USD 700 million effective hedging portfolio, the vast majority of which consists of future forward and NDF.Since we believe the Turkish lira has entered a period of real appreciation and with hedging costs in the market having risen significantly over the past couple of years, we plan to reduce our derivative portfolio in the coming periods. As of this quarter, we have a net FX position of USD 158 million. Due to our plans to reduce our derivatives portfolio, it's fair to expect our net FX position to decrease in the coming periods while remaining with our neutral FX range of minus and plus USD 200 million.This concludes our presentation and we can now open the line for questions. Thank you.

[Operator]

[Operator Instructions] The first question comes from the line of Tiron Cesar with Bank of America.

[Cesar Tiron, analyst]

I have 3 questions, but they're all easy. The first one -- if that's okay, the first one is on the guidance increase on the revenue. What surprised you the most in the past, let's say, 1, 2 months, so you had to hike this guidance? That would be the first question.The second question, I would like to understand what exchange rate are you assuming in your budget for the lira? And let's say if the lira depreciates less than for your budget, could it be that you spend a little bit less CapEx, so maybe the CapEx intensity will be less than your guidance?And then the third question, going back to the data centers, can you please explain your ambition in the field and how large you see the capacity would be in the medium-term?

[Ali Koç, executive]

Cesar, thank you very much for the question. We had a quarter with solid financial and operational performance, actually, which has beyond our initial plans. Accordingly, our revenue growth guidance for 2024 increased to low double-digit growth. And there's no change in our EBITDA margin and CapEx intensity guidance. However, given the macroeconomic dynamics, projecting inflation will be challenging, and the actual figures may vary according to the realization -- realized inflation and other factors such as the cyclicality of revenues. And also, the Minister of Treasury and Finance, Mehmet ÅžimÅŸek, announced that the middle-term plan, OVP, is planned to be reviewed at the end of summer. Accordingly, we will be closing following the macroeconomic developments for possible further revision. But to say the true that the first quarter, first couple of months of this quarter is better than our expectations. So that's the reason that we revised our guidance.For the data center business, we're expecting -- we already have 4 big high-tech data centers. And we are planning to build more. And actually, we are looking for a collaboration with big companies to bring the data. Whatever data we have in Turkey, we want to keep it, and we want to be a data hub for this region. So that's the reason that we have a huge ambition about the data center business. So currently, we have 4 big data centers, and we are adding more to them. In the future, you're going to see more coming from Turkcell.

[Kamil Kalyon, executive]

For the second question, normally our year-end U.S. dollar FX rate estimation is TRY 37.5. And the average rate, we are assuming TRY 34. We believe that we will be in line with our guidance for the full year for the CapEx side. However, in case of a spike in the FX rate, if it's realized within the year, we can postpone our discretionary CapEx in order to create a buffer. We are chasing the developments in the economical side, but most probably the FX rate will be realized within our estimations this year.

[Operator]

The next question comes from the line of [ Bistro Vaivgenia ] with Barclays.

[Unknown Analyst]

Congrats on the results. It's also great news about the upgraded guidance. I have 2 quick questions. So my first one, you mentioned that your cash position decreased because of investments in Eurobonds. Could you please elaborate on that a little bit?And my second question is related to Ukraine. Obviously, we've seen some headlines in the news about potentially positive developments. But my question would be, what will you do with the profits from this asset sale? Will you -- do you plan to pay additional dividends? Or do you plan to use that for CapEx or maybe for your Eurobonds repayment? That's it.

[Kamil Kalyon, executive]

Thank you very much. I will give the answer for the first one. The duration of the Eurobond is 5 years, Turkish sovereign and bank. When we look at, for example, yields in the Eurobonds, there is a high yield when we compare it with the deposit rates, therefore, we prefer to invest Eurobonds in order to benefit from the high yields.For the second question, maybe you can give it.

[Ali Koç, executive]

As you may know, in April, the seizure of our -- on our Ukrainian assets lifted. It's a positive news. We are now awaiting the necessary permission from Antimonopoly Committee of Ukraine. So this is the last step for the concluding of this deal. Although we do not have a Board decision regarding the proceeds we will obtain from the sale of our assets in Ukraine, we have important investment projections in the coming period, especially data centers, solar energy, and as well as the 5.5G auctions. So we will -- we are looking for huge investment projections in the coming period.

[Unknown Analyst]

^ So do you still see the deal closing during this year?

[Ali Koç, executive]

Yes, definitely, because we have -- there are -- there were 2 big roadblocks. One is just this seizure and another one is the Antimonopoly Committee. Other than that everything is clear. So hopefully after this permission from the Antimonopoly Committee of Ukraine finalized, hopefully, near future, and we are talking about in the month -- in the periods of months, we are expecting that it's going to be done in this year.

[Operator]

[Operator Instructions] The next question comes from the line of Ignebekkili Murat with HSBC.

[Murat Ignebekkili, analyst]

Can you clarify the calculation of net debt? I think you have changed something over there because I see that the FX deposit accounts are no longer included in the net cash calculation. Am I missing something here?

[Kamil Kalyon, executive]

Murat bey, we do not have any change in our net debt position -- calculation of net debt position. We are using the same method.

[Murat Ignebekkili, analyst]

Net cash seem -- the total cash is at [ TRY 40.8 billion ]. And when we get...

[Kamil Kalyon, executive]

Some portion of cash is categorized in the financial assets. Maybe it might...

[Murat Ignebekkili, analyst]

Yes, yes, exactly. So why don't you include those in the cash calculation?

[Kamil Kalyon, executive]

We included. Normally, we have [ TRY 49.5 billion ] in our hands and [ 15.1 ] financial assets. And for example, when you look at our leverage, [ 0.58 ], these 2 amounts are included into this calculation.

[Murat Ignebekkili, analyst]

When I look at the footnotes, I see almost [ TRY 49 billion ] as cash and also [ TRY 10 million ] as financial assets separately. That's what I...

[Kamil Kalyon, executive]

TRY 15 million, roughly. TRY 15 million, yes.

[Murat Ignebekkili, analyst]

Were there any working capital issues in the first quarter? Because there is around almost TRY 12.5 billion EBITDA, around TRY 7.5 billion CapEx in the quarter. And the change in net debt -- in the net debt increased TRY 6 billion or TRY 7 billion. So I think there should be some negative impact from working capital, right? Or is it tax payments or like that? Can you clarify that, please?

[Kamil Kalyon, executive]

Normally, we had around TRY 9.9 billion cash outflow in this quarter related to working capital side. This was mainly driven by the, as you know, we are -- we paid the second installment of the earthquake donation in January. Additionally, we paid personal bonus payments in February. And in February, again, we paid a huge amount of wireless fee tax payments. And we have some payments to our suppliers and decreased trade payables in Q1 2024 compared to the first quarter of the last year. We are closely following our net working capital side and I think we will recover, especially collection of the wireless fee tax payment from our clients. Our net working capital structure will be better in the coming periods.

[Murat Ignebekkili, analyst]

And finally, when you look at the financial expenses, during a quarter of very limited FX activity or limited FX depreciation, the financial expense side, I see around more than TRY 5 billion of FX losses. Could you elaborate on that, please?

[Kamil Kalyon, executive]

Yes, normally, as you said, I think around 6% or 7% depreciation in the FX rate realized in Q1. But as you know, along with the sequential rate hikes from the CBT side, short-term rates and hedging costs increased very significantly. Therefore, this was the main driver behind the increase of our FX loss and the financial expenses. In addition to the credit rates are also increased very much before the election side, you remember. Therefore, these 3 effects affected our FX position or FX loss side negatively.

[Murat Ignebekkili, analyst]

So is it safe to assume that given that interest rates in the market have already settled at some level, albeit very high, we should not see further significant FX losses in the coming months? The price is already market to market.

[Kamil Kalyon, executive]

Yes. As mentioned in my speech, our expectation in the FX side, we are not expecting very high increases in the FX side. Therefore, most probably, in order to decrease our hedging costs, we would like to make it short position might be in the coming period in order to reduce our financial cost because our estimation regarding the FX rates, I think it will go for a short or mid-term side. We are not expecting any FX increases in this year. Therefore, most probably we will be opening a short position in our net FX position.

[Murat Ignebekkili, analyst]

And finally, about operations, when you look at a typical postpaid client, if he is to renew his contract, what is the like, front book like-for-like growth in the invoice if one is to renew his contract compared to last year? So a new contract renewal price is up how much on a year-on-year basis?

[Kamil Kalyon, executive]

Normally, as we said, our revenues grew by around 13% in Turkcell Türkiye side, first -- side. And we have a very, how can I say, our operates are increasing very well when we compare it to the last period. It's around 17% we have an ARPU rate hike. And when we look at, for example, starting from the 2021, we had we made a lot of price increases and more than 100% increase in prices within the last 20 months. We can easily say that. Because we successfully implement our inflation pricing policy.

[Ali Koç, executive]

Invoice-to-invoice you can talk about, 100% -- more than 100% invoice-to-invoice.

[Kamil Kalyon, executive]

So a typical platinum tariff is up 100% in nominal terms compared to same period last year.

[Kamil Kalyon, executive]

Might be.

[Ali Koç, executive]

Might be. We are talking about the blended ones, but we are not talking about the markets or platinum. We are just talking about the blended.

[Murat Ignebekkili, analyst]

So yes, when the inflation rate hopefully declines in the coming quarters, in real terms, this will transit into a much larger market, I see.

[Operator]

The next question comes from the line of Demirtas Cemal with Ata Invest.

[Cemal Demirtas, analyst]

Congratulations for very good results. My first question is about your strategic focus area. I see a little bit momentum in both the tech and business and digital services revenue sides. Could we expect this track to continue going forward? Because in previous years, there was a little bit slower growth, but I see higher momentum. Is it sustainable? This is my first question.The second question is, how do you see the consumer sentiment in your front? Do you see any changes in the consumer behavior? And could you give us some color on the roaming side? What are your expectations on that side?And the last question is, again, it has been asked about the net debt. What was the amount of wireless pre-tax paid in the first quarter?

[Ali Koç, executive]

Again, let me start with the strategic focus areas. I just want to say that our momentum is going to keep on going until the end of the year and then most probably until next year as well. So Techfin and [ asset ] side is going to grow. And, for example, Paycell saw a quarter with double-digit real growth performance. Paycell are -- and then also the meanwhile, Financell also supported the Techfin segment growth as well in the first quarter of 2024. And also, our digital business services will grow and with the digitization of all the companies as well as the public sector. They're expecting that growth and the momentum is going to continue. So everybody wants to be digital. And at the end of the day, Turkcell is the leading integrator and leading technology firm in Turkey. So we will be happy to digitalize and just support them in their businesses. So we are expecting especially the data center business as well as the cloud businesses is going to grow faster than we expect. So hopefully, we're going to see this momentum keep on going.

[Kamil Kalyon, executive]

Cemal Bey, we paid TRY 1.7 billion wireless tax payment in February. As you know, we are paying in advance to the government side, and we are collecting this from our customers within the year.

[Cemal Demirtas, analyst]

And the consumer trend, and roaming side?

[Ali Koç, executive]

So we are closely following that part as well. But for us, what we are doing is we are just doing some new campaigns about the smart contracts. So we are just letting all the users to see if their tariff is over or not. And then we just make the service free of charge. So we are trying to improve our net promoter score as well. So we are seeing that it is kind of easy, technologically easy, especially with the electronic SIM, eSIM. But we are closely following the trends. And we are in order to convince people to use our eSIM or just our subscriber domain. And so we will closely following it up, but to say the truth that I will tell you more when we have more data, especially during this tourist season, especially the summer, we're going to see the numbers because this is going to be the first time that we're going to see lots of tourists with electronic SIM, eSIM. So that's the reason that we're going to see the impact, both positive or negative. And with more data, I will talk more better at the end of the summer.

[Operator]

[Operator Instructions] The next question comes from the line of Mandaci Ece with Unlu Securities.

[Ece Mandaci Baysal, analyst]

Congratulations on your strong guidance. So my question is about the corporate revenues. I see -- when I look at the details, I see a 3% decline in your corporate revenues. Digital business solution revenues is flat, but apart from it, I'm also seeing some decline. Is this just for the first quarter? Do you expect -- as I can understand you're expecting some growth over there going forward. But what was specifically the reason for this decline in the first quarter?

[Ali Koç, executive]

So let me talk about the DBS and then the revenues growth for this quarter. Especially our digital business services revenues remained flat in first quarter of 2024. It's mainly due to the [ fever ] one of large budget projects and hardware sales compared to last year. And actually, additionally, revenues from public sector clients dropped from 41% Q1 of last year to 24% this quarter. And also, it indicates a reality and indicating a slowdown in public sector sales, mainly due to the saving measures in the public. At this point, we are compensating for the slowdown with our value-added and recurring services, and like data center and cloud businesses. So hopefully we are just going to compensate this slowdown effect from the public sector.

[Kamil Kalyon, executive]

Normally, we do not have any problem for the recurring services in the corporate side. As Ali Ta bey mentioned, we have 3 significant projects in the last quarter of 2023. Therefore, within the year, most probably, we do not -- will close or we will realize a real growth in the corporate side also.

[Ece Mandaci Baysal, analyst]

So margin-wise, was this the reason, one of the reasons why you had, I think, a better margin maybe? Could there be -- with the expected increase, could there be a margin-diversion effect in the quarter ahead?

[Kamil Kalyon, executive]

Are you asking from the consumer side or from the corporate side?

[Ece Mandaci Baysal, analyst]

Corporate side, I mean.

[Kamil Kalyon, executive]

In the corporate side, from the recurring side, for the recurring income coming from the tariffs, we do not have any dilution regarding the margin side. And we are a little bit sensitive from the project perspective because this year would be a little bit hard for the corporations and state establishments for the budget purposes. Therefore, we do not want to enter risky projects in this year. Therefore, we are selecting the more profitable and no any double receivable risk projects within this year. Therefore, we do not wait or expect a margin dilution in the corporate side also. But as you know, the terminal side or the, how can I say, hardware side is a little bit less profitable issues, but we are very good at, for example, balancing this issue and we do not want to dilute our EBITDA margin and we are very careful about the basket which we, how can I say, prepare for these projects.

[Operator]

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you.

[Ali Koç, executive]

Again, thank you very much for the time, and I will be happy to present you our Q1 great results. So hopefully we're going to have the similar and better results in the Q2. Hope to see you next time. Thank you.

[Kamil Kalyon, executive]

Thank you very much. Hope to see you.

[Ozlem Yardim, executive]

Thank you for joining. Thank you.

[Operator]

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for calling and have a pleasant evening.