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Ladies and gentlemen, thank you for standing by. I am Jamie, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekom Conference Call and live webcast to present and discuss the Second Quarter 2023 financial and operational results. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions]
We are here with the management team. And today's speakers are CEO, Ümit Önal; 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. Ümit Önal, CEO. Sir, you may proceed.
Hello, everyone. Welcome to our 2023 Second Quarter results conference call. Thank you for joining us today. Geopolitical news occupied the headlines from time to time, but the Central Bank's interest rates and inflation dilemma remained in center focus over the second quarter globally.
At home, while Turkiye continued feeling the impact of the February earthquakes albeit at a diminishing capacity, politics largely dominated the domestic agenda. Turkiye has left the critical presidential and parliamentary elections behind towards end of May. Meanwhile, inflation retreated to 38% as of June, revealing the lowest [ print ] in 18 months. Yet a 35% jump in FX rates on average within the quarter is expected to call back inflationary pressures.
The recent announcement of another 34% increase in minimum wage effective from July 1 and several tax hikes are also set to negatively affect the CPI data ahead. Generally speaking, Turkiye made a lackluster start to the second quarter as the country still transitioned out of earthquake crisis and Ramadan usually a slow period in activity to most of April. The finalization of a 2-round election process in late May and the closure of school season around mid-June kicked off the holiday period.
The Eid break within the week of June 26 paved the way for a 9-day holiday for most. In this backdrop, data consumption depicted usual characteristic of seasonality, where we observed a quarterly pickup in mobile segment, but some decline in fixed segment.
In annual comparison, data usage continued its robust advances 25% and 11% increase in mobile and fixed, respectively. Although the critical elections in Turkiye heavily influenced both the business environment and consumer sentiment, the potency of our targeted actions that we have been implementing manifested itself in our operational and cash flow performance in the second quarter as inflation has retreated and the earthquake impact has gradually faded.
Starting with Slide #3 in our presentation, net subscriber additions. Total number of subscribers declined to 52.4 million with a net loss of 105,000 during the quarter, largely due to the ongoing contraction in fixed voice customer base, but also through the total additions in other businesses. Fixed broadband base touched the 15 million mark first time with 144,000 net additions, driven by improved performance both in new sales and churn in the aftermath of the February earthquakes.
Net acquisitions in fixed Internet growth stronger than it's anticipated in a balanced pricing environment in the reporting period. Therefore, we now target a positive net add in fixed broadband compared to our earlier expectation of a slight net loss for the full year despite having introduced price revisions both in wholesale and retail portfolios starting from July 1.
Fiber base expanded to 12.2 million subscribers with 426,000 of quarterly net additions. The share of fiber subscribers in our fixed broadband base increased to 82% from 73.5% a year ago. All mobile operators launched their new prices in April, but the first quarter's intensified competition extended into Q2 through longer lasting and aggressive promotional activities. Our sector-beating ARPU growth in Q1 and quarters of unshaken position in the MNP market might have augmented competitors need to respond differently. But sticking to our long winning mobile strategy, we have continued prioritizing ARPU growth on our side. As such, mobile portfolio stayed flat at 25.6 million. We recorded a total of 9,000 net subscriber loss in Q2 driven by 244,000 decline in the prepaid base.
On the flip side, postpaid segment secured 235,000 net adds, aggregating its total gain to more than 1.2 million subscribers over the last 12 months. Fixed voice base continued its descent with 237,000 of subscriber loss, along with the strategy focusing on naked-DSL sales.
Slide #4, financial and operational overview. Both operational revenue and EBITDA surpassed our targets in the first half. Consolidated revenues increased more than 67% year-on-year in Q2, while operational revenues expanded 68%. Core businesses, particularly mobile, contributed significantly but other businesses also fueled growth. Consolidated EBITDA growth picked up Q-on-Q with 37% annual increase to TRY 6 billion mark. 33.6% EBITDA margin moved 230 basis points ahead of last quarter's level. We recorded TRY 600 million of net loss at the bottom line due to sizable net financial expenses incurred in the period. Net debt-to-EBITDA stayed almost flat around 1.65x Q-on-Q, thanks to an improved operating performance.
Slide #5, fixed broadband performance. We observed continued improvement in fixed Internet subscriber dynamics over Q2. Following prior quarter's better-than-expected acquisition performance, new sales remained strong with only slight decline Q-on-Q on seasonality, but significant improvement year-on-year. Churn rates normalized from last quarter's great triggered spike, along with moderate competition in the market, which has operated in a balanced pricing environment since early Q1 in lack of new tariff price divisions.
ISP's subscriber activity is most centered around differentiation in contract structures and quick region-specific campaigns. Upselling and recontracting performance improved Q-on-Q. [ 35 ] megabits-and-above packages made 50% of new acquisitions, helping move ARPU 2% higher Q-on-Q.
ARPU growth didn't change much from last quarter's levels and stayed around 42% year-on-year. Following the mixed first half with quakes, Ramadan and elections, we introduced our new prices in both wholesale and retail segments, starting from July 1st.
Delayed wholesale tariffs by 70%, 7-0, and retail tariffs by 50%, 5-0, on average over existing prices. This is the first time we revised wholesale tariffs since June and retail once since October last year in new sales. We have started applying similar pricing actions in our retail portfolio on the recontracting side since early August. These moves will shape both subscriber dynamics and ARPU evolution going forward. A sector-wide response to our revisions is yet to be seen, but we expect the sector to align regionally given the ongoing inflationary pressures across the board. Hence, we expect a robust acceleration in ARPU growth in the coming quarters.
Moving on to mobile performance, Slide #6. Although mobile operators synchronized their latest pricing actions in April, they started launching rather effective offers one after the other to lure consumers and revive the MNP market in May. In this backdrop, we prefer to be selective in our offerings and prioritized ARPU growth, which was ahead of the competitors in the first quarter. Driven by the above dynamics, MNP market, which has contracted in Q1 on quake slowdown, grew by 13% annually and 9% quarterly.
A relatively low base due to the ongoing effects of COVID-19 measures in Q2 last year also played a role in annual expansion. Once again, our top position in networks remained unchanged for the seventh consecutive quarter, despite fierce competition, thanks to our stronger positioning in the market.
New acquisitions in postpaid performed better than we expected and grew both in quarterly and annually basis. Postpaid churn rate was well contained at similar levels in both comparisons despite the abundance of effective offers in the market. New acquisitions were also better than last quarter in the prepaid segment after the initial shock of the quakes, but the churn rate was also inevitably higher. Shaped under these dynamics, postpaid segment made more than 68% of our total mobile base. Well ahead of insulation, 73% ARPU growth stayed on a robust rate with 66% annual rise in postpaid and 88% in prepaid segments, owing to our winning strategy that targets a fine balance of subscriber base and ARPU growth. As usual, subscriber ARPU and data consumption growth were the main pillars of the 81% year-on-year surge in mobile revenue.
We have recently taken the liberty to lead the next pricing growth and revise both our postpaid and prepaid tariffs in early August. Therefore, we expect strong ARPU evolution to continue in the second half.
Now let's take a look at the full year outlook on Slide #7. We have revisited our 2023 guidance after both top line growth and EBITDA exceeded our expectations in the first half. We now foresee 67% to 70% operating revenue increase, TRY 25 billion to TRY 27 billion EBITDA and TRY 19 billion to TRY 21 billion CapEx for this year. While the change in top line and EBITDA outlook can largely be attributable to expectations of more pricing actions, better operational KPIs and continued high contribution from noncore businesses, the increment to CapEx reflects the impact of labor cost inflation as well as recent sizable losses in [indiscernible] value. We maintain a cautious view on cost inflation in general.
We see a diminishing impact of the earthquakes on subscriber dynamics going forward, although our earlier guidance for quake-related revenue, cost and CapEx items remains unchanged. We expect inflationary pricing to stay in telco operators' focus, although seasonal or periodic promotional activities will likely continue to affect subscriber and ARPU dynamics at times particularly in the mobile segment.
On the fixed Internet side, other ISPs response to our recent wholesale and retail pricing actions is yet to be seen. Nevertheless, having been through similar cycles over the last 6, 7 quarters, we expect to continue pursuing our dynamic pricing strategy, which closely monitors inflation data.
Aligning our portfolio's schemes around holidays, [indiscernible] back to school to customer needs, will be at the center of our activities ahead along with indispensable focus on upselling and recontracting, of course.
Before I give the word to Kaan to discuss our financial performance in detail, allow me to share some [ wordy ] remarks. Turkiye has been working relentlessly to overcome the massive disruption caused by the southeastern earthquakes that hit our country early in the year. At Türk Telekom, we have been at the forefront of these efforts. On one hand, we continue to carry out the work on the ground to fully recover the physical damage to our operations and bring connectivity to new habitations such as container and camp sites. And on the other hand, we have support the community through subscriber benefits and regional promotional activities as well as social responsibility projects.
Continuous progress in mobile KPIs speak volumes about our competent strategy and growing strength in the market, while the FBB segment is set to enter a momentum step starting from the second half. Therefore, we have confidence in our ability to deliver our revised guidance.
Thank you. Kaan, the floor is yours now.
Thank you very much. Good afternoon, everyone. We are now on Slide 9 with the financial [ services ]. Top line growth continued its strong momentum and moved higher for the fifth consecutive quarter to 67% annually from 61% of last quarter. This is thanks to our dynamic actions designed around the volatile macro and consumer backdrop. Following a sensitively managed earthquake period, we resume normalcy in our marketing and customer care activities in the second quarter. That's, combined with customers also returning to their routines gradually, helped activation and churn dynamic to move out of the earthquake impact in general. With similar reasons, recontracting and upselling also regained strong footing in the second quarter, altogether supporting an improved revenue performance quarter-over-quarter in our core businesses.
45% fixed broadband revenue growth [indiscernible] for the first time in 5 quarters, but we will be reclaiming it back as early as next quarter, thanks to the stronger-than-expected subscriber dynamics expanding into the second half as well as we recently implemented sizable price revisions in the wholesale and retail portfolios. A [ 81% ] mobile revenue growth once again surprised to the upside, with the support of several strong KPIs confirming the virtue of our strategy that has been reinforcing our position in the market. Postpaid net additions and churn were extremely resilient to increase competition.
Net losses in the prepaid segment, on the other hand, was a result of increased preference towards postpaid tariffs of local and roaming or other alternatives or foreign [ tourist ] resulting in addition to competitive pressures. Although data package sales and top-ups were boosted by the earthquake in this need for communication last quarters, we have seen a similarly strong performance in each categories, thanks not only to seasonality, but also through our targeted and courageous way of adjusting customer needs.
The number of additional data packages sold grew by 19% year-over-year, while average top-up amount per prepaid subscribers more than doubled. Corporate data revenue growth was 62% with a similar performance to last quarter. Growth in other revenues and with other [ rents ] surged to 134% thanks to robust progress in equipment, ICT project and call center revenues.
Advanced performance in equipment sales was largely driven by project revenues generated by Türk Telekom and Innova. Finally, international revenue growth accelerated significantly from last quarter to 88% along with [indiscernible].
Now moving on to EBITDA. An accelerated 37% growth moved consolidated EBITDA to TRY 6 billion. This is up by 230 basis points quarter-over-quarter. EBITDA margin increased now to 33.6%, while the revenue increase in excess of OpEx increase supported to quarterly margin improvement, higher growth in our noncore revenues work in the opposite direction.
We continue feeling the impact of the quakes on our EBITDA. If adjusted for those items, second quarter EBITDA and EBITDA margin will move up to TRY 6.2 billion and 34.3%, respectively. Increase in operating expenses slowed to 88% year-over-year from 96 of the last quarter. Excluding IFRIC 12 cost, growth in operating expenses was 92%. Annualizing network and personnel expenses lost steam in quarterly comparison, thanks to some decline in energy costs, and the one-off costs recorded last quarter due to the transient scheme enforced by the government.
As we mentioned in our guidance, we maintain a cautious view on our own cost inflation, given the reversal of downward trend in inflation with July CPI surging back to 48% from 38% in June. In its latest inflation report, Central Bank increased its year-end inflation forecast to 58%. The salary adjustments we made following government's 34% hike in new wage effective from the second half will be affected on our financials starting from the third quarter.
Coming to the bottom line, dollar to euro and euro to lira rates both increased by 35% on average quarter-over-quarter. Interest rates also went up significantly and remained elevated throughout the quarter and extreme volatility in financial markets driven by the election uncertainties. As a result, we incurred significantly higher FX losses quarter-over-quarter on currency weakness. Hedging costs also went up slightly reduced to higher FX and interest rates as we continue to utilizing short-term instruments for hedging purposes.
That said, it will be fair to mention that extreme volatility and change in macro assumptions has caused some of the mark-to-market gains on certain hedging instruments to be incurred in the first quarter, leading to a net effect hedging loss of TRY [ 0.6 ] billion versus TRY 4.2 billion in the second quarter. On the flip side, TRY 1.2 billion of net tax income driven by the revaluation of assets and R&D and investment incentives support the bottom line. As a result, we recorded TRY 600 million net loss for the period. Again, if adjusted for the crack related items, net loss will be TRY 485 million.
Finally, CapEx was at TRY 3.7 billion in the second quarter, of which TRY 260 million was earthquake-related spending.
Moving on to the next slide, Slide 10, with debt profile. Thanks to progressive operating performance, net-debt-to-EBITDA ratio was contained at around 1.65 multiple in the reporting period despite a massive 35% increase in FX rates. Cash and cash equivalents are up to TRY 9 billion, of which around 38% is FX based. This excludes the $320 million equivalent of FX-protected time deposit that we booked on the financial investments.
The share of local currency borrowings within the total debt portfolio declined to 22% from 27% a quarter ago. The FX exposure included USD equivalent of $2 billion of FX-denominated debt, 2.6 billion of total hedge position and 130 million of hard currency cash. The hedged amount included is $320 million equivalent of FX-protected time deposits, which is unchanged from the first quarter.
We are now on Slide 11. Our long FX position was TRY 690 million by the end of the quarter, excluding the ineffective portion of the hedge portfolio, mainly the participating cross-currency contracts. Foreign currency exposure was TRY 140 million short FX position, which compares to TRY 370 million short position a quarter ago. Similar to previous quarters, in continued lack of long-term derivative transaction in the FX hedging market, we kept utilizing short-term instruments, while the net FX exposure contracted continuously over the last 6 quarters as a result of ongoing efforts to narrow down the position.
The FX sensitivity analysis reported regularly in our quarterly financial suggest assuming all else constant, a 10% increase in FX rates would have around TRY 370 million negative impact on our pre-tax income. On the flip side, besides sensitivity analysis produces around TRY 270 million positive impact in terms of a similar depreciation in lira.
Leaving behind the low seasonality and the earthquake pressures, unlevered free cash flow turned to a positive TRY 2.3 billion from a negative TRY 2 billion a quarter ago, along with an improved EBITDA performance. It also compares favorably to TRY 1.5 billion generated in the same quarter of last year. This will conclude my presentation. We can now open the Q&A session.
[Operator Instructions] I'd like to inform you that Türk Telekom will have translation during the Q&A session. [Operator Instructions] The first question today comes from Evgeny Annenkov from Bank of America.
And congratulations with a solid quarter operationally. I have 2 questions, please, the first one on competition in fixed broadband segment. I understand the price response by ISPs is yet to be seen. But if we talk about maturities, do you see any major changes in contract structure in the market? In particular no commitment or 3 plus 9 months contracts, do they gain more traction or customers still prefer to go for longer contracts in the high-inflation environment?
And second, on cash generation, you have delivered a solid TRY 2.3 billion free cash flow in the quarter. I see this partly was helped by major inflow from payables. Can you please give more color on working capital and which tools do you have to mitigate cost pressure and protect cash flows?
[Interpreted] Thank you very much for your question. Just like you have said, we have made our price revisions. And as of now, we haven't seen a full participation from all other ISPs, but we expect them to follow it. And we will be planning our price increases in line with the balancing of the parities for customers to get used to the new price levels and the cost of inflation, of course. Of course, with that, we have the forecast that we will have a strong back-to-school period after the post earthquake subscriber dynamics that well off better than our expectations and the consumer gets used to the new price levels. We think that the subscriber movement, which we previously expected to be slightly negative, will be positive in the fixed broadband business line.
And in terms of the contract structure, we know we have our 12-plus-12 contract structure that we have started implementing. But from time to time, we see that our competitors are implementing 3-plus-9 or 6-plus-6 kind of contract structures, but they are not so widespread. And we know that noncontracted customer base is also not so widespread, they're just a periodical. They don't need kind of implementation.
By the way, I would like to highlight that point as well. After a long period, we have increased our wholesale and retail prices. And we have this inflationary environment, and it is important for us to increase its wholesale prices. But independent of the regulatory authorities' approval for limit increases or not at all, we believe that we will be able to turn this scheme into an automatized within this inflationary environment which will put the price increases of all ISPs into a more predictable and healthy manage.
Yes, for the second part of the question, which was around the cash flow point. Well, when you look at the cash flow, it's very obvious that is being impacted by the seasonality in the way we spend money for CapEx. Because the CapEx of a quarter mostly falls into the accounts payable as a result of the payment terms. And when you look at the second quarter, we see a higher CapEx.
There is also a earthquake-related spending that also improved coming from the first quarter, and the first quarter that has also impacted the accounts payable. But I should also remind one factor here. I mean, this is something we started, especially last year.
The delivery went down on the payment -- days payable for hard currency for CapEx item, which were priced in hard currency. This was the result of our effort to minimize the FX exposure. It gives us a bit burden on the cash flow. You know that. You saw the impact last year as well, but it's also saving us from a higher FX exposures, meaning we have to now hedge less, we need to overcome the FX risk. I think that strategy will stay a bit longer until [ Randy ] has more visibility on the FX rate trend and continue putting a bit of pressure on the cash flow performance.
And the other factors, I mean, the payables is also impacted by everything that comes as a result of the inflation. I mean, all type of payable items are also inflated by the pricing impact. And this is something also giving a bit positive results for cash flow.
[Operator Instructions] And our next question comes from [ Yule Adelson ] from [ T. Rowe Price. ]
Just wondering how you're thinking about refinancing your 2024 and 2025 upcoming bonds.
Well, thank you. Well, if you look at the -- not only to the refinancing of 2025, when you look overall refinancing of the debt portfolio because that bond only give us -- is 20% of the debt that will have a maturity in the next 12 months. Obviously, we are now using sizable financing from local markets. These are lira commercial loans, more than 20% of the debt portfolio was in euro loans.
By market conditions, I mean, gives us maturities less than a year. So everything that you see as lira borrowings falls below 12 months. And there is a remaining roughly 12% of the debt portfolio, which consists of other -- not only bonds, but other hard currency long-term loans that will expire within the next 12 months. In return, [ recurrency ] has around TRY 220 million committed ECA facilities.
Again, I mean, the plan for the lira side is to roll over the debt once the maturities come. And for the other long-term loans repayment, we secured almost a similar committed in same line. And at the same time, we carry around $700 million equivalent of cash in total. This consists of $320 million of currency-protected deposits, another close to $350 million of cash kept both in lira and dollar and euros.
So we have a sizable cash in hand. And we define the -- this one thing which seems to be a bit hidden within our numbers. We also have around $360 million equivalent in mark-to-market coming from the whole huge derivative portfolio. Obviously, these are mostly linked to the repayment of the financial debt, and that would give us a certain benefit when the maturity comes. So all-in-all, we have a sizable cash or potential reduction from the debt in the form of mark-to-market of the derivatives.
And we try to base our worst-case scenario, this is really the extreme case, not having a major refinancing of 2024. But still, we are now looking at all sorts of opportunities in the market as we are kind of seeing that there is a better market for bond issues and the [indiscernible] is, in a way, opening the way. And we saw strong demand in the recent issues. So we are also trying to analyze what we would do. The outcome for potential bond issue until we have the [indiscernible] of 2024. So again, this wasn't our base case scenario, but I think the market conditions are not changing.
[Operator Instructions] Our next question comes from Cemal Demirtas from Ata Invest.
My question is about earthquake donations amounting at around TRY 2 billion. Should we expect a full of that amount cash outflow in the second half of the year? And the other one is rather a strategic question about the licensing of Turk Telekom going forward. And in the past, we were just discussing 5G issues and the other regulatory issues. How do you see that process will be going on as the election is already gone, completed? Should we -- in the future, in the next 6 to 12 months, should we expect some changes in the sector or some clarification about licensing or 5G issues?
[Foreign Language] Thank you very much for your question. As you know, this donation decision has to be approved by the general assembly. And recently, we have completed our general assembly and fulfilled its requirement. Of course, since the donation decision, we have made many spendings and expenditures that can be considered as donations under [Foreign Language] Emergency Management Coordination considering the earthquake priorities and regional needs.
So I can tell you that considering all the expenditures so far and depending on the size of the remaining amount, we prefer to pay it in periods rather than all at once. I believe we will be able to share more clear information related to how much of the benefits and expenses will be deducted from the donation around Q3 financials.
Related to your second question, I mean, as you know, we recently had our general assembly, and we have appointed our new Board of Directors. And I'm CEO, but also I'm also a member of the Board. And just after the general assembly, we have made our first Board of Directors meeting. And the first item on the agenda was the renewal of the concession which will clear the uncertainty ahead of our company.
You have asked also what to expect in the coming 6 to 12-month period. I mean, fortunately, as a CEO and the Board member of this company, my role is to solve this concession issue as soon as possible. And I see that this is the will of the new Board of Directors as well. This is our primary agenda item. So I believe it's not going to take it so long. I'm more motivated to clear this decision not longer than -- not even up to 1 year, but this is not a binding [ equipment ] cost.
Related to [indiscernible], I mean, there is nothing much that I can add before what we have shared previously. There's nothing to speed it up so far. And the Ministry of Transport and Infrastructure shared some of these views related to 5G transition before. And then we have the earthquake and the economic conditions in our country. For that reason, we don't expect a fastly auction in the short period. But with that, all our investments are compatible. And we are the most ready operator to 5G with all the investments that we have made in the infrastructure network. We have all the use cases, and the scenarios are going on as well. But again, we don't expect a fast auction in the short period. .
[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I would now like to turn the conference call over to Türk Telekom management for any closing comments. Thank you.
Well, thank you, everyone, for joining us today. We really appreciate your participation, and we look forward to meeting you next time. Thank you. Enjoy you day. .
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephones. Thank you for calling, and have a good afternoon.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]