Turkcell Iletisim Hizmetleri AS

IST:TCELL.E

Earnings Call Transcript 2019-Q2

[Operator]

Good day, and welcome to the second quarter 2019 results conference call. For your information, today's conference is being recorded.

At this time, I'd like to turn the call over to Korhan Bilek, Director of Treasury and Capital Markets Management. Please go ahead, sir.

[Zeynel Bilek, executive]

Thank you, Wallace, and hello, everyone. Welcome to Turkcell's Second Quarter 2019 Results Call. Today's speakers are our CEO, Mr. Murat Erkan; and our CFO, Mr. Osman Yilmaz.

We have a brief presentation, and afterwards, we will be taking your questions.

Before we start, I would like to remind you to review the disclaimer of our presentation.

Now I hand over to Mr. Erkan.

[Murat Erkan, executive]

Good morning and good afternoon, everyone. Welcome to Turkcell's Second Quarter 2019 Results Call.

On behalf of the Turkcell family, I'm glad to announce another solid set of results made possible by the efforts of our dedicated team. We kept focus on our customers and innovative solutions, we continued strong double-digit growth in this quarter.

We recorded 21% annual top line growth and TRY 2.6 billion EBITDA with a 41.2% EBITDA margin. Record-high ARPU growth, both in postpaid mobile and fiber residential, also higher usage of data and digital services supported these strong results.

Our new strategic focus, digital business services, contributed strongly to both the corporate segment and overall group results. Including both recurring and one-off projects, its first 6-month performance was up 62%. Solid operational performance, coupled with effective cost management, has led us to revise our full year EBITDA margin guidance up to 39% to 41%. Moreover, we have further strengthened our balance sheet with prudent finance management and cash-generation capability.

As at the end of June, our net debt-to-EBITDA ratio has improved by 0.2x (sic) [ 0.3x ] year-on-year to 1.2. And today our Board of Directors has the taken decision to hold general assembly on September 12, 2019, also proposed the new dividend distribution dates, keeping the total dividend amount the same at TRY 1 billion.

Moving to next slide. Now some further details on our financial performance. We recorded a TRY 6.2 billion top line on 21% growth and TRY 2.6 billion EBITDA on roughly 20% growth. Our EBIT reached TRY 1.3 billion with a 20.8% margin.

Going forward, we will monitor and communicate EBIT performance as an additional metric. We believe EBIT is more transparent by eliminating the impact of new IFRS standards. We registered a net income of TRY 465 million on a 12% rise. Net income, before the one-off provision, rose 27% year-on-year. This provision is related with the past KCell transaction.

Capital expenditures remained under control with 15% operational CapEx over sales ratio.

In the first half, revenue rose 20% to TRY 11.9 billion with a 40.7% EBITDA margin. EBIT reached TRY 2.4 billion with a 20.1% margin.

Moving to next slide. As outlined in the first quarter results call, we have determined 3 strategic focus areas: our digital services, digital business solutions and our techfin platform. Let me say a few words on our actions in each of these with quantitative data in the upcoming slides.

For digital services, operational performance indicators are in line with our plans. Having gained considerable popularity, we have begun monetizing them through advertising, brand collaboration and others, as we already do with subscriptions.

In digital business solutions, we are working on new projects through which we serve both private and public sectors. With the strong pipeline, we expect this segment to grow and increase its contribution to group financials.

Regarding techfin, it has been a busy quarter with several new products and services launch on the Paycell platform. We are committed to capitalizing on this well-established payment platform leveraging our technology.

Moving to next slide. And now we turn to our digital services. We have continued to enrich the user experience with exciting new features. Our digital communication and experience platform, BiP, sees daily message to go 300 million, up fourfold in a year. The innovative instant translator service within BiP is offered in our over 100 languages. Our digital music platform, fizy, serves approximately 3.7 million active users. We intend to increase our interaction with fizy user by offering them music trivia on a platform in the near future. Furthermore, fizy, our digital publication app, Dergilik and TV+, offers personalized content recommendation, using AI technology. We expect this feature to boost customer loyalty.

Next slide. Now a few words about our new focus area aimed at digitizing the economy. Digital business solution, we offer tailor-made end-to-end digital solutions to both private and public sectors. These include cloud, cybersecurity, IoT, data center and digital integration. Our aim is to become market leader in 3 years, driven by our wide range of solutions, strong infrastructure and ecosystem.

This year, we have added new customers and projects as well as strong digital partners to our portfolio. As a result, the solid first half performance of this business line was reflected in 62% growth. We are confident this business is set to grow further and increase its contribution to group financials.

Moving to the next slide. In the techfin area, we have recently launched a number of new products and features on Paycell platform. Turkcell customer can easily top-up their public transportation card in Istanbul on their mobile phones via the Paycell application, with this option of paying through their phone bills. Paycell Card now has a pocket-money feature designed for the convenience of parents. Further, we introduced Cash Card to the Paycell Card Family. It's now possible to withdraw cash on the card from any ATM. Also 24/7 money transfer with just a phone number is now possible with the Paycell app.

Separately, Paycell has been part of the local meal card initiative. This partnership has launched Paye Kart, which will be put in use initially by Turkcell employees as of 1st of August. Paye Kart inherits both public transportation IstanbulKart and meal card features, and it is accepted at a steadily growing number of sales point. Going forward, we will launch additional service on Paycell, which we expect to grow nearly 50% per annum in the medium term.

Moving to next slide. Let's look into our operational performance. Our various proposition and innovative customer-focused campaigns underpinned the strong rise of postpaid, fiber and digital services subscribers during quarter. Postpaid mobile subscriber, which generate more than 3x the ARPU of prepaid, rose by 215,000. The monthly average churn rate has largely remained stable at 2% on a yearly basis. Blended mobile ARPU rose to TRY 40.7 with upsell to higher tariffs and continuing effect of price adjustments, increasing 16.6% year-on-year. On a like-for-like basis, growth reached 20.5%.

On the fixed broadband front, our fiber subscribers continued to grow by 15,000 net addition. Residential fiber ARPU posted record growth of 17.2% year-on-year. This reflected strong upsell performance, the continued effect of price adjustments and rising demand for our TV services.

Superbox, our fixed wireless access product, provides fiber-like speeds at locations not covered by a fiber network. Strong demand for this product, available only at Turkcell, has continued its pace. Superbox is now used by approximately 130,000 households, up from 56,000 (sic) [ 56,000 ] in Q1.

Next slide. We have continued our smart marketing campaigns, which contribute to customer loyalty and appreciation. Our subscribers' participation in both the do campaign and the Shake&Win campaign continued, rising on a quarterly basis. Starting from this quarter, we have begun to offer comfortable tariffs in a first for the sector.

With these hybrid tariffs, our customers can subscribe as postpaid, and yet, consume as if they were prepaid. This solution has swiftly become popular. Half of the subscriptions to these tariffs were new to Turkcell. All in all, customers have continued to recommend Turkcell to a significantly higher degree than the competition as seen in our net promoter score.

Next slide. And now an update on data and 4.5G subscription trends. Average mobile data usage rose 32% in a year to 6.6 gigabyte per user. The main driver of this increase is a higher number of greater consumption of 4.5G users at 8.2 gigabyte per user.

Out of 31.4 million customers signed up for 4.5G services, 19 million have 4.5G-compatible smartphones, offering room for growth. Together with vendors, we frequently hold attractive smartphone campaigns that increase demand, mitigating the effects of the regulatory limitation on installment and higher taxes and retail prices. Accordingly, there were 0.5 million net addition of 4.5G-compatible smartphones in the second quarter.

Next slide. Let's look at our performance in international markets. Turkcell International generates 8% of group revenue. Our operation generates top line growth of 16% year-on-year in local currency terms on the back of strong ARPU. This rises to 50% in TL terms with the impact of currency movements.

EBITDA margin improvement on a like-for-like basis was 1.2 percentage points. This analysis mainly eliminates the impact of radio frequency usage cost capitalization started as of Q4 2018 in accordance with IFRS 16.

In Ukraine, long-awaited mobile number portability was launched in May. This is a major step towards a fair competitive environment. Our subsidiary, Lifecell, continued its focus on expanding 4G penetration and the use of digital sources. Its 3-month active 4G users reached 40% of total mobile data users, who consumes 8.2 gigabyte per month on average.

Next slide. Now a few words on our sustainability initiatives. Our digital services and solutions, corporate practices and business processes evolve around sustainability. We take all steps to track and reduce our carbon footprint and disclose our performance regularly. We have also been listed on the Borsa Istanbul Sustainability Index since its launch. Our sustainability efforts have an MSCI ESG rating of A.

Our technology supports the value we place on human life. With our social project focus on technology-based education and entrepreneurship for women, children and disabled and refugees, we aim to make tangible difference on their lives. This quarter, we have extended our sustainability efforts to our financing activities. We have signed a 3-year term sustainability linked loan agreement of EUR 50 million with BNP Paribas. With this loan, we will continue to sustainable growth by reducing our carbon footprint further, while lowering our financial costs on condition of meeting certain targets. We will lead the market in pursuing a greater use of such a product to support sustainability.

Next slide. In the light of our 6-month financial and operational performance, we are confident of exceeding our previous guidance. Accordingly, we revise our 2019 EBITDA margin guidance upwards, from 38% to 40%, to 39% to 41%. We reiterate our revenue growth and operational CapEx to sales ratio guidance.

Looking ahead, we are confident of delivering on this guidance without the need for further revision.

I will now leave the floor to Osman for financial overview.

[Osman Yilmaz, executive]

Thank you, Murat. Now let's take a closer look into the financials.

In the second quarter, group revenues rose 21.3% year-on-year, corresponding to an incremental TRY 1.1 billion. TRY 895 million of this increase is from Turkcell Turkey on the back of strong ARPU and higher contribution from corporate segment.

Moreover, international subsidiaries contributed TRY 160 million, thanks to increased data consumption in Ukraine as well as the positive effect of currency movements. The incremental contribution of our consumer finance company was almost flat in the quarter, given its deleveraging. It will likely turn negative in the second half of the year.

EBITDA rose by 19.6% year-on-year to TRY 2.6 billion, with a margin of 41.2%. In a quarterly trend comparison, our EBITDA margin marked a 1 percentage point improvement. This was mainly due to a solid rise in revenues, plus lower G&A and S&M expenses. It's worth noting that we achieved net customer gain, while keeping marketing expense under control.

EBIT increased by 18.3% year-on-year to TRY 1.3 billion with a margin of 20.8%.

Next slide. Now let's take a closer look at our techfin companies' performance. Financell's growth has slowed down as expected this year, while Paycell's growth momentum continued. In a market of regulatory limitations and increased retail prices and taxes, Financell's consumer loan portfolio decreased to TRY 3.2 billion. We expect this declining trend to continue until around TRY 2.5 billion. While this means a lower top line contribution, it is positive for the group cash flow.

Cost of risk rose slightly to 2.9%, still below the market average for general purpose loans. Loan insurance penetration of 97% over the past 1 year will help us reduce this ratio. Pro forma net income of Financell, excluding fair value of swaps, would be TRY 110 million in the first half of the year. Meanwhile, our payment services company, Paycell, continued its momentum on 32% yearly revenue growth. Its EBITDA growth was 31% with a 74% EBITDA margin.

Having introduced numerous products and services with a strong pipeline, we are confident that this business is set to resume its strong growth in the medium term, thereby, compensating for the slowdown in Financell's contribution.

Now some highlights from our balance sheet and leverage. As at the end of the quarter, our net debt position declined to TRY 11.4 billion from TRY 11.7 billion at March-end, with a leverage ratio of 1.2x. Our telco-only net debt was TRY 8.2 billion, with a leverage ratio of 0.9x. The underlying factors that led to TRY 374 million decrease in the net debt balance were: TRY 460 million decrease through the cash generated from operations and the continued deleveraging of our consumer finance business at the level of TRY 425 million in line with our expectations. On the negative side, currency movements led to a net TRY 340 million increase in net depth while lease obligations rose around TRY 170 million in the ordinary course of business.

Our expected performance and seasonality in the following quarters supports our goal of further reducing leverage to 1x.

Next slide. Let me give you more color on our consolidated cash position. Our cash position rose by TRY 3.3 billion in the first half. Our operations generated TRY 4.8 billion of EBITDA. The working capital increase of around TRY 1.1 billion in the first half resulted mainly from lower trade payables due to seasonality and frequency usage fee paid for prepaid customers, amounting to TRY 330 million, offsetting the positive impact of Financell deleveraging.

In the second half of the year, we expect the positive contribution from working capital due to higher collection and higher payables, thanks to seasonality, in addition to the continued positive impact of Financell. Excluding proceeds from the Fintur sale, investing activities led to a cash outflow of TRY 2.5 billion. Of this figure, EUR 90 million and $50 million advance payments helped us to fix currency rate and benefit from discount on network procurement.

In financing activities, we utilized a EUR 235 million equivalent loan from the CDB, vendor financing from EKN of $50 million and a EUR 50 million sustainability linked loan from BNP Paribas in the first half. Together with the repayments, the net impact from financing was around TRY 7 million (sic) [ TRY 70 million ].

Next slide. Now I will go into the management of foreign currency risk. We continue to hold the bulk of our cash in hard currency as a natural hedging tool. In addition, with hedging instruments in place, the share of FX debt declined from 83% to 42%. We are in a long net FX position of $207 million as at the end of the second quarter. As stated before, we target a neutral FX position going forward.

This concludes our presentation. We are now ready to take your questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from JP David from JPMorgan.

[John-Paul Davids, analyst]

A couple of questions on Paycell and then just one on financials. So firstly, on Paycell, I just wondered if you could confirm whether this is a very CapEx-light model, like most mobile financial services, i.e. that the CapEx to sales would be quite low around this business? And also around Paycell, you mentioned a number of new features that you are introducing over the medium term. I wondered if you could give a little bit of color around how price-sensitive customers are in using Paycell as an application? Are they more interested in features? Are they more interested in price? And then just switching gear and for clarification, I just wanted to understand why in net financial gains and losses, you incurred a loss both before hedging and after hedging? I would've thought that the hedging element would would've gone the other way and provide a little bit of an upset. So just wondering if that's a sort of one-off thing?

[Murat Erkan, executive]

Okay. Thank you very much for the question. First of all, our Paycell -- actually, our techfin solution is just quite low-CapEx solution actually, very, very limited CapEx around it, which is, I mean very usual in this type of business. So I would confirm that the CapEx part is not too high. Obviously, the IT tools and softwares investment happening around it, but this is -- more or less, this is it. So I think the CapEx part is quite low. And also customer acquisition cost is also low for us because we are utilizing our existing resources, our shops, our online channels and as said, our digital channels. So in this side, which is our advantage actually.

On the customer type of Paycell, in Turkey, as far as I know, there are 20 million unbanked people in Turkey. So if you think that at least -- more or less 40% to 50% of them are customers, then it shows our opportunity. Obviously, our techfin solution and Paycell solution not just addressing our just Turkcell customer, also our other customers as well. So quite variety of customer base. Obviously, the addressable market is this unbanked customer.

For the financial part, let me give the word to Osman to answer this long position and short position.

[Osman Yilmaz, executive]

Actually, the increasing financial expenses was a result of increased cost of hedging. On the quarterly basis, our hedging cost is around TRY 1.70 million. This is mainly result of increasing Turkish lira swap rates. Also Turkish rates was quite volatile. During the course of first half of the year, the rates swang from 100% to 15% and this resulted in a volatility in our financial expenses. And this mainly comes from the derivatives, which are not subject to hedge accounting. The fair value deviations between the first quarter and second quarter resulted in a increased cost of -- increased financial expenses for the second quarter. We can say that this is a one-off because we will -- we are not supposed to see another large swing in the interest rate, given the current -- existing levels of interest rates. The March and April events were kind of one-off events, so we might deem it to be a one-off event.

[Operator]

Our next question comes from [ Igor Kywan ], Bank of America Merrill Lynch.

[Unknown Analyst]

I have three questions, if I may. The first one would be on the stronger EBITDA margin and less pressure what we've seen in Q1. Can you please explain again the key drivers to what efficiencies have been realized versus Q1? Second question on these new taxes, which is implemented on the activation of handsets, which are not purchasing in Turkey. Can you -- do you expect any impact on the business as a result there? And then third question would be on the 5G licensing, is there any clarity at this stage?

[Murat Erkan, executive]

Okay, [ Igor ], thank you very much. For the first question, regarding our EBITDA margin improvements, the quarter-on-quarter EBITDA margin improvement was a reflection of our successful performance in growing our ARPU, resulting in higher-margin service revenue and managing our cost effectively. Especially, on sales and marketing side, we have heavy cost control.

Regarding second question about 5G and 5G expectation and roadmap. Actually, we don't expect an auction in the short-term horizon for 5G. We have a successful 4.5G infrastructure ready for software upgrade anyway, and it is not that [indiscernible] access in one of our technology that will be much better with 5G. I'm proud to state that we have wide spectrum resources we are already using in this technology. So we don't see any difficulty on this side. So -- but we'll see the regulation authority decision anyway. Just in regard to second question, could you please -- I missed your second question, could you repeat your second question?

[Unknown Analyst]

Yes, sure. The second question was more on this new taxation for the registration of handsets, which are both abroad. I mean do you think there's going to be any impact on the business? And just -- sorry, following up on the first question, on the EBITDA margin, it wasn't a question versus a -- on the Q-on-Q, but more on the year-on-year. I mean if you look at the year-on-year pressure, it's significantly less, especially on the Turkish margin versus in Q1. So just wanted if you could elaborate a little bit on the cost side? And what has been kept more under control than in Q1?

[Murat Erkan, executive]

Actually, more or less -- the answer is more or less the same because we have inflationary pricing on the ARPU side, but the impact will come with a period of time. So versus Q1 to Q2, we see that impact will hit more than Q1. So this is mainly ARPU result.

And regarding handset part, obviously, this is government decision and they decided to increase the taxation, but we haven't seen a dramatic impact on our term loan sales and device sales in Q2. And obviously, we had some hit from last year's installment part. But other than that, we see quite steady performance on the term loan side.

[Operator]

Our next question comes from Herve Drouet, HSBC.

[Herve Drouet, analyst]

Couple of questions from my side as well. Firstly, in term of the new additions you managed to bring, are you happy with the current trend in term of new additions you are getting in the Mobile segments? And do you think your sales and marketing cost control will remain on the same trend as we've seen in H1 looking in there H2?

Second question is back to this FX license, especially, this stringent median loss you put in Q2 on your fair value of the hedging derivatives. I was wondering, could you give us a bit more clarity on how that has been calculated? I mean you mentioned interest rate. I was wondering, is it short-term Turkish interest rate you are talking about? Or long-term 10-year treasury bonds driven movement?

And finally, on maybe the content, I mean there have been some issues with right issues on the football right in Turkey between Digital and the Football Federation. I was wondering, could potentially Turkcell be interested in getting more involved with premium content, such as Turkish football rights?

[Murat Erkan, executive]

Okay. Let us start with the first question regarding net addition of mobile subscriber. Actually, we took several actions targeting price-sensitive customers holding innovative customer-focused campaigns and offering addition in value proposition, which had a positive impact on customer acquisition.

We started to see positive trend, starting from March, and continued this trend in the second quarter. Actually, we stated this as Q1 conference call as well. We have learned that considerable portion of the customer that churn in Q4 '18 and Q1 '19, returned back to Turkcell quality in Q2 '19 as well. We have continued our inflation in price and practicing in 2019 as well as by enhancing the value that we have been able to enrich our services and provide more to our customers.

Regarding sales and marketing part, obviously, we'll continue to control our sales and marketing costs during the rest of the year.

Regarding second question, loss in Q2, very good. I think Osman can answer this question and will come back to the third question.

[Osman Yilmaz, executive]

Actually, we have 2 types of hedges on our balance sheet, long-term hedge and short-term hedge. Long-term hedges are typically for hedging our long-term foreign currency liabilities, and also we have short-term hedges on our balance sheet from overnight to 3-month maturities.

And the short-term hedges are typically for liquidity management and also for hedging our FX liabilities in our consumer finance companies. Most of our long-term hedges are subject to hedge accounting, so they do not create much savings on our fair value calculations.

But the swings in the interest rates were more fierce in the short end of the yield curve. The yields curve moved sharply up to 1,000% back to 30% in only couple of days. So it's -- and it also coincides with the quarter end. So it's created swings on our sales fair value calculations. So we can say that it is mainly driven by the volatility in short-term rates. The long-term hedge do not create volatilities since they are subject to hedge accounting.

[Murat Erkan, executive]

Regarding third question, content of football, right? I think our TV platform is doing very well in terms of revenue, in terms of subscriber on both IPTV side and OTT side.

For the football right, I think this is quite expensive price to capture just one buddy, and I don't know if it should -- it seems -- we are hearing from news like you're hearing, but I think we need to involve more customer and go deeper into the segment so that we can -- actually so that anybody can get this return back. And as of today, I cannot comment on are we interested in or not because they have another 2 years contract with the federation. So we'll see what's going to happen.

[Operator]

Our next question comes from Ondrej Cabejšek with UBS.

[Ondrej Cabejšek, analyst]

So couple of questions for me, please, and mostly on the tax and FX. First of all, on Paycell. If you could just give some light on whether you're facing any regulatory hurdles or banking issues as you push back here with the initiatives that you are launching? And if for example, you think some licenses or products that you currently cannot provide, whether there is upside to this 50% CAGR that you're guiding for?

And second question on the consumer finance business. If you could just explain a bit how you are able to achieve 15% EBITDA growth on a consumer portfolio that is decreasing year-over-year by almost -- or maybe even more than 30%.

[Murat Erkan, executive]

Regarding taxing side, I think -- to be honest, we are not facing any regulatory issue. Actually, we do see some regulatory changes, which helps taxing today is to be positioned better in the market. For example, we just have seen that mobile post regulation is issue, so everybody can get mobile post 1st of September, which is good news for techfin companies.

And also we see that draft all from banking process and regulations under preparation. So if these are good news for our techfin platform. We hope to see this regulation and change happen soon so that we can be competitive in the market.

For the second question, Osman will answer regarding the financing.

[Osman Yilmaz, executive]

Thank you. There are 2 main factors driving EBITDA growth on the portfolio. First, effect of small downhill will be more visible in the second half as the slowdown started in August last year.

And the second factor is net interest margin widened on better cost of funding management. Our net interest margin widened since the last year's last quarter. So these 2 factors resulted in high EBITDA growth than expected, but we will see a slowdown going forward.

[Ondrej Cabejšek, analyst]

And maybe just one follow-up on the device sales, please. You mentioned in the report that your equipment revenues almost doubled year-over-year. I assume that these are -- and that you've had a couple of campaigns here. So the question is, are these completely outside of the -- any sort of financing schemes that you might have? And were they basically you driving this -- the device sales outside of this as a way to avoid the limitations that have been in place on consumer loans since last year?

[Murat Erkan, executive]

Yes. First of all, the revenue increase was coming from Digital Services business and these are the project device sales, which is part of the project. So this is -- these type of sales has nothing to do with financing or financing company. So this is kind of one-time projects in the Digital Business Solution area.

[Operator]

Our next question comes from Ivan Kim from Xtellus Capital.

[Ivan Kim, analyst]

3 questions for me, please. First, which is going back to the consumer finance company. So the net interest margin widened, as you mentioned, quite significantly, about 250 basis points, if we look at the information that you provided. So I was just wondering whether it's sustainable. Or we should expect it to compress back to 4%, 5% level? That's the first question.

The second question is just going back to 5G, which remains unanswered. So when should we expect that [ with back from ] to be sold? And maybe something you can share with us on the cost.

And then the third and last question on the Digital Business services. You mentioned some of that growth that you have shown in the first half was one-off. So I was just wondering, what percent roughly of the growth was one-off?

[Murat Erkan, executive]

Okay. Let me answer question 2 and question 3, and then Osman will respond to question 1.

For the Digital Business services, it is not one-off anymore because there will be continuous one-off projects in Digital Business solution. This is typical business solution behavior. Our -- our DBS, we offer tailor-made and end-to-end digital solutions to both private and public sectors. This includes hardware, cloud, cyber security, IoT, data center, digital integration, et cetera. So these contribute strongly to both corporate segment and overall group result.

It's standard today, this typical behavior of this segment. So we will continue to see one-time project probably every quarter, every month. I hope to see every day, to be honest. So this is nature of the business.

Regarding 5G, it is difficult to say about the cost part of it because everybody thinks differently because there are different behavior in the market, the different behavior, different countries. For Turkey side, we are preparing ourselves for every option. But on the other hand, we already invested heavily on the spectrum for 4.5G. So we want to utilize this 4.5G spectrum as much as we can.

So let's come back to the first question regarding finance company. I give the word to Osman.

[Osman Yilmaz, executive]

Net interest margin on consumer financing company widened since last September on the positive duration gap that be around the balance sheet. And also dynamic repricing of the loans helped us to keep net interest margin high and stable. Actually, we expect net interest margin to remain stable over the course of this year. We are not expecting a contraction in net interest margin going forward, given the lower interest rate environment in Turkey.

[Ivan Kim, analyst]

And just maybe a follow-up on 5G, please. So there is nothing on both timing and what spectrum will be available?

[Murat Erkan, executive]

Yes. Exactly, yes.

[Operator]

Our next question comes from Alexander Vengranovich, Renaissance Capital.

[Alexander Vengranovich, analyst]

I have a couple of questions and the first one is for probably a little bit more general, but can you please discuss the competitive advantages you have in mobile, video and Paycell if you compare yourself with your main competitors in the market? Can you please differentiate a bit like why Turkcell is better than competitors in this segment? And that's the first question.

Second question is more specific on Mobile segment. So I've noticed that over the last like 2 years, the gap of the blended ARPU between Turkcell competitors has widened quite substantially. Can you please discuss whether you think this gap will be sustainable and you want to keep it? Or you think you might be targeting something more aggressive behavior on the market? And instead of increasing the ARPU, you might be looking at improvement if you were a subscriber base? Well, that's probably it.

[Murat Erkan, executive]

Okay. Let me start with question one, which is regarding Paycell and Mobile. First of all, we have quite strong customer database that we know their payment cycle, their behavior, their location, their -- these kind of things. So -- and also we have quite strong sales channel all over the Turkey. And we see that they are visiting our shops -- actually, digital shops as well as physical shops, and we see that 18 million people every month visit our shops. So this is opportunity for us on the Paycell side.

Regarding Mobile ARPU growth, ARPU growth was mainly driven by higher data consumption and digital services usage and upsell effort as well as the continued effect of inflation in pricing. I cannot count just one. Probably have 3 or 4 behavior that help us on ARPU growth side.

[Alexander Vengranovich, analyst]

So you basically plan to keep pushing the data usage on your tariffs and you don't see any kind of comparatives -- like any strong response from your competitors on the tariff side. So basically, the situation of the market is pretty stable, and everybody is just look at pushing their tariff -- sorry, the data usage right now and not trying to compete on the tariff side. Right?

[Murat Erkan, executive]

Obviously. We are in telecom -- mobile and at least telecommunication market. We see that response from our competition, but we have quite strong digital services, a strong sales channel, and campaign capability and marketing and brand. So I do see that we will see response from competition and this is the fact of life. This is how we can act and react on the competition side. I think we'll continue executing well on this aspect.

[Alexander Vengranovich, analyst]

Okay. And then maybe just a quick follow up on the video content. So we previously discussed a little bit the right for football championship. But maybe you can also discuss a little bit for the production of the exclusive content, like TV shows or like movies. Do you think about that? Is that something where you might be engaged in the future? Or you think the market is not -- and your subscribers are not requiring that exclusive video content on your platforms?

[Murat Erkan, executive]

Yes. To be honest, we would like to be platform provided to our consumer. So that anybody has an interesting content could be exclusive, nonexclusive, a small beat, whatever, they can come to our platform and provide solution to our customer. So we don't want to be exclusive on any shows because we don't see that it's viable to a company like us. So we will provide -- giving services to whoever has interesting content, very welcome to our platform. So we can share the value, share the profit.

[Alexander Vengranovich, analyst]

So I got the approach. I'm doing that right now and you're having an exclusive partnerships with the content producers?

[Murat Erkan, executive]

Not necessarily exclusive partnership, but we have partnerships with a lot of content providers in Turkey and outside Turkey. So -- but it shouldn't be the exclusive agreement with them. Partnership is good.

[Operator]

Our next question comes from Cemal Demirtas, Ata Invest.

[Cemal Demirtas, analyst]

My question is related, again, to the equipments revenues. When we look at the figures, if we exclude the impact of that growth equipment revenues, we see around 48.4% growth in Turkey [indiscernible] Turkey. And if we assume that this equipment revenue jump in second quarter is temporary, how do you think you will achieve your growth guidance of 18% to 19%? And in the international side, we have less currency appreciation. If we assume that the currency will remain at current [ bill ], what are your views about the rest of the year, at least from the currency side? If the currency stays at current levels, the hedging impact and of course, the topline growths, what are your base assumptions for the rest of the year?

[Murat Erkan, executive]

Regarding equipment revenue, this revenue was always part of our revenue. So it is not one-time revenue that we face in Q2. So we'll continue to have equipment revenue as part of our business, especially digital business solution as well as our term loan sale. So equipment revenue will be there. So I think this is response for first question. So this is not a just temporary jump in our results.

So on the second question, it is very difficult to comment on currency level, but I think -- I think the inflation is becoming under control in Turkey, and also we do see currency decrease after the election. So we don't expect any election next 4 years. So it seems things should be stable and getting more and more stable right now.

So I think not easy to comment on this one, but I do see that things are improving.

[Cemal Demirtas, analyst]

And as a follow-up about equipment revenue side, could you compare with the profitability of over -- the profitability of your overall business, is it by -- dovetail any dilutive effect or improving effect?

[Murat Erkan, executive]

Actually, I would say, I don't see any improving effect, but I don't see dilutive effect as well because since we have equipment sales increase, we do keep our EBITDA and EBIT margin similar levels. So this is not the case. The reason for that, we are utilizing our existing resources to use multiple functions. So we don't have additional sales team for selling equipment. We don't need such a teams. Or our G&A expense also -- although it is spent, so we have very limited G&A expense on the equipment sale. So these are accelerating our margins.

And also I see that not only the EBITDA part, but you see that positive impact as well. So I think this is relatively quite good business.

[Cemal Demirtas, analyst]

Okay. And my last question is about subscriber growth. After fourth quarter, we see some increase in your subscriber base, and we see your price are more competitive. Could you give us some clue about your price index? And are you planning to gain further quantity? How do you see the competitive environment for the rest of the year?

[Murat Erkan, executive]

Obviously, on the competition side, we don't see a lot of change. We believe in the right pricing, reflecting the value that we generate for our customer. Over the past 3 years, we have been able to enrich our services and provide more to our customer, and we'll continue our inflation in pricing practice in 2019 as well as by enhancing the value that we offer to our customer. So obviously, we will see that inflation coming under control, so we'll see our pricing services based on this one as well, so.

[Operator]

We have no further audio questions. Dear speakers, we can now switch to the written questions.

[Zeynel Bilek, executive]

So this is Korhan. We have 2 questions from the web. [indiscernible] asked, considering your consolidated revenue growth in the first half was 20%, what is the reason behind maintaining slightly lower than this as your full-year guidance for revenue growth? So what are your expectations in the second half?

[Murat Erkan, executive]

Let me give you something about it. There are couple of factors which will be resulting in a revenue growth slowdown in the second half of the year. The contribution of international revenue will be lower as the positive impact of currency movement been lower the second half of the year. The significant Turkish lira depreciation happened in Q3 2018. We have already seen the slowdown in Customer Finance business revenue in the first half of the year due to regulatory limitation on customer loans or smartphone financing. This revenue will likely to turn negative in the second half of the year due to the contraction of the loan portfolio.

According the loss expected devices in our group revenue to slow down as a result of this regulatory limitation.

We will be transferring our sports betting operation to the winning party of SporToto tender as of August. These are the things that we see that our revenue slowdown. But we expect slowdown in this area will continue to see the strong service revenue growth based on all-time-high ARPU trend.

Accordingly, we will be maintaining our operational profitability. We have signaled this by upgrading our EBITDA margin guidance this quarter.

Regarding EBITDA margin guidance revision, in the light of our 6 months financial and operational platform months and our expectation for the second half of the year, we are confident of exceeding our previous guidance. We believe that there will be no further revision.

[Zeynel Bilek, executive]

One more from the web also. [indiscernible] asking, is there a likelihood of reversal of TRY 60 million provisions related to cost side? And what was the reason for this liability?

[Osman Yilmaz, executive]

Actually, there is no likelihood of any reversal of this provision. The main reason for this provision was KCell had to terminate its active sharing contract with the local operator with the change of contract company after acquisition of the shares by Kazakhtelecom. So it's a one-off event. There is no likelihood for reversal, and we are not expecting further payment from this transaction.

[Zeynel Bilek, executive]

Another question also from [indiscernible]. Quarter-on-quarter increase in depreciation was 17%. What was the driver for such an increase?

[Osman Yilmaz, executive]

Actually, Q-on-Q, increase in depreciation is less than 17%. It is 7%, and the main reason behind the increase in depreciation is increase of network investment as well as capitalized expenses under IFRS 15 and 16.

[Zeynel Bilek, executive]

Okay. So for one last time, Wallace, can you check if there are any further questions? Let me confirm.

[Operator]

Dear participants -- dear speakers, we have no further audio questions.

[Zeynel Bilek, executive]

Okay. Then thank you very much, all. This is end of our call. We thank our CEO and CFO for their wonderful presentation, and thank you all for taking the time to participate in our call. See you next time. Bye-bye.

[Murat Erkan, executive]

Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.