Good day, and welcome to the fourth quarter and full year 2018 results conference call and webcast. For your information, today's conference is being recorded. At this time, I'd like to turn the call over to Zeynel Korhan Bilek, Director of Treasury and Capital Markets Management. Please go ahead, sir.
Thank you, Ian. Hello, everyone. Welcome to Turkcell's fourth quarter and full year 2018 results call. Today's speakers are our CEO, Mr. Kaan Terzioğlu, 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. Terzioğlu.
Thank you, Korhan. Good afternoon and good evening, and welcome to Turkcell's fourth quarter and full year 2018 results call. 2018 was a remarkable year in our digital transformation journey. Our model has passed the stress test of challenging macroeconomic conditions in local and global markets. Our above-industry revenue growth, coupled with increasing profitability, is testament to our success of our Digital Operator strategy. With TRY 21.3 billion consolidated revenues, up 20.8% year-over-year, and up 49% two-year-over-year growth, thanks to our revenues generated from new and adjacent products. Our EBITDA grew 90.2% on a two-year cumulative basis, reaching TRY 8.8 billion with a margin of 41.3%. In 2018, we saw 169 million downloads of our digital services, a key pillar of our Digital Operator transition. About 20% of these downloads were by non-Turkcell customers.
Throughout the year, we continued to expand and enrich our digital services with new features. Accordingly, we have received a higher share of our customers' 1,440 minutes in a day and created greater value within those minutes. In TechFin solutions, we strengthened the foundations of our business, deepened our competencies, and increased our customer interaction. Paycell continued its firm progress towards becoming one of the strongest players in mobile payments in the world. A TRY 5.8 billion transaction volume was created through Paycell in 2018. Thanks to our business model hedging strategy, we generated solid profits as well as TRY 2.8 billion cash through our operations. This year marked another milestone for our asset-light strategy with the divestment of our stake in Fintur. We expect approximately EUR 350 million cash proceeds and around TRY 650 million profit and loss contribution in the first quarter of 2019. Next slide.
Let's take a closer look to our financial and operational performance in 2018. We generated revenues of TRY 21.3 billion, at 20.8% increase year-on-year. This brings the two-year cumulative growth rate to 49%. The key driver of our performance was mobile ARPU growth, which came as a result of the successful execution of our 1,440 minutes of valuable customer engagement strategy. 2018 was the third consecutive year of EBITDA margin expansion. With 41.1% year-on-year growth, EBITDA reached TRY 8.8 billion with a margin of 41.3%. Our bottom-line performance was delivered through a combination of revenue growth, operational efficiency, prudent foreign currency, and interest rate hedging practices. As a consequence, we reported a net income of TRY 2 billion, rising above that of 2017. Reflecting the increasing downloads and usage of our digital services, the share of mobile multi-play customers reached 66.7%.
Nearly one in two fiber residential subscribers now uses our TV+ services. The average data usage amongst 4.5G users has continued to rise, reaching 8 gigabytes in December. In 2018, we distributed TRY 1.9 billion dividends corresponding to a yield of 7.2%. That brings us to TRY 8.8 billion dividend distribution since April 2015, reflecting a total yield of 30.3% and bringing the total shareholder return to 53%. Next slide. Let's look at our performance in the context of our 2018 guidance. In an exceptional year like 2018, we raised our guidance throughout the year to give the most current picture to our shareholders. The resulting 20.8% top-line growth was well within our guidance range. This achievement is due to a higher postpaid ratio, a higher number of 4.5G users, increased multi-play, and higher data usage boosted by our digital services.
In EBITDA margin, we have slightly exceeded the higher end of the guidance range with 41.3%. This is the result of a strong OpEx management in a higher inflationary environment compared to 2017. Finally, with our disciplined capital spending, coupled with foreign currency risk management practices, we delivered our operational CapEx to sales guidance despite the TRY depreciation. Next slide. Some additional details on our quarterly financial performance. With a TRY 5.6 billion top line and TRY 2.2 billion EBITDA, we recorded a 39.8% EBITDA margin. Our quarterly revenue growth of 20.6% would have been 21.4% excluding the impact of All-Out War Against Inflation Campaign. With our efficient foreign currency and interest rate hedging practices, we have continued to generate net income at a pretty stable quarterly run rate. Accordingly, we printed net income of TRY 864 million in the fourth quarter. Next slide. Let's elaborate on our operational performance.
Downloads of and subscriptions to our digital services continued to rise. By the end of 2018, our digital subscribers had reached 85.8 million, up nearly 19 million year-on-year. Our postpaid subscriber base continued to grow with 347,000 net additions in 2018. It accounts for 56% of our total mobile subscribers. Our monthly average mobile churn rate during the quarter was at 2.9% with the impact of seasonality. Excluding involuntarily deactivated subscribers, our churn rate was 2.4%. Our customers increased data and digital services usage, and upsell to higher tariffs has increased mobile ARPU to TRY 37.4, a 15.8% year-on-year growth. On a like-for-like basis, mobile ARPU growth was 18%. The impact of All-Out War Against Inflation Campaign on mobile ARPU growth was 0.7 percentage points in the fourth quarter. On the fixed broadband front, our fiber business has performed well with nearly net additions of 181,000.
Including OTT subscribers, total TV subscribers reached 3.4 million by the end of the year. Superbox is our innovative wireless home broadband product. Today, it is in 33,000 households, generating 102 TRY ARPU. Its superior user experience makes Superbox stand out in the fixed broadband market. Next slide. Let's dive deeper into our marketing campaigns, which have increased customer engagement and loyalty. In a unique campaign launched in the fourth quarter, we doubled our customers' data quotas with 6 million customers participating. While supporting the nationwide all-out war against inflation, we opened the door to a wider data experience for our customers' interest in video, photos, gaming, and much more. This promises higher data consumption as new habits are being formed. Similarly, with our Surprise Points campaign, we have invited 7 million customers to visit specific locations to collect gifts of minutes, data, or subscriptions to our digital services.
Our legendary Shake and Win campaign, with 21 million participants to date, has distributed over 600 million gifts. This campaign has been instrumental in engaging and retaining customers. In addition to our ever more relevant digital services, our network quality, sales channel efficiency, and overall brand image continue to impact us positively. Accordingly, we maintained a wide gap with the competition in Net Promoter Score, despite the fact that the consumer confidence was down in the fourth quarter. Next slide. The key driver of our strategy, demand for data and digital services. Average mobile data rose 37% in a year to 5.9 gigabytes per user in the fourth quarter. The main driver of this increase is the rising consumption of 4.5G users, which reached 7.6 gigabytes per user. Digital services have been instrumental in driving this increase. They generated almost 21 terabytes of traffic on our network in Q4.
Out of 30.8 million customers signed up for our 4.5G services, 18 million have 4.5G compatible smartphones. The room for growth here underlies the potential for greater data use by a wider customer base, as 4.5G use consumers twice data compared to 3G. The regulatory change limiting installments for device financing, coupled with currency depreciation, has put pressure on new smartphone device sales, as mentioned in our third quarter call. Yet, our network already has a robust 74 percentage points smartphone penetration, of which 80% are 4.5G compatible. Next slide. In the fourth quarter, customer engagement through our digital services continued to rise.
In addition to 31 minutes of GSM calls, the call time for Voice over Internet Protocol customers on BiP increased to 33 minutes. While a user on average spends nine minutes interacting on BiP, our instant messaging platform, our customers spend 81 minutes on the TV+ app, 18 minutes on reading magazines and newspapers on Dergilik, and 48 minutes listening music and video clips on Fizy. They spend 17 minutes on our gaming platform, Playcell, and similarly, 17 minutes on BiP Gaming. For multiplayer online games, a TavlaGO player, which is an online massive player on backgammon, has spent 35 minutes in the app. On Hadi, the live trivia game, a typical user spend 30 minutes on average on a daily basis. Some 2.7 million searches per day are done on Yaani, our search engine, while 41 documents are uploaded per person per day on Lifebox, our consumer cloud service.
All of these digital services have been enriched with new features in the last quarter, which I will elaborate shortly. Next slide. Looking back at their trajectories, we see each core digital service in our portfolio passing critical milestones at a faster pace since 2016, when we launched 4.5G. In 2017 and 2018, we witnessed a reach over 10 million in six out of eight core digital services, bringing the total to 169 million downloads. In this journey, we registered a record uptake of 1 million downloads of Yaani, our search engine, in as little as nine days after launch. Our efforts to make these services widely known continue at full speed while we tirelessly enrich them with new features. Next slide. Let's look at the KPIs of our services this quarter. With 34.6 million downloads to date, active BiP users increased to 11.5 million.
148 million messages per day are sent through BiP in Q4, marking a new record high. Its money transfer and second number integration capabilities launched in 2018 have further differentiated BiP. UpCall, which combines an enhanced calling experience with secure phone book, digitized 2.3 million calls per day. The leading digital publishing platform, Dergilik, has 12.5 million active users. Nearly 522,000 magazines and newspapers were read per day, thanks to expanded content. Total Fizy downloads reached 20.9 million, with over 7 million songs streamed daily on average. Its launch in Germany, Ukraine, and Belarus, its CarPlay mode, and successful integration with Paycell were the highlights for Fizy in 2018. Active TV+ users had 3.4 million sessions logins per day. Our enhanced movie content has attracted higher interest. Lifebox, our personal cloud app, has 2.6 million active users with 41 documents uploaded per person per day.
Its ability to send content to print and phone book backup differentiate Lifebox in the market. Our key tool in digitizing our customer contact, formerly known as My Account, is now called Digital Operator. With 19.2 million active customers that generate 27% higher ARPU on average, Digital Operator brings a convenient, transparent, and engaging tool to Turkcell's digital world. Yaani, our locally developed search engine, has been downloaded over 7.6 million times. Also available in web version, Yaani has 3 million active users. Payment platform Paycell, hosting several TechFin solutions, has 5.2 million total users with transactions worth TRY 5.8 billion in 2018. The Paycell app has 2.7 million registered credit cards. Our Fast Login service, enabling secure and seamless sign-in to mobile apps and online websites, has 15.3 million registered users. Fast Login is integrated to 40 services, through which around 232 million logins have been facilitated to date.
Next slide. Our data-only offering, lifecell, has continued to attract interest, with users reaching 3.3 million in February 2019. After offering users a tariff creation option, lifecell now has more flexible and alternative tariffs. Using 8.6 GB data on average, a lifecell subscriber generates 1.3 times the ARPU of a Turkcell consumer segment subscriber. The churn rate of lifecell customers is 50% below that of the average Turkcell consumer segment subscriber. Next slide. We are committed to growth in the attractive gaming market with our multiple platforms. Available in web and mobile formats, Playcell is a safe zone for kids, offering a variety of educational and entertaining games. Total Playcell visitors reached 18.7 million in 2018, with 81 million total page views. Within less than a year, BiP Gaming unique visitors have reached 4.8 million and active for 17 minutes on average.
Multiplayer online games TavlaGO and Hadi have both successfully captured consumer interest. Since its launch, Hadi, Turkey's first online trivia game, has attracted some 110 million contestants. On New Year's Eve, a new record of 1.2 million contestants on a single occasion was achieved. TavlaGO is an online version of backgammon, hugely popular in Turkey. A player of TavlaGO spent more than 35 minutes on average in 2018 during a play. Next slide. In the field of TechFin, we provide a diverse portfolio of services through Paycell, Financell, and Güvencell subsidiaries. Paycell, a leading payment systems provider, also offers mobile wallet, carrier billing, utility payments, money transfer, and QR code payment services. Over 5.2 million users generated a 5.8 billion TRY transaction volume through Paycell in 2018. Our customers registered 2.7 million credit cards on the wallet.
Financell, our consumer finance company, facilitates customer access to smart devices with the loans it extends. We have a 4.2 billion TRY loan portfolio granted to 3.1 million customers at the end of 2018. With over 28 million credit score customers, Financell has significant growth potential. This business delivers value to the group and is EBITDA accretive. In 2018, we expanded our TechFin offering by establishing Güvencell Insurance, our insurance agency. Its first product was a health insurance package aimed at women. We plan to announce new products in the days ahead. Next slide. More details on Financell. As discussed in the third quarter earnings call, a limitation on the financing installments for telecom devices has been introduced by the regulator as a prudential macroeconomic measure. This limitation, coupled with significant rise in the retail prices of smart devices reflecting currency depreciation, has decelerated the revenue growth pace of Financell.
In the fourth quarter, the growth was 35%, while the annual growth was 56%. Its consumer loan portfolio has decreased to 4.2 billion TRY, which has effectively led to a positive cash flow for the group. As at the year-end, Financell carried a portfolio of 4.4 million loans outstanding. The average ticket size was 1,700 TRY. Consumers pay 116 TRY per month on average, with over 88% also opting for add-on loan protection insurance. Thanks to our strict credit scoring, cost of risk was at 1.9% in December, despite the challenging macroclimate. Next slide. Let me share also a few words on our performance in the international markets. In 2018, we also transferred our digital competencies to our subsidiaries. lifecell in Ukraine, the first operator to implement 4.5G services, is taking firm steps towards becoming the national digital operator. The three-month active 4.5G users reached 33% of total mobile data users.
The average data consumption per user rose by 128% year-on-year, mainly with the higher data consumption of the 4.5G platform. In Belarus, 4G customer penetration has continued to rise, generating a higher data consumption of 5.9 GB on average in Q4 and greater digital service usage. In this quarter, we launched also Lifebox and TV+ in this market. In the Turkish Republic of Northern Cyprus, Kuzey Kıbrıs Turkcell saw 13.8% year-on-year growth with a 32.6% EBITDA margin. In summary, these operations are well on track to becoming digital operators, which promises higher growth rates and better EBITDA. Next slide. While we strengthen our operations in the existing markets, our growth strategy in the international markets will be shaped by an asset-light approach. Accordingly, we established Lifecell Ventures as the master franchise holder for our digital services for other operators.
Through Lifecell Digital, our aim is to be a digital enabler for other operators under commercial agreements. Any operator willing to transform into digital provider is offered the option of acquiring our digital services portfolio in full, partially, or as white label. In this regard, we have already signed an agreement with Moldcell in Moldova and have more to announce next week at the GSMA event in Barcelona. Next slide. We now take one step further in building the digital future by launching our new brand, DO1440. Our vision, DO, stands for Digital Operator. Our strategy, 1440, reflects changing the customer interaction from 32 minutes for a traditional telco to 1,440 minutes, reflecting our vision and strategy. To hear more of what we have to say, please join us at the Mobile World Congress in GSMA in Barcelona next week, or visit the website digitaloperator1440.com for highlights through Mobile World Congress.
With the successful end to 2018 and solid start to 2019, let me share our guidance outlook for the coming year. Having delivered on our 2018 guidance, we have full confidence in our ability to continue delivering solid and profitable growth in 2019. Accordingly, we expect 16%-18% revenue growth for the group, mainly driven by continued growth in data and digital services and adjacent markets. With top-line growth and operational efficiency, we also target an EBITDA margin of 37%-40%. Meanwhile, we aim to stay within 16%-18% operational CapEx over sales ratio range through disciplined spending. All in all, 2019 guidance reflects the three-year targets we shared in March 2018. In 2019 and beyond, we will continue to execute our digital strategy to gain greater share of our customers' 1,440 minutes that exist in a day.
With that, I will now leave the floor to Osman Yilmaz, our Chief Financial Officer. Osman?
Thank you, Kaan. Good afternoon, and good evening to all participants. 2018 has been a year of significant achievements for the Turkcell Group, while financial markets venture strong macro headwinds. Our business model hedging strategy, which we define as right pricing, FX and interest rate risk management, and liquidity management, enabled us to achieve strong profitability and create shareholder value. In April, with our 10-year bond issue, we became the first company in Turkey to issue a 10-year bond since 2015. This landmark transaction has strengthened our balance sheet under favorable financing conditions while confirming market confidence in Turkcell. We have also taken major steps towards our asset light strategy by divesting Fintur's assets. In the fourth quarter, group revenues rose 20.6% year-on-year, corresponding to an incremental TRY 1 billion.
This increase is mainly comprised of TRY 745 million from Turkcell Türkiye on the back of strong ARPU, TRY 140 million from Turkcell International, and TRY 64 million from Turkcell Consumer Finance. For the full year, group revenues rose 20.8% year-over-year, where the driver was Turkcell Türkiye. Turkcell International's contribution was TRY 390 million, and Turkcell Consumer Finance contribution to growth was TRY 336 million. Next slide. In the fourth quarter, EBITDA rose 28.8% year-over-year to TRY 2.2 billion. This was mainly due to a solid rise in revenues and relatively low direct cost of revenues. As a result, the quarterly EBITDA margin was 39.8%. For the full year, consolidated EBITDA rose 41.1% to TRY 8.8 billion. Strong revenue, a nominal decrease in S&M expenses, and relatively low general administrative expenses were the underlying factors.
To sum up, Turkcell Group delivered all-time high full-year revenue and EBITDA in 2018, despite a challenging macro environment. Next slide. Now I would like to talk about our balance sheet and leverage details. In the fourth quarter, our net debt position decreased to TRY 12.7 billion. With that, net debt to EBITDA ratio of the company declined to 1.4 times, achieving a level below our company target of 1.5 times. Major factors impacting our net debt position in the fourth quarter were TRY depreciation, which was like TRY 1.2 billion, deleveraging of the consumer finance company, TRY 0.6 billion, and the last installment of payment of our dividends, also TRY 0.6 billion. Quarterly cash generated before dividends amounted to TRY 0.3 billion. Our telco-only net debt was TRY 8.6 billion with a leverage ratio of one time, notably below that of the third quarter.
In 2018, we actively managed our balance sheet. We issued a 10-year Eurobond in April and diversified our funding sources with vendor financing, lease certificates, Hedged securities, and other debt instruments. Along with the leverage target, we also aim to further diversify our funding sources and to keep the average tenure of our debt portfolio at four to five years. Next slide. Now I will go into the management of FX risk. As a natural hedging tool, we hold 100% of our cash in hard currency. In addition, by using hedging instruments, the share of FX in our debt at the end of the quarter falls from 84%-42%. Our short FX position was at $224 million by the end of the year. As announced, we are about to complete the Fintur divestment.
As such, we expect to receive approximately EUR 350 million cash in the first quarter of 2019. This transaction is not currently reflected in our financials. Once it is, our net FX positions will be $176 million long. Going forward, we target a neutral FX position in 2019 and onwards. Next slide. As discussed, another key development of 2018 was the sale of Fintur subsidiaries and ultimately our agreement to sell our stake in Fintur to Telia signed in December.
This transaction enhances our efficient balance sheet management and focus on growth through digital services and will result in a cash inflow of EUR 350 million upon completion. Subject to the FX rate and cash position at closing, the contribution of this transaction to Turkcell profitability is estimated at approximately TRY 650 million in the first quarter of 2019. This brings us to the end of our presentation. Now we are ready to take your questions. Thank you.
We now start our question and answer session. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. As a reminder, to participate in our written Q&A, just type your question into "ask a question" text area, then click the submit button. Thank you for holding. Our first question is from Cesar Tiron from BAML. Please go ahead.
Yes. Hi. Good evening, everyone. Thanks for the call and thanks for the ability to ask questions. I have two questions, if I may. The first one, can you please explain a little bit the deceleration of revenue growth at Turkcell Türkiye, which is now, I think, 18%. That's about 400 basis points deceleration for this Q2 number. It's still very strong, but I think below the trend of inflation. My second question, the guidance range for EBITDA for 2019 is obviously quite wide. Does it obviously reflect the multiple possibilities for macro inflation and the lira in 2019? Do you think that this guidance is as conservative as your guidance was a year ago? Thank you so much.
Cesar, thank you very much for your questions. First of all, let me start the first question in terms of deceleration of revenue growth in Turkcell Türkiye. Frankly speaking, when you look to growth numbers, I think it is important to take the overall trend over two years into perspective. We are actually quite comfortable with the level of the estimations and the guidance we have put for the first quarter, given the macroeconomic conditions in Turkey. More importantly, we are comfortable with the 49% year-on-year growth that we are exiting 2018 with, and we expect actually a similar strong performance looking into two year-on-year growth rates also in first quarter.
Guidance range overall, again, once you mentioned that it's wide, but again, if you look our two year-on-year growth rates, I think we are maybe prudent, and I think we should be prudent in the context of the macroeconomic conditions in Turkey with an upcoming also election. We believe that these are the right figures that we can confidently share with yourselves at this particular moment. I would like to also mention that in Q4, there has been a countrywide initiative in a fight against the inflation, and our numbers also reflect a 0.7%, I think, percentage points, which regard to the doubling of the quotas, therefore reduction of the quota excess revenues for Q4, which was a one-off. Please keep those into consideration assessing our guidance.
Thank you so much.
Thank you.
Our next question comes from [inaudible] Kim from Fiera Capital Partners. Please go ahead.
Hi, this is Evan Kim from Mixtelis. Sorry, just to follow up on the EBITDA guidance. Why your EBITDA profitability would drop from 41% in 2018 to 40% or below if about a third of your above EBITDA costs are inflation linked only, and you plan to grow above inflation in 2019 anyway? Just any color in that would be helpful. Secondly, on digital services. It's quite clear how beneficial those are for loyalty and LTV. Maybe you could also tell us now, since it's been a while that you're developing those digital services, how much revenues they generate in aggregate, at least ballpark. Is it 1%? Is it 5%? Is it 10% of your revenue? That'd be very helpful. Thank you.
Evan, thanks a lot. First of all, let me share with you that as we expand our business operations and tap into the adjacent markets such as energy management services as well as system integration services, you will see us delivering further growth in the areas of these additional businesses, which are nominally EBITDA accretive, but which might deliver slightly less EBITDA percentage points. In terms of especially system integration businesses, the likelihood of achieving similar type of EBITDA levels may not be the same. On the other side, we are confident with our three-year plan. As explained about March 2018, we have consistently said that our EBITDA margin expectations were in between 34 to 37 percentage points.
We are comfortably above that level, and we intend to keep that levels higher than those expectations. Also, please keep in mind that it is a year of high inflation in Turkey, please accept our prudence in making these figures. With regard to the revenues coming from digital services, I always answer this question saying that 100% of our revenues come from digital services. It is a matter of what value you provide to the customer. We are not actually at all interested in breaking down how much revenue comes from digital services, whether selling raw data. I think our objective is possible to sell only processed data in the form of digital services, which absolutely has an impact on loyalty and ARPU appreciation. Therefore, we will not be breaking down our revenues based on digital services.
Some of our customers like to watch TV, some others like to listen to music, some others read newspapers. We are in the process of actually making our pricing more precision-made based on that, and that will bring us the right approach. Thank you.
Thank you, Kaan.
Our next question is from Andrey Kalayda from UBS. Please go ahead.
Hi. Thanks for taking my questions. Congratulations on a great year. I wanted to ask around the consumer finance company if you can give us a guidance where you expect the total portfolio to end up on a, say, 12-month horizon at the end of 2019. Whether you can comment so far what sort of impact they have had in terms of your ability to not just sell, say, higher-end devices, but also upsell to higher tariffs that usually, I assume, come with these higher-end devices. Second question was related to, maybe a premature one, but related to the Fintur divestment. Assuming you book, say TRY 650 million of gains on your net income, would this be included in the basis for a dividend proposal for 2019 profit? Thank you.
Okay. Thank you, Andrey. With regard to the consumer finance business, as we mentioned, regulatory changes and the foreign currency depreciation really reduced the affordability of smartphones by the consumers. Therefore, we expect about TRY 1.5 billion P&L deleveraging on our consumer finance business in this year. Having said that, paying less for the device as an opportunity for us as the telco to increase the services component of the total offer. This is also an important thing that we will be focusing on. In terms of high-end devices, the taxation on high-end devices have also increased. Therefore, we expect actually mid and low-end devices to have a bigger share in the Turkish market. That will, of course, also encourage us for higher tariffs. With regard to the Fintur question, the TRY 650 million expected gains, of course, it depends on the foreign currency in the date of the closure.
This will be included for the base for dividends proposal. The question is, it will be in 2019 because we were going to be booking it this quarter.
Yes. That's understood. Thank you. Just if I may, one follow-up, the TRY 1.5 billion, that is a reduction compared to what the third quarter number or the fourth quarter number?
Along the year.
From TRY 4.5 total to TRY 3 billion roughly is your expectation by the end of 2019, just to confirm?
Yes. That's correct. By the end of the year, you should expect a TRY 3 billion figure.
Okay. Thank you very much.
Thank you.
Our next question is from Slava Degtyarev from Goldman Sachs. Please go ahead.
Yes, thanks for the presentation. A couple of questions. Firstly, it seems like your mobile prepaid subscribers declined quite significantly during Q4. Is it purely due to the new policy of the subscriber definition or there is something else behind that? Secondly, how should we treat your medium-term growth guidance? It doesn't seem like you changed that despite a better 2018 result and also a better 2019 outlook. Basically, do you aim to grow 14%-16% in 2020? Thank you.
Okay. Let me start answering your first question about the prepaid subs declining in Q4. This is a combination of seasonality, but more importantly, in the year-end, we make an involuntary churn based on the last nine months inactive numbers. Every year this is a routine transaction that we do. It is actually in line with our expectations, not an unexpected event. With regard to the midterm growth guidance, if you remember, we provided 14%-16% over three years. We actually indicate that now for this year, we are expecting 16%-18%. These are basically our guidances. We are not changing our three-year guidance at this particular stage, but we hope to make another capital markets day over the next 12 months period, where we will be able to refresh those, our three-year numbers as well.
Okay, thank you very much.
Our next question is from Atinc Ozeyran from Oyak Company. Please go ahead.
Good evening, all. Thank you for the presentation. This is Atinc from Oyak Company. Maybe a follow-up first on the Fintur deal details. Is this 650 one-off gain that you are going to book in the first quarter, is it net of tax? Given that the proceeds are EUR denominated, what's the underlying exchange rate assumption? That's my first question. My second question is regarding your asset-light strategy. Given your Fintur exits and your earlier disclosed plans to create value crystallization at your other subsidiaries, are you still planning to list your tower and fiber assets in Turkey? Maybe a third one. Earlier today, I've seen a press release from you stating that you'll be objecting to the recent [inaudible]
I am trying to understand the rationale here, given the entrance the other party, the American Scientific Games, has basically lowered commission rates to almost a nonexistent 0.2%. Why are you insisting in trying to maintain these operating rates for the betting games? Thank you.
Okay. The first question, Fintur one-off gain in Q1 will be net of tax. This will be EUR 3.50 million cash and 650 million TRY in P&L impact. This is our expectation after the regulatory processes are completed. In terms of Fintur exit, this was an important step into our asset-light strategy. As we have mentioned earlier, within our portfolio, we have assets like towers and also the fiber company, as well as our consumer finance business, who we believe could be open for different strategic options over the next two, three years. We keep those plans intact when the market conditions are favorable. With regard to the Inteltek objection, we have been operating this business for almost 15 years, and we are well aware of the operating dynamics, the profitability, and the costs that are necessary for running such a business.
According to the specifications of the tender, we believe that this percentage point offered by the competition is economically not feasible. The tender specifications specifically state that it has to be economically feasible. That's why, because of predatory pricing reasons and also because of technical competencies, we have made an objection, and we look forward to hearing the decision of the tender commission on that.
Very helpful, sir. Thank you.
Thank you, Atinc.
Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press zero one on your telephone keypad. To participate in our written Q&A, just type your question into Ask the Question text area, then click the Submit button. Thank you for holding. Our next question is from Cemal Demirtas from Ata Invest. Please go ahead.
Thank you for the presentation. My question is related to your EBITDA margin calculation in fourth quarter. As far as I see from your figures, your adjusted figures, the EBITDA margin declines to 39.8% from 41.3%. When I look at the details, I see the gross margin is declining from 35% to 31%, and your OpEx is increasing from 11% to 14%. Did you have any additional adjustment in fourth quarter? Could you please elaborate the details about your depreciation and the other figures that affected the lower than expected contraction in EBITDA versus the gross and the OpEx side? Thank you.
Okay. Cemal, considering the detail in the question, I will ask my CFO, Osman, to answer those questions.
Hello.
Thank you.
Actually, third quarter is the highest season in telecom industry in Turkey. Seasonally, we have higher EBITDA margins while we have lower margins in fourth quarter. It's the main reason why we have a lower margin in Q4. On the second question, on the adjustment in Q4, as we were the first company in Turkey to implement IFRS 16, we allowed our group companies to do the adjustment as well. In the fourth quarter, we capitalized the radio frequency costs in Lifecell and BeST, our Ukrainian and Belarusian operations, and this decreased operational expenses by about TRY 100 million in the fourth quarter. It's not a one-off adjustment, by the way. We will see the similar impact throughout 2019 and onwards.
Yeah. Maybe this is a good point, Osman, that this was our first year of implementing IFRS 16, and we did the early application of that. For our international subsidiaries, the Q4 actually was a specific timing for us.
Compared to third quarter, an additional 100 is added to your EBITDA calculation as far as I understand.
The numbers in the gross margin decline and the OpEx side is much significant. Maybe it looks higher than TRY 100 million in terms of the difference. If you have that gross margin decline, like 5%, 500 basis points and 300 basis points in the higher OpEx, the total number, putting the adjustment aside, the gross margin is 5% lower and OpEx is 3% higher in terms of the margins. It's around 7.5% difference. The difference in 1.5% in EBITDA margin is much lower. There might be more adjustments than maybe that figure. That's what I'm trying to understand.
Actually, there are some other minor adjustments, but they are not worth highlighting. We have some other capitalizations, which are TRY 5 million in total. They are related to capitalization of our digital content. Other than that, what drives our OpEx lower is the cost control that we did throughout the fourth quarter. Seasonally, we don't see the fourth quarter EBITDA margin is better than what we envisaged for the fourth quarter in the beginning of the fourth quarter. We can explain the rest by the seasonal method.
Okay. I think there is also some questions on. Let's have the Bank of America one.
We have another audio question from Cesar Tiron from BNL. Please go ahead.
Yes. Hello.
Hi, Cesar.
Yes, sorry for the boring question. I was just trying to calculate the Q4 EBITDA margin in Ukraine, and got to a very weird number, which was about 70%. Is that right?
Cesar, yes, actually, that is exactly the answer that Osman gave because we did the entire IFRS 16 adjustment in Ukraine in the last quarter, so that figure should have been actually distributed among the four quarters. That's why the last quarter number is slightly higher than normal.
The full year effect was reflected on the fourth quarter. That's why we have seen a substantial increase in the fourth quarter. It will normalize in 2019.
Okay. Got it. Thank you so much. Thank you.
Ladies and gentlemen, I would like to remind you that if you wish to ask a question, please press 01 on your telephone keypad. To participate in our written Q&A, just type your question into "Ask a Question" text area, then click the Submit button. Thank you for holding.
We have a question from Fiera Capital, Gabor Sitanyi. I think the answers were around our guidance and the EBITDA levels, we have already answered those. Thank you, Gabor, for the question.
We have a web question from JP Morgan, asking for more color on how much price increase we implemented in mobile segment in Turkey. We assume this is for the fourth quarter, or the full year.
I think, the right way to answer this question is, as you know, we have an inflationary pricing policy, we are closely adjusting our prices based on those expectations. The only exception was the doubling of our quotas campaign in Q4, where we have disclosed the effect of that. Our strategy of inflationary pricing has not changed and is a core principle of our hedging strategy.
Ayhan, do you see more questions on the phone?
Yes, we have one further audio question from Can Yurtcan from Wood & Company. Go ahead.
Sorry, Korhan, maybe a final one. I am looking at page six of your IFRS financials, the English one. On the cash flow statements in the change in operating assets liability side, in the last line, I see an item, changes in other working capital that is worth a negative TRY 982 million. Last year, this item was significantly less, around TRY 265. Can you elaborate why this item has increased so much, and what's the nature? Thank you.
Thanks very much for the question. Our short-term trade receivables over the fourth quarter declined by TRY 305 million, and other current assets declined by TRY 1 billion during the fourth quarter. The decline in the other current assets was mainly driven by the reduction in our derivative receivables. It was due to the appreciation of Turkish lira against U.S. dollar. Long-term trade receivables declined by TRY 450 million, and other noncurrent assets declined by TRY 370 million. Our trade payables increased by TRY 300 million over the fourth quarter, and other current liabilities declined by TRY 400 million. In sum, our working capital needs declined by TRY 600 million over the fourth quarter, and the major two drivers was the reduction in our consumer finance receivables and the extended payment terms for our trade payables.
Thank you for the detailed answer.
Ladies and gentlemen, I'd like to remind you that if you wish to ask a question, please press 01 on your phone keypad. To participate in our written Q&A, just type your question into "Ask a Question" text area, then click the submit button. Thank you for holding. We have no further audio questions.
There is one more question I see from Citi. The question is, there has been a very strong growth in Lifecell customer base. How many of these are new to Turkcell? The answer to that is Q4 is 25%, and overall, we have a run rate of 50% non-Turkcell customers on Lifecell customer base. I guess this concludes our call. Thank you very much for attending our call and for all the questions. It's always a pleasure to have a conversation and get your questions. I would highly recommend that if you are in Barcelona during the Mobile World Congress, please visit us on 27th of February at 10:00. We're going to be launching our Blue 1440 product, and we will be also making announcements about new partnerships around the world. Thank you very much.
This concludes today's conference call. Thank you all for your participation. You may now disconnect.