Turk Telekomunikasyon AS

IST:TTKOM.E

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. I am Jouti, your chorus call operator. Welcome, and thank you for joining the Turk Telekom Conference Call and Live Webcast to present and discuss the Second Quarter 2021 Financial and Operational Results. [Operator Instructions] The conference is being recorded. [Operator Instructions]

We are here with the management team, and today's speakers are CEO, Umit Onal; and CFO, Kaan Aktan.

Before starting, I kindly remind you to review the disclaimer on the earnings presentation.

Now I would like to turn the conference over to Mr. Umit Onal, CEO. Sir, you may now proceed.

[Ümit Önal, executive]

Hello, everyone. Welcome to our 2021 second quarter results conference call. Thank you for joining us today. We have let the fifth quarter up with tender impact behind, and today, we enjoy a normalized environment in our country. The whole pandemic era has been grueling. We highlight that the second quarter was uniquely challenging with a slower than usual Ramadan. Also, during this period, the type of lockdown measures were imposed since outbreak of COVID. And finally, the easing of measures started from mid-June. We observed frequently changing customer behavior and business environment, which urged us to be more focused, agile and adoptive than ever. Thanks to our solid routes, top quality networks and extremely steep and learning curve throughout the pandemic, we were able to generate the best-in-class telecom services to our customers and a fully financial and operational performance to our stakeholders.

Starting with Slide #3 on our presentation, net subscriber additions. Our total number of subscribers increased to 60.7 million with 150,000 net adds in the quarter. While sales through online channels enjoyed the lockdown impact the face-to-face channel set the pressure. We managed to grow our broadband subscriber base to 13.8 million with almost 200,000 increase despite the Ramadan and lockdown impact. In the mobile market, demand remains subdued for the obvious reasons, and we added 67,000 net new subscribers, along with our focused strategy. On the fixed voice side, in line with our expectations. We lost 55,000 of our customers and it normalized demand for new connections in fixed road map.

Slide #4, financial and operational overview. Our company, hence once again delivered an impressive set of financial and operational results. our consolidated revenues increased by more than 70% year-on-year to TRY 8.2 billion, ahead of our expectations, mainly due to a better-than-expected performance in mobile. Growth in operating revenues was 19% in Q2. Consolidated EBITDA rose 24% to TRY 4 billion, again higher than we estimated as the EBITDA margin remained dropped at 49%. Net income grew 30% to TRY 1.3 billion, thanks to our solid operating performance and sound FX risk management policy. Our CapEx was TRY 1.4 billion on track with planned investments. We reported USD 38 million long FX position in line with our strategy to minimize the sensitivity of the P&L to FX movements. Finally, net debt-to-EBITDA fell below 1.1x owing to superior operating performance.

Slide #5, fixed broadband performance. Although demand for new connections has normalized since the beginning of the year, we recorded about 200,000 net adds in fixed broadband ahead of our quarter result. This result is achieved thanks to innovative and customized offers coupling demand from summer locations and carefully manage churn. Fixed broadband was once more the largest contributor of consolidated top line growth with 30% advanced year-on-year. And new ARPU growth remained -- 14%. Early price adjustments, more importantly, the ongoing strength in upsell performance were the main drivers of our powerful ARPU generation. Upsell numbers remained elevated with 89% of second quarter performance driven by upgrades to higher-speed tariffs. 24 megabits and above packages made 46% of new acquisitions, leading to 17% after growth. The results of our investment and marketing activities in order to move customers to higher-speed packages have been extremely encouraging so far. We will continue investing in this area and remain committed to raising Turkey's energy [indiscernible] fleet in the coming periods.

Moving to the mobile performance, Slide #6. The impact of the pandemic on mobile business for wins volatile with easing and tightening measures. The most visible change in market dynamics was some rationalization in competitive environment Q-on-Q, driving a partial rebalancing of prices capabilities. The MNP market, on the other hand, showed no signs of recovery. We maintain our view that the mobile sector will enjoy improving talent following the full normalization that started as of July 1.

We added 67,000 subscribers in Q2 which included an increase of TRY 200,000 in the postpaid segment. Our focus on higher value customer and postalization continue to drive to contraction in the prepaid segment. With the highest quarterly figure since Q2 '11, ARPU increased close to 15% year-on-year, showcasing our efforts to engineer a higher mobile top line growth. While the subscriber evolution was in line with our internal expectations, ARPU improvements was ahead. Robust ARPU growth was driven by a combination of several factors, including the changing subscriber mix, continued pricing actions, innovative offers and portfolio optimization. We strategically scaled down the number of prepaid packages to create a more efficient portfolio. Consequently, we maintained the upward trend in mobile revenue growth for the fifth quarter in a row with above 17% annual increase. In mobile, we have been focusing on a value-maximizing strategy for some while.

Now let me walk you through some [indiscernible] results on Slide #7. A solid market share and major wins in areas like coverage, network quality and customer experience over the last few years helped together form the viability of our change strategy. Our ongoing postalization exercise is now accompanied by accelerated premiumization. Now, our premium segment product has grown one of the most powerful tools in our action plan towards revenue marketization.

As of the second quarter, our Prime portfolio more than doubled to 4 million subscribers since end of 2019. The growth was 65% year-on-year in Q2. Prime subscribers reached 26% of our total postpaid base. Prime has generated around 30% of total acquisitions in the postal segment over the last 12 months. Furthermore, the number of subscribers we moved to Prime from the non-Prime days has been on an upstanding same period and grew by 73% year-on-year in the second quarter. Prime is a crucial contributor to overall ARPU growth in mobile business as Prime ARPU holds around 1.8x the non-Prime ARPU. We have made tremendous progress in premiumization lately, yet our low base gives us more room for improvement in the coming period.

Slide #8. We are proud to share an important development in our Fintech business with you today. We have recently added Pokus to Telekom's newly developed e-wallet application and prepaid cut to our mobile payment and invoice payment services under our subsidiary TP Pay. Pokus is an integrated digital payment system that provides financial services 24 hours, 7 days across the globe. With its user friendly interface, it enables users to manage their finances from a single point of touch. It is available to everyone and operator independent.

Thanks to Turk Telekom's expertise in high-tech solutions and customer experience Pokus will start solid in the sector, we believe Pokus will differentiate itself from competitors with its unique set of features, including money loading and withdrawal, domestic and overseas money transfers, invoice payments, online shopping, [indiscernible] split and more. A superior product, combined with Turk Telekom's large subscriber base and effective sales channels fuels our ambition to take it among the leading actors of the Turkish fintech market. We are aiming to be a part of every Turkish consumer's data life not only through our [indiscernible] services, but also in the world of digital applications.

We set ambitious targets for ourselves. We expect Pokus to reach 5 million users and generate TRY 1.5 billion of transaction volume by 2025. We aim to turn Pokus EBITDA and free cash flow positive on a stand-alone basis by 2023. Our goal is to make Pokus a widely used application and an indelible brand reach.

Slide #9, 2021 is around guidance. The first performance has driven above all our expectations. We recorded higher than expected top line growth and EBITDA in the second quarter with mobile business being the largest contributor of the valuation. Other businesses also performed better here and there to justify another upward revision to our 2021 guidance. We now expect our operating revenues to grow 17% year-on-year. Our EBITDA to be TRY 15.8 billion and our CapEx to be TRY 8.5 billion. While the change in EBITDA is driven by improved top line and OpEx outlook, visualized CapEx figure reflects the equity as well as the urge to undertake additional mobile and fixed rate investments in response to diverse demand to telecom services.

Our company has been going through an amazing transformation in a rapidly changing world. Through [indiscernible] accumulated experiences and expanded our capabilities. We act responsibly, determination and agility in order to deliver what our customers and stakeholders deserve. As Turkey's leading integrated telecom company, every decision we make and every step we take ultimately for nothing but value creation and sustainable growth. Our focus on efficiency, risk management, financial fitness and customer experience remains of indispensable approaching execution. We continue to integrate the universal principles of sustainability into our business model. strategies and corporate decision-making processes. With this opportunity in hand, I would like to let you know that we will soon publish our July compliance first sustainability report. This will grant us the opportunity to present our holistic approach towards sustainability and value creation to our employees, shareholders and stakeholders.

Now I will hand over the call to Kaan to discuss our financial performance in detail. Thank you so much.

[Kaan Aktan, executive]

Thank you very much. Good morning, and also good afternoon, everyone. We are now on Slide 12 with financial performance. Our consolidated revenues grew about 17% year-over-year to TRY 8.2 billion in the second quarter. Excluding the [indiscernible] impact, revenue increase was 19%, 1-9, along with maintained strong performance in fixed broadband and further acceleration in mobile growth. The 19.5% operating revenue growth secured in the first half, that has confidence in meeting our revised 17% target for the full year.

30% revenue growth in fixed broadband was supported by healthy ARPU generation and bigger subscriber base year-over-year. Revenue growth slowed quarter-over-quarter, in line with our expectations with the base effect of the pandemic started kicking in. With even a higher days of last year's second half, our guidance incorporates a similar trend in the remaining part of the year. ARPU remained flat around 14% over the quarter, although it cycled last year's highest increase.

In a constantly changing consumer and business environment over the quarter Mobile markets remain volatile. Meanwhile, we managed to accelerate both ARPU and revenue growth consecutively over the last 5 quarters. Most importantly, mix was a bigger contributor in this quarter's near 15% ARPU growth affirming that our focus on high-value acquisitions and in upselling is the right strategy for us. As a result, we attained more than 17% revenue growth in Mobile for the quarter.

In line with our expectations, fixed voice subscribers declined slightly during the quarter following the normalized trends in fixed broadband demand. Fixed voice revenues grew about 1% annually, owing to high subscriber base compared to the same period of last year, which was driven by sizable net ex in 2020. On the TV side, new sales performance remained subdued during Ramadan and lockdowns, hence, our subscriber base was flattish quarter-over-quarter. We managed to take some pricing actions in April despite the difficulties of the quarter. 14% large screen ARPU increase led top line growth above 11%, higher than both our internal expectations and last quarter's 10%.

Quarter take revenues performed well with almost 13% increase over the last year's higher base with more than 18% growth. Finally, the International segment, which mainly includes Telekom International revenues grew by 14%. Once again, the increase was supported by higher traffic and the appreciation of our currency. We are now moving on to our operational performance. EBITDA rose to TRY 4 billion, first time ever with 24% growth, meeting our expectations with better topline progression and higher margins.

As expected, 49% margin marked 1 percentage point quarterly decline, but improved almost 3 percentage points annually owing to a bigger contribution of higher margin fixed broadband business to the top line growth and also higher EBITDA margin in mobile year-over-year. Although we realized the expected expansion in total OpEx quarter-over-quarter the annual comparison remains a supporting factor in EBITDA margin evolution. Excluding the IFRIC 12 impact, EBITDA margin remained flat quarter-over-quarter, but improved by almost 3 percentage points year-over-year to 52%.

Operating expenses grew slightly above 11% year-over-year. Once again, well will the increase in operating revenues. Looking at the highlights in OpEx items, Interconnection costs increased by 15%, together with the increase in Turk Telekom international traffic volume and higher FX rates.

Provisions for doubtful receivables dropped almost 22%, mainly due to the decline in device provisions compared to last year. Cost of equipment and technology sales decreased by 15% amid normalized broadband net additions and ICT solution revenues. Other direct costs grew 39%, in line with the pickup in value-added service revenues and shares revenues. Personnel expense rose 15% in a normalized trend and represented a minor change quarter-over-quarter. Finally, commercial cost increased by 29%, in line with our expectations again for ramp-up in commercial activities.

Our CapEx spending was TRY 1.4 billion in the second quarter and will be accelerating in the second half. As announced, we now expect to generate TRY 15.8 billion of EBITDA in 2021 compared to TRY 15.4 billion earlier. Similarly, the planned CapEx spending rises to TRY 8.5 billion from TRY 8 billion. Obviously, there is a fine balance that we want to keep in these projections. The incremental EBITDA will largely be driven by better operational performance than what we foreseen earlier. We also expect to incur incremental income from scrap material sales, which is mainly copper, as a source of incremental CapEx for coupled to fiber transformation.

As a result, improved operational outlook enables us to further uplift our investments in response to a wide demand for cycle services across the board. The high end of the fixed broadband market, meaning demand for high speed has clearly picked up in a way not to reverse, we believe. The demand has been largely concentrating on the high end of the market, and we want to be best-positioned to capture this growth going forward.

Besides our investments in Mobile so far, clearly helped us differentiate ourselves in the market. This is not only reflected to our financial performance, but also to customers' preferences and their experience with us. Therefore, we will be allocating part of the additional planned CapEx to mobile network and coverage investment. Most importantly, this investment largely will be feeding our operational and free cash flow growth performance in 2022.

Coming to the bottom line, net income increased by 30% year-over-year to TRY 1.3 billion. The operating performance was nicely carried down to the bottom line despite the unfavorable FX movements in the quarter, once again, thanks to our comprehensive and proactive effect risk management policy that minimizes the facility of the P&L statement to FX rate movements. Net financial expenses rose to TRY 0.9 billion from TRY 0.7 billion in the first quarter.

In the last quarter's call, we explained that Q1 TRY was particularly low and that we expected net financial expenses to rise in the coming quarters for 3 reasons: close -- we had close to $100 million long FX position in the first quarter, which benefited from severe lira depreciation. Second, we will be facing higher interest rates as we roll over all the facilities. And finally, the increased portion of short-term derivative instruments within our hedge portfolio will drive our hedging costs higher because these transactions are more expensive by nature. Let me also add that we restructured more than more of our participating cross-currency swap contracts following another round of high volatility in lira during the second quarter. It is restructuring we bought further protection at the same time, incurring higher getting cost. As of second quarter, our setting cross-currency portfolio stands much more resilient to a possible currency shock with severely raised protection barriers.

We are now moving on to Slide 13, with debt profile. Our balance sheet stands strong and resilient as of the second quarter. Net debt to EBITDA further improved to 1.08x compared to 1.15 of last quarter. mainly as a result of strong operating performance and healthy cash flow generation. Cash and cash equivalents were TRY 4.1 billion, of which 81% is FX based. And lastly, we reported TRY 38 million of long FX position compared to TRY 100 billion long as of the last quarter. The net FX exposure included USD equivalent of TRY 2.4 billion of FX debt. TRY 2.1 billion of total hedge position and close to TRY 400 million of FX cash.

We are now moving on Slide 14. As mentioned before, we are now trying to maintain an FX neutral position. The primary purpose is to minimize the impact of the FX rate fluctuations on the P&L and increase the visibility of the bottom line performance. Accordingly, the FX sensitivity analysis we report regularly in our quarterly financial suggest assuming all as constant, a 10% increase in FX rates will have almost no impact on the pretax income recorded as of the second quarter.

On the flip side, the sensitivity analysis produces about TRY 32 million of negative impact in case of appreciation of lira owing to the long FX position in hand. Finally, the unlevered free cash flow was TRY 1.8 billion, higher year-over-year, mainly due to the improved operating performance. We expect robust performance in our businesses to continue in the remainder part of the year and see that a healthy full year free cash flow generation.

This concludes my presentation. I think we can now open up the Q&A session.

[Operator]

[Operator Instructions] The first question comes from the line of Cabejsek Ondrej with UBS.

[Ondrej Cabejšek, analyst]

I have two questions, if I may, broad ones, I would say, one on CapEx and then one on your margins. So on CapEx, I understand that -- and you've been explaining very well that there are a lot of opportunities to reap in terms of demand for connectivity and higher speeds, et cetera. But are we not approaching a point where if I look at the penetration of, for example, customers subscribing to fiber on your fiber network that is still about just 1/4 of all the homes that you report. Are we approaching a point where next time you guide for growth or higher growth, we are getting to a point where the CapEx to sales doesn't come up along with that growth?

So as you reported or as you upgraded the guidance this quarter, for example, there is actually an implied decrease in your free cash flow guidance. So are we getting to a point where the network is so robust that you are -- you will be harvesting the investments more than accelerating them? That's one question.

And then on the second question, the profitability was great, obviously. You've highlighted that commercial cost were well ahead of -- or the growth in commercial costs was well ahead of the top line growth. But still you're right that there are some OpEx benefits from the COVID situation. So can you just elaborate a bit in terms of what additional costs you expect to get into the base given we've already seen a big growth in the commercial costs, and what part of the safety margin gains year-over-year that we've seen year-to-date is sustainable and what is not?

[Ümit Önal, executive]

Well, thank you very much. Let's start with the first part. I mean as you witnessed, we went through a very unique period as Turk Telekom. And it's not only this quarter or last quarter, it's for the last few years. We had several core business areas which showed a lot of potential, but obviously, the [indiscernible] harvesting the benefit was to effectively and properly invest in those businesses.

I think the potential is still there. But we are applying a very well-balanced strategy. So if and when we see the opportunity, we really want to be there with our CapEx and spend the CapEx wisely, but also effectively. So we will keep this strategy in place. We will closely follow the progress in the market and the customer demand and changing the customer preferences. And whenever we feel like there is good return from those investments, we will be there to invest. But you're right, we've entered a heavy investment period, and we modernize not only the fixed line, but also the mobile network simultaneously. But as I said now, we clearly see that the returns are there and the payback is quite strong.

Second part of your question, last year -- second quarter of last year in terms of commercial spending, as far as I remember, that was the lowest number that we saw in the many years, I don't remember I saw such a low number. And the reason was very obvious because it was the first quarter and was a very harsh lockdown and we deliberately stopped the communication, marketing communication because there was almost no return to come from any marketing activity at that time, that's -- especially valid for Mobile. And for the fixed line, the demand was already there. So our challenge was really to make the connection rather than finding a customer.

Now we are repeating that very low base in our second quarter. And in many instances, we also said that we like to see and we plan to see a higher commercial spending going forward. You should also remember that this business traditionally -- as the COVID changed the calendarization of that business as well. But this business traditionally has this year's commercial agenda in the second half of the year. So you should take the second quarter commercial spending number as the base at least and maybe see some further increase in the coming quarters.

Some COVID-related savings are still in place. And we also enjoyed the benefits from the low level of spending because I mean, most of our employees except the field employees are still working from their homes. So travel and entertainment expenses went down quite significantly. But the question, obviously, how long we will have this COVID-related measures in place that way of working and that way of spending OpEx will stay in place.

But we always want to be on the safe side, and that also defers to our guidance when we do. When we announce our guidance we tend to take the potential risk into that number and wait until we really see clearly that there is opportunity and then be flagged. So maybe you can evaluate or you can even answer that question in line with our guidance as well. So potential risks are already included. But if there are some opportunities on top of what we had right now, they will be reflected into the coming quarters into the coming guidances.

[Ondrej Cabejšek, analyst]

A short follow-up if I may, because you again highlighted the fact that there is a lot of demand, and you've kind of invested for growth in both fixed as well as Mobile. So there still seems to be a lot of headroom in terms of investments running ahead of demand, especially on the fiber side. So can you just maybe confirm if you do have an answer whether 2021 is the kind of peak year in terms of CapEx to sales and 2022 and onwards will see a gradual normalization of the CapEx to ex construction revenue levels?

[Ümit Önal, executive]

Well, I think it will be good to see the second half of the year, the way we closed the year because, as I said, it's really kind of -- we are kind of in a critical point in this company in terms of how the markets will evolve and the demand to evolve and the preference of the customers will change. And COVID, on top of everything that we did to really upgrade the networks and attract new type of customers. So we will see the results of it maybe we have a bit of clarity towards the year-end. And probably when we have the fourth quarter and third quarter conference calls, we may have a better idea whether that's really the peak or there are some further opportunities that we can harvest and return, we may except to have some sort of spending in CapEx.

[Operator]

[Operator Instructions] The next question comes from the line of Nagy Nora with Erste Group.

[Nora Nagy, analyst]

And one follow-up question in relation to CapEx. How much of your updating CapEx guidance relates to FX changes? And how much of that to increase investments in Mobile and fixed network?

[Ümit Önal, executive]

Well, very roughly we have like 1/3 to 1/4 of it's coming from the FX difference. The remaining part is the balance allocated to fixed line and Mobile.

[Operator]

The next question comes from the line of Ignebekcili Murat with HSBC.

[Murat Ignebekcili, analyst]

This may not be a question but maybe a comment. We see that you have gradually decreased your shorter position in the last couple of years and now have a slight positive provision in the last 3 quarters. And looking at the U.S. dollars, Turkish lira rate movements. It was up 12% in the first quarter and 4% in the second quarter of 2021. But despite the long position, we still feel easing gains and losses in the financial expense part. I can easily understand the high interest expense portion. I also understand the hedging cost -- additional hedging costs fully understand that at some point, this negative trend should reverse I would expect that. So are we going to see in the coming quarter, the reversal of this trend?

And that's maybe my first question. Secondly, you revise your CapEx guidance to TRY 8.5 billion. That means that in the second half, you're going to spend TRY 6 billion this year in 6 months period. So how much of this is maintenance CapEx, how much of this will translate into growth in the coming years because it's a substantial amount, and this is excluding any sort of not in the coming years, we're going to see maybe license payments cetera expenses. So can you elaborate more on this CapEx part because it's increasing every year, annual Turkish depreciation. I have sympathy for that. But still when are we going to see higher free cash flow to Telekom?

[Ümit Önal, executive]

Well, thank you very much for the comments and also the question. You're right. We have now a derivative FX gain loss item, which shows around TRY 400 million expense, but this is purely cost of hedging that comes from both the hedging of the financial debt as well as the commercial debt, which is the accounts payable. As it change to -- especially to last year, we started hedging -- fully hedging our commercial table. And we are using -- by nature, there are short-term [indiscernible].

We are using short-term install mix, which are the short-term options going forward contracts. And there, the cost of those items are fully reflected into that line. As of the second quarter, our FX, again, loss item is almost 0. It's TRY 1 million positive. I mean for the -- in the first quarter, we had around TRY 80 million positive FX gain because we had a long FX position. It was the first quarter where we were hedging the whole balance sheet, and we had a surplus at the end of the quarter. Now we balanced these out.

We have a natural FX position, but they are coming from those, especially from those short-term contracts. As you know, the interest rates peaked in the second quarter, and we are now incurring the, in a way, the almost the full year numbers show that our cost in that short-term contract is almost equal to the existing rates in those contracts, which means we fully absorbed the cost of the increased interest rates in the second quarter.

So again, it should be a kind of a base -- new base for the third and fourth quarter. Unless we have a change in the lira interest rate. For the second part of your question, I would say that normally, the calendarization may be a bit tricky because in our business, we take the time to take the full year is a good measuring point for the CapEx because some of the projects take more than the quarters even they take several quarters. And we always have to incur the CapEx towards the end of the year, especially last quarter is heavily a busy period almost sometimes close to half of the full year CapEx spending.

Normally, for the full year, we had around 1% to 3% CapEx is maintenance CapEx. The rest of it -- the bulk of the rest is going to be fixed and Mobile networks, which see expansionary spending for in IT. Naturally, like 2/3 of the CapEx is a direct relation with either expanding the network and acquiring new customers or increasing the capacity of the existing networks, which means, again, make our customers happy. But at the same time have a good service level. Did I miss anything in your question?

[Murat Ignebekcili, analyst]

I would appreciate some kind of a guidance as to when this CapEx to sales is going to normalize or maybe this is the normal level, I don't know. Looking at the past performance, it was 20% in 2018, 21% in 2019, 25% in 2020, and now it's going to be 26% almost. So there is an increasing trend in CapEx to sales. How should we assume going forward?

[Ümit Önal, executive]

Again, I think it's a similar question to the previous question and my answer will mainly be something similar. Since the intensity of the CapEx spending is really part of our strategy since we saw that incremental CapEx would give us a higher return and higher growth. And we saw that it's a proven strategy. It's a successful strategy because it really gave us additional momentum for growing this business. And to be honest, it's not -- it's sometimes a rare concept to have a good investment projects for especially [indiscernible] to invest its CapEx money and start driving high growth in a very short period of time.

I think it should be accepted -- considered as a good thing for the company, but we are also monitoring very closely how this money is giving -- is turning into real return. And we are trying not to hurt cash flow because we know that -- and we are proud of that, we know that this company is a very strong and healthy cash flow generation from its operations. And as you know, when we did the guidance upgrade in the last 2 quarters, we always tried to be balanced so that if we see better return, which is, I mean, this should come from the EBITDA since we are only guiding with the EBITDA. When we see a return from this business. And if the demand is done, we would like to also spend more CapEx, but we tried to be balanced when we improve the EBITDA, we also improve the CapEx and not the opposite. This means that we want to keep the cash flow generation at least at a similar level compared to last year, which was a very strong one by the way.

[Murat Ignebekcili, analyst]

And finally, we have a medium-term target as to what level you intend to reduce to net debt-to-EBITDA ratio?

[Ümit Önal, executive]

Well, it's a bit difficult to set a -- especially a medium-term target, which if you 2 to 3 years because in that time frame, probably we will have some news for 5G rollout. So which we don't know what the size of it will be, what type of investment requirement it will bring to us. So without having that clarity, it will be difficult to set a target.

But currently, what we seek -- I mean, looking at the guidance, which gives us a certain flavor for the potential cash flow generation and also the fact that now we have a resilient balance sheet, this shouldn't be impacted from any further movement in the FX rate. I think we should come down towards one multiple, maybe go down below it towards the year-end, but it's just an estimate of the what we have right now is our guidance and operating performance.

[Murat Ignebekcili, analyst]

Okay. And one maybe final one. Maybe you talked about this, but I might have missed my line cut off. The first quarter's FX and hedging loss is TRY 189 million and second quarter's, TRY 408 million. Thus this quarter's figure have something extra? And should we assume lower hedging cost moving forward, that wasn't clear on my end?

[Ümit Önal, executive]

Not this quarter, but last quarter had something in extra because of our long FX position, we incurred around TRY 80 million FX gain, which was part of that TRY 190 million as a balancing figure. So with that, if you didn't have that low position and in the second quarter, we went to a neutral position and this is an incurring FX gain in this quarter. So in a way, if you consider this comparison as second quarter versus first quarter, the base impact of TRY 80 million in the -- coming from the first quarter to that, as I said, almost all the short-term trade payable related hedges. The cost of those short-term contracts goes to tax line and interest rates went up. So the basic change in the second quarter, operationally or externally was the increased interest rate. Now the full portfolio is the exact cost of the current actual costs, which meant an increase in the overall percentage-wise cost of hedging. And plus, as I mentioned, today's impact.

[Murat Ignebekcili, analyst]

So moving forward, assuming no change in Turkish lira dollar rate or no fluctuation, what is the base level of losses are we going to see on that particular line?

[Ümit Önal, executive]

Well, I think it should be a good base or a good point to forecast the remaining part of the year. Again, as you said, assuming all -- stay constant.

[Murat Ignebekcili, analyst]

Second quarter's figure to occur at similar levels in this coming quarters, right?

[Ümit Önal, executive]

All of that's constant.

[Operator]

We have a follow-up question from the line of Cabejsek Ondrej with UBS.

[Ondrej Cabejšek, analyst]

A couple of follow-ups for me, please. One on multi. You mentioned, well, first of all, you had a significant acceleration in the growth, and you mentioned that more than a fourth of your subscribers now is on the Prime program. Can you give us some color as to how long that took from 0 to the 26? And what targets do you think are achievable for this program?

And then you also spoke about the environment in the Mobile market in general, being more benign when it comes to competition. So maybe a comment on that would be appreciated. Second follow-up, if I may, on the FinTech side of things. So you clearly have some operating targets when it comes to the application that you currently have. But you also have the ambitions to apply for some of the, say, more robust banking licenses, et cetera, that some of your peers are doing? And third question if there is any update whatsoever in terms of the conversation on the concessions?

[Ümit Önal, executive]

[Interpreted] Allow me to answer your first question related to our Prime. We don't prefer to share a number as a direction here, but the basis, I mean, in 1.5 year of period, we have reached 26% basis in terms of our Prime segment, but our numbers shows us that we still have some room for improvement, so we will see.

I mean, during the last 12 months, the number of subscribers that we have acquired, around 30% of them came from Prime. They can give us some direction, but it's not binding as of now.

I would like to add a couple of points related to your second question on [indiscernible] at some point. We considered a high appetite for this market as a motivation point.

And the number of prepaid cards in Turkey is -- as of June 2021, it's TRY 50 million. And the volume of the transactions that are made with prepaid card is increasing day by day. All these efforts are in line with our strategy to lead the digitalization of our country with high technology and innovative solutions.

TT payment company has been established in 2013 and this way our Fintech journey has started, and the TT [indiscernible] received payment services license in 2017 and e-money license in 2019. I mean as the integrated operator our country with 50.7 million subscribers. We have the needed ecosystem for it, and we are quite motivated about it.

I mean, thank you very much for your concession question, which is one of my favorite questions, but apologies because I would have to only give you the standard answer for that question because there hasn't been any change related to that. Concessions are a fact of our live within our sectors. In 2023, the 2G licenses of the other mobile operators within our country will expire we will see the reflections of the public authorities and the other operators accordingly. Our main focus is to be able to generate sustainable growth and results, which will be able to provide us pay our dividends in a way to support our company. So we will follow all the results and developments, just like you.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telekom management for any closing comments.

[Ümit Önal, executive]

Well, thank you very much, everyone, for being with us today. We look forward to hosting you again in our next quarter results, and I wish you a nice day. Thank you. Buh-bye.

[Operator]

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]