1 TÜRK TELEKOMÜNİKASYON A.Ş. INTERIM ACTIVITY REPORT AS OF BASED ON NO:II-14.1 COMMUNIQUÉ OF CAPITAL MARKETS BOARD July 22, 2015
2 CONTENTS 1. OVERVIEW OF TURK TELEKOM 2. CORPORATE STRUCTURE 3. SIGNIFICANT BOARD RESOLUTIONS 4. PERSONNEL MOVEMENTS 5. FINANCIAL RISK MANAGEMENT 6. MATERIAL ISSUES DURING THE PERIOD 7. MATERIAL ISSUES AFTER THE END OF THE PERIOD 8. SUMMARY FINANCIAL RESULTS
3 1. OVERVIEW OF TÜRK TELEKOM Türk Telekomünikasyon A.Ş. ( Türk Telekom ) with its subsidiaries, provides its customers with complete range of fixed line, mobile, data, and internet services as well as innovative convergence technologies through its extensive fixed-line telecommunications network, which covers almost 100% of the population. Number of total access lines in service declined to 12.9 million in second quarter of 2015 from 13 million in the first quarter of This number was 13.4 million in the second quarter of Türk Telekom offers wholesale infrastructure services for ISPs besides being broadband internet provider having the widest sales network in Turkey, through its wholly owned subsidiary TTNET. 21% of broadband internet access in Turkey is through fixed broadband as of first quarter of The remaining 79% is attributable to mobile operators 1. The number of fixed broadband subscribers of Türk Telekom increased to 7.7 million in the second quarter of 2015 from 7.4 million in the same quarter of Türk Telekom, having 89.99% shares of Avea, the third largest mobile operator in Turkey, provides mobile communications services, including traditional and value added voice services, international roaming services, messaging and data services (using SMS, GPRS, EDGE and 3G technologies). Avea has been founded in 2004 as a result of the merger of Aycell and Aria brands. Thanks to its performance, from its foundation to the second quarter of 2015 its subscriber base rose from 4.8 million to 16.7 million. In addition to fixed line and mobile voice and data services, Türk Telekom operates IT consulting services, telecommunications product and software services and education businesses through its wholly owned subsidiaries Innova, Argela and Sebit. Türk Telekom also operates CRM systems, directory services and call centers through its wholly owned subsidiary AssisTT. Finally Türk Telekom International (with their old names respectively Invitel and Pantel), data and wholesale capacity provider, joined to Türk Telekom Group in In addition to these, Türk Telekom has 20% shares of CETEL that holds 76% shares of Albtelecom, incumbent fixed line operator in Albania. Türk Telekom supports various education projects, sports, arts and environmentally sensible activities as part of its social responsibility program. 1 Source: nd Quarter Sector Report of Turkish Information and Communications Technologies Authority
4 2. CORPORATE STRUCTURE Ownership Structure Class Shareholder Share Capital (TL) Share (%) A Ojer Telekomünikasyon A.Ş. 1,925,000, B T.R. Undersecretariat of Treasury 1,049,999, C T.R. Undersecretariat of Treasury D Free float 525,000, Total 3,500,000, The Türk Telekom Shareholders Agreement and the Articles of Association further state that the Turkish Treasury owns a golden share (Class C share). The golden share is required under the Telephone Law and provides that, in order to protect Turkey s national interests relating to national security and the economy, the Turkish Treasury s positive vote is required for the following matters: a) Any proposed amendments to the Articles of Association; b) The transfer of any of the Company s registered shares (i.e., the Class A shares) which would result in a change in management control; c) The registration of any transfer of the Company s registered shares in the shareholder ledger. Natural and legal persons owing share from our Company s capital are stated below:
5 Subsidiaries and financial investments TÜRK TELEKOMÜNİKASYON A.Ş. %89.99 Flexus Mobil Finans ve Dağıtım A.Ş. Avea İletişim Hizmetleri A.Ş. TTNet A.Ş. %20 Türk Telekom International Group Innova Bilişim Çözümleri A.Ş. Argela Yazılım ve Bilişim Teknolojileri Sanayi ve Ticaret A.Ş. Sebit Eğitim ve Bilgi Teknolojileri A.Ş. AssisTT Rehberlik ve Müşteri Hizmetleri A.Ş. Cetel Telekom İletişim Sanayi ve Ticaret A.Ş. %76 Argela USA, Inc. (USA Sebit LLC (USA) Rehberlik ve Müşteri Hizmetleri A.Ş Albtelecom Sh. A (Albania) Management and Organization Board of Directors Mohammed Hariri Abdullah Tivnikli Cenk Serdar Hakam Kanafani Khaled Biyari Mazen Abou Chakra Rami Aslan Talat Aydın Fahri Kasırga İbrahim Eren Kemal Madenoğlu Yiğit Bulut Statutory Audit Board Lütfi Aydın Ali Polat Mustafa Koç Chairman of the Board of Directors CEO and Independent Independent Independent Member and Vice Chairman of the Board of Directors Independent Member of the Statutory Audit Board Member of the Statutory Audit Board Member of the Statutory Audit Board Senior Management Rami Aslan Erkan Akdemir Mehmet Ali Akarca Kaan Aktan Bahattin Aydın Hüseyin Balcı CEO and Member of Board of Directors CEO, Avea CEO of the Consumer Business Unit, TTNET CEO of the Corporate Business Unit, TTNET Chief Consumer Finance Officer, TTNET Chief Human Resources Officer Chief Consumer Sales Officer, TTNET
6 Necdet Mert Başar Kadir Boysan Dr. Nazif Burca Doğan Coşgun Dr. Ramazan Demir Çağrı Dönmez Hakan Dursun Fırat Yaman Er Metin Erhan Dehşan Ertürk Abdurrahman Güvenlioğlu Nimet Güventepe Tevfik Fikret Karaman Murat Kırkgöz Orçun Onat Kaan Sümer Dr. Coşkun Şahin Cemil Yıldırım Yavuz Yıldırım Chief Corporate Marketing Officer, TTNET Chief Corporate Sales Officer, TTNET Head of Internal Audit Chief Legal Officer, Avea Chief Regulation Officer Chief TV Officer, TTNET Chief Strategy and Business Development Officer Chief Business Planning Officer Chief Procurement and Vendor Management Officer Chief Consumer Marketing Officer, TTNET Chief Support Services Officer Chief Corporate Customer Care Officer, TTNET Chief Field Management Officer, Türk Telekom Chief Financial Officer Chief Consumer Care Officer, TTNET Chief Corporate Financial Officer, TTNET Chief Technology Officer Chief Administrative Affairs Officer, Avea President of Wholesale Clients Unit, Türk Telekom 3. SIGNIFICANT BOARD RESOLUTIONS Significant Board Resolutions taken during the period are presented under Material Issues During the Period section. 4. PERSONNEL MOVEMENTS Consolidated headcount as of the second and first quarter of 2015 are 34,389 and 33,381 respectively. 5. FINANCIAL RISK MANAGEMENT Main financial instruments of the Company are forward market transactions, bank loans and cash and short-term deposits. They are being used with the aim of raising funds for the Group s operations and hedging interest rate risk. The risks stemming from these instruments are liquidity risk, foreign exchange risk, interest rate risk, and credit risk. 6. MATERIAL ISSUES DURING THE PERIOD As we have disclosed on April 3, 2015, Our company signed two loan agreements with China Development Bank Corporation in order to finance our company s and subsidiaries purchases from Chinese vendors. Total amount is USD 200 million, maturity is nine years including a grace period of two years, annual interest rate is Libor %.
7 As we have disclosed on April 22, 2015, Our Company has submitted a non-binding offer for the acquisition of the shares representing % of the issued share capital of Avea İletişim Hizmetleri A.Ş. with a total nominal value of TL 820,294, held by Türkiye İş Bankası A.Ş., Türkiye Şişe ve Cam Fabrikaları A.Ş., Trakya Yatırım Holding A.Ş., Anadolu Hayat Emeklilik A.Ş., Efes Holding A.Ş. and Anadolu Anonim Türk Sigorta Şirketi. As we have disclosed on April 29, 2015, Our Company signed a Share Transfer Agreement with Türkiye İş Bankası A.Ş., Türkiye Şişe ve Cam Fabrikaları A.Ş., Trakya Yatırım Holding A.Ş., Anadolu Hayat Emeklilik A.Ş., Efes Holding A.Ş. and Anadolu Anonim Türk Sigorta Şirketi to purchase their % shares in our affiliate Avea İletişim Hizmetleri A.Ş. for TL 875 million. Payments will be done in TL, 6.3% of the total amount will be paid in two equal installments until January 2017, remaining 93.7% will be paid in 4 equal annual installments beginning in 2017 and ending in Our company will become the sole owner of Avea İletişim Hizmetleri A.Ş. after obtaining necessary approvals. As we have disclosed on May 12, 2015, The Board of Directors of our Company has convened and resolved that Our Company s Extra Ordinary General Assembly Meeting shall be held in the address of Türk Telekomünikasyon A.Ş. Genel Müdürlük Kültür Merkezi, Turgut Özal Bulvarı Aydınlıkevler, Ankara and by electronic means on at 12:00 a.m. and in order to discuss the following agenda items, TÜRK TELEKOMÜNİKASYON A.Ş. AGENDA FOR EXTRAORDINARY GENERAL ASSEMBLY MEETING 1. Opening and Election of the Chairmanship Committee; 2. Authorizing the Chairmanship Committee to sign the minutes of the General Assembly Meeting and the List of Attendees; 3. Election of the Board of Directors, defining their terms of office and their salaries; 4. Resolving on giving permission to the Board of Directors Members to carry out works within or out of the scope of the Company s operations on their own behalf or on behalf of others or to be a partner to companies who does such works, and to carry out other transactions, as per Article 395 and 396 of Turkish Commercial Code; 5. Comments and closing. As we have disclosed on May 12, 2015, As per item of Capital Markets Board Corporate Governance Principles, annex of Corporate Governance Communique, II-17.1; Independent Board Member Yiğit Bulut is appointed to the vacant Chairmanship position of the Early Identification and Management of Risks Committee. As per article of Capital Markets Board Corporate Governance Communique, II-17.1; Süleyman Kısaç is appointed to the membership of Corporate Governance Committee.
8 As we have disclosed on June 17, 2015, Our company signed a long-term loan agreement with HSBC, Mizuho and BNP under the insurance coverage of EKN (Swedish export credit agency), in order to finance our company s and its affiliates capital expenditures. The amount of the facility is USD 150 million, maturity is 10 years and interest rate is LIBOR % p.a. including SEK cost of funding. As we have disclosed on June 29, 2015, Collective Bargaining Agreement negotiations between Türk Telekom and Haber-İş Union for the 11th Period began on April 15, 2015 were concluded with a settlement. This Collective Bargaining Agreement covering 12,000 of our employees of all Turk Telekom offices in Turkey will be effective for 2 years between March 1, 2015 and February 28, According to the settlement, which will cover our unionized employees, wages below TL 1,500 will be increased to TL 1,500 and wage increases for the 1st 6-month period will be TL 200, 2nd, 3rd and 4th 6-month periods will be 4.5%, 3.5% and 3% respectively. If CPI in 3rd and 4th 6-month periods exceeds 3.5% and 3% respectively, 100% of the difference will be compensated in the following 6-months period's wages. As we have disclosed on June 30, 2015, Fitch Ratings has affirmed our Long-term Foreign and Local Currency Issuer Default Ratings of BBB- (investment grade) with Stable Outlook, and senior unsecured rating of BBB-, as part of a routine portfolio review process. As we have disclosed on June 30, 2015, Legal approval process our company started regarding the acquisition of the shares of Avea İletişim Hizmetleri A.Ş. owned by İş Bank Group continues. 7. MATERIAL ISSUES AFTER THE END OF THE PERIOD As we have disclosed on July 8, 2015, Our company s Extraordinary General Assembly Meeting was held and aforementioned agenda items were discussed and resolved.
9 8. SUMMARY FINANCIAL RESULTS Summary Türk Telekom Consolidated Balance Sheet as of 2015 Q2 and 2014 Q2 TL million 2015 Q YE Intangible Assets 4,741 4,838 Tangible Assets and Investment Property 8,042 8,194 Other Assets 5,029 4,308 Cash and equivalents 1,991 2,538 Total Assets 19,803 19,878 Share capital 3,260 3,260 Reserves and retained earnings 2,736 2,569 Interest Bearing Liabilities 10,421 8,878 Provisions for long-term employee benefits Other Liabilities 2,430 3,403 Net Income 362 2,007 Total Equity & Liabilities 19,803 20,673 Summary Türk Telekom Consolidated Income Statement for the periods of 2015 Q2 and 2014 Q2 TL million 2015 Q Q2 Revenues 3,526 3,300 EBITDA 1,320 1,253 Margin 37.4% 37.9% Operating Profit* Margin 22% 24% Profit Before Tax Margin 13% 31% Tax Expense Minorities 12 9 Profit/(Loss) For The Period Margin 10% 24% *Operating profit includes revenues, cost of sales, depreciation and amortization, selling and marketing expenses, administrative expenses, other operating income/(expense), and income/(expense) from investing activities, but excludes financial income/(expenses) presented in other operating income/(expenses) (i.e. FX gain/(loss), interest income /(expenses), and discount income/(expense) on receivables and payables), income on unconsolidated subsidiaries, and minority interest. Reported operating profit on CMB financial statements is different due to reclassification requirements of the POA/CMB since 2013 Q3 financial statements. Further explanations are available on notes 2.1 and 5 on financial statements.
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