Turkcell İletişim Hizmetleri A.Ş. Turkcell Küçükyalı Plaza, Aydınevler Mahallesi İnönü Caddesi No: 20 Küçükyalı Ofispark B Blok - Maltepe / Istanbul Tel: +90 (212) 313 1000 Fax: +90 (216) 504 4058 Customer Services Tel: 532 or +90 (532) 532 0000 www.turkcell.com.tr Trade Register Number: 304844 Annual Report 2017 TURKCELL ANNUAL REPORT 2017 ANNUAL REPORT TURKCELL 1440 Minutes with Turkcell About Turkcell Turkcell is a digital operator headquartered in Turkey, serving its customers with its unique portfolio of digital services along TURKCELL ANNUAL REPORT 2017 ANNUAL REPORT TURKCELL with voice, messaging, data and IPTV services on its mobile and fixed networks. Turkcell Group companies operate in 9 countries – Turkey, Ukraine, Belarus, Northern Cyprus, Germany, Azerbaijan(1), Kazakhstan, Georgia(2), Moldova. Turkcell Group reported TRY 17.6 billion revenue in 2017 with total assets of TRY 34.0 billion as of December 31, 2017. Turkcell launched LTE services in its home country on April 1st, 2016, employing LTE-Advanced and 3 carrier aggregation technologies in 81 cities. In 2G and 3G, Turkcell’s population coverage in Turkey is at 99.61% and 97.94%, respectively, as of December, 2017. Turkcell offers up to 10 Gbps fiber internet speed with its FTTH services. It has been listed on the NYSE and the BIST since July 2000, and is the only NYSE-listed company in Turkey. Read more at www.turkcell.com.tr All financial results in this annual report are prepared in accordance with International Financial Reporting Standards (IFRS) and expressed in Turkish Lira (TRY or TL) unless otherwise stated. (1) On March 5, 2018, Fintur has transferred its 51.3% total shareholding in Azertel Telekomunikasyon Yatirim Diş Ticaret A.Ş, 100% shareholder of Azercell, to Azerbaijan International Telecom LLC. (2) On January 25, 2018, Fintur signed a binding agreement with Silknet JSC, a joint stock company in Georgia, to transfer its 100% shareholding in Geocell. Table of Contents TURKCELL GROUP 14 Chairman’s Message 18 Board of Directors 20 Message from the CEO 24 Executive Officers 26 Top Management of Subsidiaries 28 Turkcell Group 29 Our Vision and Target 30 2017 at a Glance 32 2017 Highlights 35 Our Digital Business Model: We are by Our Customers’ Side at Every Moment of Their Lives 36 Internet to Your Heart’s Content with Lifecell 38 Your Digital Companion throughout the Day 40 Share, Read, Listen, Watch, Store, and Search with Turkcell... 42 Expanding Digital Value Propositions in E-commerce 2017 OPERATIONS 44 The Pioneering Digital Operator of the World: Turkcell 46 Our Superior Technology 50 Our Consumer Bussiness 56 Our Corporate Business 58 Turkcell on Communication 60 Our Digital Services 68 Turkcell Sales Channels TURKCELL 70 Operator Relations and Wholesales 71 Customer Experience Focus 2017 74 Social Responsibility INDICATORS 82 Sponsorships 85 Human Resources 90 Turkcell Academy 94 Our Subsidiaries 99 Awards TRY 17.6 BILLION REVENUES CORPORATE GOVERNANCE 104 Investor Relations 106 Credit Ratings 107 Important Developments after the Reporting Period 128 2017 Financial Year Corporate Governance Principles Compliance Report 35.3% 139 Conclusion of the Subsidiary Report EBITDA MARGIN SECTORAL AND FINANCIAL INFORMATION 140 Telecommunications Sector in Turkey 141 New Developments in Our Companies 50.2 MILLION 144 Turkcell Group: 2017 Financial & Operational Review GROUP SUBSCRIBERS 148 Forward Looking Statements 149 Review of Risk Assessment 151 Consolidated Financial Statements for the Year Ended 31 December 2017 and Independent Auditor’s Report 252 Our Offices 253 Glossary You can have access to the Digital Annual Report with the QR Code. 09:10 While Emre was reading the news on Dergilik at breakfast... at the same moments, we pursued our preparations for 5G and achieved speed record in our 5G tests. 10:40 While Okan was searching Yaani for the nearest movie theater for the movie he wanted to watch that evening... at the same moments, we continued to work on our e-commerce platform to ensure a fast and secure shopping experience. 12:40 While Yeşim was cheering herself up with her favorite song list on fizy… at the same moments, we launched Lifecell for those who increasingly use internet to meet their communication needs, in other words, whose life is the internet. 15:20 While Çiçek and her mother were looking back at their memories stored on lifebox... at the same moments, we were proud to see that our “Hello Hope” application, which we developed for Syrian refugees, was helping them experience happier moments in Turkey. 20:10 While Mert was connecting to life via BiP in his car on the way home... at the same moments, we started off to work on the domestic car project, which will connect Turkey to the future. 22:30 While Ayşe was charging her phone to watch the episode of her favorite show that she had missed on TV+... at the same moments, we accelerated our efforts to provide uninterrupted electricity with the Home Battery product developed by our Energy Solutions Company. 14 TURKCELL ANNUAL REPORT 2017 CHAIRMAN’S MESSAGE As Turkcell Group, we have completed 2017 as a year in which we began to witness the results of our long-term strategic plans… Dear shareholders, TOWARDS TURKCELL’S ECOSYSTEM... 2017 was a year of major global and regional Established in 1994 as Turkey’s first mobile operator, We achieved all time high developments. While tension rose in the political Turkcell has now been a pioneer across many areas results both in revenue and and social arenas worldwide, a recovery process was for 23 years. Today, we continue to transform the EBITDA on a consolidated observed in the economy. In spite of rising geopolitical latest technologies into products that will provide the basis. risks in our geography, our country has gained highest benefit to our customers, and offer them as strong momentum on the back of economic reforms our services. introduced and measures taken to boost economic activity. When looking back, we note the major changes that the technological world has undergone over In 2017, as Turkcell Group, we registered record the past 23 years. Today, as new business areas results in step with our principle of creating value and occupations emerge that didn’t exist 23 years, for our shareholders with a team spirit. We achieved or even 3 years ago, we face both new risks and all time high results both in revenue and EBITDA opportunities. Ours is an era, in which it is impossible on a consolidated basis. While we posted TRY 17.6 for those who cannot pursue their strategies, billion of consolidated revenues on 23.4% growth, we resource planning, business models and work force increased our EBITDA margin by 3 percentage points by adapting to conditions shaped by the winds of to 35.3%. We recorded net income of TRY 2.5 billion digitalization to succeed. As a brand at the center excluding the one-off impact of the tax settlement. of this significant change, particularly over the past 4-5 years, we are determined to remain among the At the Ordinary General Assembly Meeting held on pioneers of change by keeping pace with progress, May 25, 2017, it was resolved to distribute TRY 3 rather than being swept away by those same winds of billion of dividends to our shareholders. Previously, change. Momentum in terms of our digitalization that we had distributed TRY 3.9 billion of dividends in primarily started internally was quickly disseminated 2015. Thus, by distributing 54% of our net income into our operational areas. We digitalized all recorded since 2010 in dividends to our shareholders, business processes from our products and services we underlined our Company’s strong balance sheet to our human resources policies, from sales channel structure and growth potential. management to technological infrastructure tracking, and from customer demand and complaint processes With the responsibility of operating in a sector to financial operations and made them instantly of great importance for Turkey’s sustainable trackable. development, we made significant progress in 2017. We carried the quality of our customer service to even Another step in the digitalization process was the higher levels through a TRY 4.1 billion investment swift launch of digital services most suitable to meet TRY 4.1 billion this year. We will press ahead to invest in innovative the needs and expectations of our customers. With With the responsibility products and services in the coming period that our digital services developed by 1,000 R&D engineers, of operating in a sector contribute to Turkey’s future in fulfilment of our we began to be referred to as a “digital operator” in of great importance for responsibility to our shareholders, our customers and, today’s world. This digital transformation is of vital Turkey’s sustainable our country. importance in carrying our solid financial structure development, we made and strong customer base into the future. And so we Two well-known fundamental criteria must be significant progress in 2017. have continued to add value to our customers’ lives by observed in measuring the success of a company. We carried the quality of providing popular digital services, such as fizy, TV+, The first is the creation of value from an economic our customer service to BiP, lifebox, UpCall , Dergilik and Yaani, in addition to perspective, and the second is the earning of respect even higher levels through legacy telecommunication services. from a reputational standpoint. I believe that we a TRY 4.1 billion investment have given a performance befitting Turkcell as both a this year. reputable and a profitable company, which is admired and appreciated on both fronts. TURKCELL ANNUAL REPORT 2017 15 TURKCELL GROUP TURKCELL In 2017, as Turkcell Group, we registered record results in line with our principle of generating value for our shareholders with a team spirit.