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Turkcell Iletisim Hizmetleri AS (TKC) Q2 2021 Earnings Call Transcript

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TKC earnings call for the period ending June 30, 2021.

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Turkcell Iletisim Hizmetleri AS (TKC -4.02%)
Q2 2021 Earnings Call
Aug 12, 2021, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I am Galilea, chorus call Operator. Welcome and thank you for joining the Turkcell's Conference Call and Live Webcast to present and discuss the Turkcell Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Ali Serdar Yagci, Investor Relations and Corporate Finance Director. Mr. Yagci, you may now proceed.

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Ali Serdar Yagci -- Investor Relations and Corporate Finance Director

Thank you, Galilea. Good morning and good afternoon, everyone. Welcome to Turkcell's second quarter 2021 results call. Today's speakers are our CEO, Mr. Murat Erkan; and our CFO, Mr. Osman Yilmaz. We have a brief presentation and afterwards, we will be doing Q&A.

Before we start, I would like to kindly remind you to review the last page of our presentation, for our Safe Harbor statement.

Now, I hand over to Mr. Erkan.

Murat Erkan -- Chief Executive Officer

Thank you, Ali Serdar. Good morning and good afternoon. Thank you for joining us today.

Before we dive into the result, I would like to extend my condolences to every country, including our own love, Turkey, that is fighting wildfire disaster and flood recently. The world is dealing with one of the most severe heat waves, which underlines the importance of addressing climate change and refocus sustainable strategy.

In the second quarter of the year, we accelerated our outstanding performance, delivering robust operational and financial results. We recorded 23.5% revenue growth, and EBITDA reached TRY3.5 billion. Net income was TRY1.1 billion on 31% year-on-year growth. Despite prevailing pandemic condition, this performance was enabled by customer-centric strategy, a diversified business model, and digital ecosystem with high value offers. All this was possible due to remarkable subscriber base growth of 617,000 and double-digit ARPU growth in mobile and fiber residential segments. Additionally, our strategy of prioritizing our digital channel has helped us during the second quarter, whereby their share in our sales reached 18%. To note, we distributed the first and second installment of the 2020 dividend on April and July 13, and the last installment planned to be distributed in October. Our outstanding result and our expectation for the second half, have led us to update the full-year guidance.

Next Slide. Let's take a look at our operational performance in the second quarter. In the mobile business, with our continued focus on postpaid segment, the base grew by 501,000 and the postpaid share reached 66% of the total, on a 3-point rise year-over-year. Going forward, we aim to keep our postpaid focus and further increase the postpaid share. Despite the lockdowns in May, affecting acquisition and churn numbers, after the ease of the pandemic measures in June, we gained some momentum in net addition through increased mobility. Initially, our customer-centric approach and AI-based analytical capabilities were instrumental in the retention. As such, our mobile churn rate was 1.7%, the lowest level of the past three years.

Blended mobile ARPU rose to TRY52 on a 14% increase, thanks to a larger postpaid subscriber share, price adjustment, upsell to higher tariffs and higher data usage. Our mobile ARPU level is 12% and 22% higher than the competition. Enabling a rational pricing environment in the market, we expect double-digit ARPU growth for the remaining parts of the year. In the fixed broadband segment, strong demand has continued under prevailing mobility limitations. We made 40,000 fiber subscriber addition with our high-speed fiber internet offers. Our focus on fiber customer will continue. We are pleased to register a further 40,000 net addition to our IPTV subscribers, having reached the homes of 961,000 customers. We now offer this service to 62 out of every 100 house-holds among our residential fiber customers. Our residential ARPU rose to TRY77, a 11% growth, mainly on our upsell efforts, demand for higher speeds and price adjustments. As the challenged operator in the fixed broadband market, our ARPU level is 21% above the incumbent.

Next Slide. Next, an update on the data usage and 4.5G subscription trends. Average mobile data usage rose 15% year-on-year to 13.4 gigabyte per user. Recall that last year for this quarter, mobile data growth was the record highest in the previous eight years. The lockdown period in the quarter also affect growth. This quarter's data growth is reflected on mobile ARPU growth, which indicates that we are monetizing the usage trends. Out of 33 million customer sign up for 4.5G services and around 70% have 4.5G compatible smartphones, still indicating significant growth potential. Overall smartphone penetration is at 84%, with 92% of these being 4.5G compatible.

Next Slide. We received the last Turkcell digital ecosystem, which reunites all digital enterprise services under a digital ecosystem roof. An individual who uses any of our digital services will be served as a Turkcell customer, regardless of the operator they use. We aim to serve all customer within our digital ecosystem, with the unique Turkcell customer experience and technology. The satisfaction point accepted by all of our customer is our well invested, high-quality network and strong infrastructure. This quarter, our AI-based retention strategy let us to reach the right customer, at the right time, with the right product. An extensive distribution channel of almost 6,000 points nationwide in our digital channels, that are tailored to customer needs are instrumental in customer decision making. As we invest further in the relationship with our customer, we are happy to see their appreciation. Customers have continued to recommend Turkcell to a significantly higher degree than the competition, as confirmed by our Net Promoter Score.

Next Slide. Now, our strategic focus areas, let's start with our digital services. The stand-alone revenue from digital services and solutions continued its strong growth at 32% year-on-year, reaching TRY404 million. The paid user base reached 3.4 million up 0.8 million on last year. BiP, our messaging platform, reached 82 million downloads and has 26 million active users, more than a quarter of active users are being abroad. Since we have added the ability to move chat and the group's from other platform, 2 million chats have been imported to BiP today.

It has also been a good quarter for our TV business. The churn level for mobile TV product is half that of last year, as TV+ has the best user experience, price and content creation. In the big screen strategy, we are now in almost every Smart TV produced over past four years. And for those that we have not integrated, we offer TV+ Ready devices.

We are glad to have reached a remarkable milestone for our personal cloud application lifebox as the stand-alone paid user base has exceeded 1 million. Consistent improvement on user experience, new features and collaboration have increased the apps user base. As communicated last quarter, we have launched the B2B business model of our digital services, with the evident demand from the market. As the demand for remote working and education continues, we are ready to serve cooperation with our local services, and aim to be a part of their digitalization process.

Next Slide. Next, our digital business services. Revenues from digital business services rose 22% year-on-year to TRY618 million. We signed 678 new contracts, with a total contract value of nearly TRY170 million. TRY917 million system integration project backlogs is promising for the periods ahead. By rendering our latest data center operational, this quarter in total, we further sustained our leadership of data center and cloud business. Recently, we have launched a new interface for our cloud services, which enables our customers to make their own configurations. We have introduced our customer to variety of new services. On cybersecurity vertical, we have focused on fraud prevention for financial institution and strengthen firewall services. Turkcell RPA was developed for the automation of robotic process. On IoT vertical, we launched Smart Utility Management solution. These services will continue to assist corporates in their end-to-end digital transformation journey.

Next Slide. Third is our Techfin focus. Techfin services revenue for the quarter rose to TRY240 million on 24% year-on-year growth. The contraction trend in finance sales revenue has eased off this quarter, and year-on-year revenue are flat due to the balanced loan portfolio and higher interest rates. Paycell showed another remarkable quarter, topping 5.5 million active users. The Company has seen 78% year-on-year growth on the back of traction in mobile payment solutions, especially for it's Buy Now Pay Later products. Mobile payment transaction were nearly double to TRY418 million, whereas Paycell Card transaction volume grew three-fold year-on-year.

Financell is the market leader in metro loan segment with a 20% share. It differentiates with a robust credit scoring system that produce an instant result with a much higher approval rate than the banks. Aiming to serve all Turkish customer, Financell started to provide finance, financing solution to Turkcell's fast-growing corporate segment, almost reaching 4,000 clients today. With this strategy, we aim to keep our focus on our products or service, while providing the financing from a specialized company. This will improve risk management and balance sheet receivable with more transparent.

Next Slide. Now a few words on the performance of our digital channel. Digital channels play an integral part in providing our services 24/7, even in extreme situation like complete lockdowns. Digitalization our customer is among our top priorities. From the digital operator application, the customer can top up Turkish lira, purchase data packages or smart devices from our extensive portfolio, while even a non-Turkcell user can apply for a subscription. As such, there were 23 million active digital operator user, which we refer to as digital user.

Even though we have currently witness limited acquisition through digital platforms, the numbers have doubled year-on-year. Notably, data plan purchase and Turkish lira top up transaction volume over this platform were even higher for the quarter at 1.9 times. Overall, with a 6.5 percentage point increase, the share of Turkcell Turkey's consumer sales generate on this digital channels have reached 18% in the second quarter.

Next Slide. Let's take a look at our performance in our international business. Turkcell international revenues has reached 10% of consolidated revenue, grew 45% year-on-year. On the back of flourishing Ukrainian business and the positive impact on currency movements, excluding the currency impact, the segment has an organic growth of 24%. Lifecell Ukraine revenue grew by 26% in local terms. This was driven mainly by subscriber base growth, higher data consumption and corresponding solid ARPU growth of 17%. Mobile subscriber reached 8.4 million on 11% year-on-year growth.

Next Slide. Now for an update on our e-mobility initiative. Turkey's automobile project TOGG. TOGG has received one of the worlds most prestigious Design Award, the iF Design Award for it's fully electric SUV model. As production facility construction continues at full speed and the first SUV model vehicle is planned to rollout in the last quarter of 2022. In July as a milestone, the Company assembled first buggy entirely made of domestically produced parts. As the Company present opportunities in e-mobility, a field we are also exploring, it has the potential to be the next strategic focus area for Turkcell. In line with this, in June, we announced increasing our stake in TOGG from 19% to 23%. Considering the existing and potential synergies with TOGG, we believe that this investment has the potential to be valued effective for Turkcell Group in the medium term.

Next Slide. I would like to touch upon our action on the ESG front in the second quarter. Our subsidiary, Turkcell Energy recently acquired a wind power plant located in Izmit, with an 18 megawatt capacity. Furthermore, we installed solar panels as solar data center. These investments are aimed to -- aimed at fulfilling our commitment of energy procurements exclusively from renewable source by 2030. As a socially responsible company, we established Turkcell Sustainable Governance Principles. These principles underlines our commitment to ethical behavior, human and children's rights and endearment of sensitivity in our relations with our employees, customers and vendors, shortly within the Turkcell ecosystem. This year. we designed and AI-based fresh graduate recruitment into the process, where AI only focus on the talent of the applicant. To note, this year we welcomed more woman graduates than male.

Lastly, we are in solidarity with disaster victims and heroes, who are fighting the wildfires in Southern Turkey. We have donated saplings, provided free data and Voice packages, setup mobile base station and built veterinaries hospital with a local NGO in the region. Nature Conservancy is not only a disaster-related action in Turkcell, as we have donated 1,000s of saplings to various companies to date.

Next Slide. I would like to end my presentation by sharing our new guidance for the full year of 2021. Taking into consideration our healthy first half performance and our expectation for the remainder of the year, we revised our guidance upwards. Accordingly, we raised our revenue growth to around 18%, still aiming for a real revenue growth in high integration with the environment. We revised our EBITDA expectation to around TRY14.3 billion. We expect to register an operational capex over sales ratio of between 21% to 22%. The strong nationwide demand for fiber has led us to increase our home based plan to 600,000 for the full year. Our capex expectation is also affected by the demand arising from strong operational performance in Ukrainian business and FX fluctuations.

I will now leave the floor for our CFO, Osman.

Osman Yilmaz -- Executive Vice President-Finance (Chief Financial Officer)

Thank you, Murat. Now let's take a closer look into our financials. Our performance in the second quarter was outstanding and resulted in an TRY8.5 billion top line on an accelerated 23.5% growth year-on-year. Despite the strict COVID-19 restrictions, we were able to generate 9% quarter-on-quarter growth. For the first half of the year, top line growth exceeded 20%. Our EBITDA reached TRY3.5 billion on a 22.7% increase, with a 40.5% margin. Our capex to sales ratio rose to 24.5% in Q2 due to advanced capital spending in line with our plan. We registered a net income of TRY1.1 billion on a 30% rise in Q2. As we disclosed last week, pursuant to Tax Law number 7326, we have restructured our tax assessment for the years 2017 and '18. Another article of the same law allows us to revalue a part of our fixed-asset investments based upon domestic PPI. The impact of the letter has more than compensated to the former.

Next Slide. Now some details on revenue development. In the second quarter, Group revenues rose 23.5% year-on-year, corresponding to an incremental TRY1.6 billion. Of this increase, TRY1 billion drives from Turkcell Turkey. This was the result of the strong ARPU and netted performance, mainly in the postpaid base. Turkcell international revenues rose 45% year-on-year, thanks to strong lifecell operational performance and the positive impact of currency movements. Our Techfin segment contributed TRY47 million to the top line, fully driven by Paycell revenues. Other segment grew by 42.1%, contributing TRY285 million in this quarter on the back of higher equipment sales, supported by digital channels.

Next Slide. Group EBITDA rose 22.7% year-on-year to TRY3.5 billion, driven mainly by strong top line growth. The EBITDA margin slightly decreased to 40% in Q2. The factors affecting the change in EBITDA margin, a gross margin decline of minus 0.9 percentage points triggered mainly by increasing equipment sales, an opex increase of minus 0.3 percentage points, mainly due to the marketing expenses that had been suspended during the COVID-19 lockdown periods, decrease in doubtful receivables of plus 0.9 percentage points, thanks to better collection performance. Rising 49% year-on-year, Turkcell international EBITDA made a higher contribution at the Group level. Strong operational performance and cost measures in our international subsidiaries, coupled with the FX impact, were instrumental in this performance.

Next Slide. Now I would like to talk about our balance sheet and leverage details. As at the end of Q2, our cash position decreased to TRY12.4 billion from TRY13.5 billion, mainly due to an TRY860 million dividend payment and TRY1.6 billion debt repayment. In Q2, currency movements led to a TRY763 million increase in total debt and TRY265 million rise in our cash position. As a result, our net debt position slightly increased to TRY11.6 billion from TRY11.4 billion with a 0.9 times leverage ratio. Excluding the financing business, this was at 0.8 times, hence the same level as the previous quarter. Around the $1.3 billion accrual cash position covers our debt service until 2025.

Next Slide. Now I will go into the management of foreign currency risk. We continue to hold the bulk of our cash in hard currency as a natural hedging tool. With hedging instruments in place, the share of FX base declined from 83% to 51% as of Q2. We are in a long net FX position of $146 million as at the end of second quarter. Going forward, we continue to target a neutral to long FX position.

Next Slide. Let's take a closer look at our fintech companies performance and firstly our financing business Financell. The contraction trend in Financell's revenue has eased of this quarter and revenues are flat year-on-year due to a balanced loan portfolio and higher interest rate revenues. EBITDA rose by 15% to TRY87 million with a margin of 65%. The improvement in collection performance and the sale of doubtful receivables led to the rise in EBITDA margin. All in all, the cost of risk has reached 0.2% level, thanks also to the sale of doubtful receivables in Q2. Net income increased 44% year-on-year to TRY68 million, driven mainly by a TRY50 million dividend payment from Paycell, strong operational performance and the lower FX loss after hedging.

Next Slide. Our payment services company, Paycell, continued its momentum on 78% yearly revenue growth. The demand for digital payments has been rising rapidly as payment habits change. Paycell is well positioned to meet this demand with its diverse range of services and solutions. In fact, Paycell's three-month active users reached 5.5 million. Mobile payment transaction volume nearly doubled in this quarter to TRY418 million. Additional to rising demand, the increased usage of Buy Now Pay Later product is instrumental in this growth performance. In Q2 Paycell Card transaction volume quadrupled to TRY300 million year-on-year.

We position Paycell app as a super app that meets data financial and payment services needs of its users. Additional to our services, we act as a financial marketplace providing digital content and e-commerce product. In Q2, we had collaborations with game platforms to sell game tokens through the Paycell app. There are numerous items of legislation in the pipeline. Digital ID recognition, first-time eval regulation, a joint care initiative, digital banking and open banking regulations will support the various verticals of Paycell for future growth. Paycell, supporting the overall strength of Turkcell Group, is set to sustain its strong momentum over the coming quarters.

This concludes my presentation. We can now open the line for questions. Thank you very much for listening.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] The first question is from the line of Cabejsek Ondrej with UBS. Please go ahead.

Cabejsek Ondrej -- UBS -- Analyst

Hello. Congratulations on a strong quarter. And thank you for the question. Couple from me, please. First of all, on the upgraded guidance, can you maybe break down -- because the top line guidance, I guess, is ahead of the EBITDA guidance, and also capex is up. So, two questions here. In terms of the top line upgrade, can you give us an idea of, what that is primarily driven by, because it would seem in the context of the EBITDA, that it is kind of the non-core businesses that are growing faster than perhaps expected. And then in terms of capex, if you could break down the impact between FX? You mentioned additional fiber investments and anything else. And then second question from me, please. You've had another huge quarter in terms of mobile net additions, at the same time your main competitor, I guess, highlighted that the composition in the market stabilized quite a bit during the second quarter, and that is looking pretty good. Can you talk just about where these numbers are coming from? And how you, as the market leader, see the competitive situation in mobile, please? Thank you very much.

Murat Erkan -- Chief Executive Officer

Okay. First of all, thank you very much. For the -- regarding guidance revision, I think, it's -- we achieved quite robust performance in the first half and despite the challenge of the pandemics environment. I mean, when we look at Turkcell Turkey, we have significant growth or especially strong SaaS subscriber and ARPU performance. We achieved net subscriber addition 1.3 million in the first half of the year, so which means this subscriber base will help us to increase our revenue level at the second half of the year. And also on the international side, we see strong organic growth in Ukraine operator -- operation, together with the positive impact of currency movement supported top line growth. So this is also another confident situation for us for the second half. On the EBITDA guidance revision, it mainly depends on revenue increase. And regarding capex breakdown, because I also mentioned in the slides, in the presentation, we would like to invest more on fiber since there are demand from the customer side. So, we increased number of home pass target from 500,000 to 600,000. So, which will drive the capex increase. Also, as I mentioned, Ukraine is promising market. We are gaining market share, we're gaining -- we're increasing our top line growth. So, we would like to invest in Ukraine more, since we invest we get more as well. So this is the main reason for the capex. And obviously, since we have more customers, the customer needs more data, so we are going to invest more in this side.

Regarding second question, for the net addition, first of all, our strategy is based on providing a rich value proposition to our customers through differentiated products and services. And we have diversified business model. We offer high quality telco services, wide range of digital services as well as digital payment solution. And as clearly stated from our customer, our infrastructure also enable us to provide all the services with maximum quality, and this help us to increase our customer bases. Also AI-capabilities is important. We can go further micro-segmented approach, which enables to make us right offer to the right customers, at the right time. So in terms of where are these customer, mainly postpaid. Out of 617,000 customer, 500,000 of them mobile -- sorry postpaid customers, and out of this postpaid customer, 40% of them switched from prepaid and 60% of them active execution of new lines. Thank you.

Cabejsek Ondrej -- UBS -- Analyst

Thank you. May I have a very short follow-up on the capex question please? You mentioned strong demand in fiber and that is consistent with what your competition is saying, should we read this may be that the higher target than just 0.5 million -- excuse me, 0.5 million homes per year would be not just the 2021 target, may be going forward as well that you would accelerate the plan for the medium-term as well?

Murat Erkan -- Chief Executive Officer

Exactly, because we don't want to stop after investing 600,000 home pass. So, we see that the demand will continue, especially we have also 5G from the first, when the 5G comes, we need more fiber. So when we invest in home pass, on anything, it will help other business as well. So, definitely we'll continue to invest in fiber.

Cabejsek Ondrej -- UBS -- Analyst

I must say, I meant more than 0.5 million because your previous guidance was kind of 0.5 million per year over the next couple of years. Would it now be say 0.6 million per year over the next couple of years?

Murat Erkan -- Chief Executive Officer

We hope more than that. To be honest, we hope more than that. Because when you start investment, it will take time to accelerate the machine. When the machine gets speed, you can easily increase the speed of having home pass or customer actually. So I think 600,000 -- I hope more than that.

Cabejsek Ondrej -- UBS -- Analyst

Okay. Thank you very much.

Operator

The next question is from the line of Degtyarev Vyacheslav with Goldman Sachs. Please go ahead.

Degtyarev Vyacheslav -- Goldman Sachs -- Analyst

Yeah. Thank you very much for the presentation. Couple of questions. Firstly on the 5G, what would be your thoughts over the time you can build for the financial implications of the spectrum auction? And would you envisage the significant investments into the network after or around the spectrum allocation? And the second question would be on the electric vehicle projects. Can you outline certain potential for the further upcoming capital commitments into this project, and also the timing, the magnitude of the monetization, as well as the synergies you see with Turkcell? Thank you.

Murat Erkan -- Chief Executive Officer

Okay. Vyacheslav, thank you very much. For the 5G, as you may recall a couple of months of ago, the Deputy Minister of Transport and Infrastructure unofficially announced that new spectrum auction related 5G could be held in 2022, with the commercial launch of 2023. So this gave us some guidance. Since then, we don't have heard any official announcement from the government with respect to the 5G timeline. Meanwhile, we continue our preparation for the 5G and we are ready to get 5G spectrum and license. And also, as a recent development, we are working very hard on the preparation of 5G. And in June, we launched commercial 5G app on roaming services, so that Turkcell subscribers can now use 5G services in 29 countries. Overall, we don't have any official timeline for 5G. However, we already have a strong 4.5G network, which we believe is the 5G transition. Our extensive tests with the different partners on different use cases will also help us to offer a quality 5G service going forward.

Regarding capex side of the 5G, as I said, we don't have clear schedule for the 5G auction. And obviously, when you wait more, your capex demand decrease, because the cost of equipment by nature of the technology decrease. So, we'll see what's going to happen, but obviously the announcement is there, Not official announcement, but it's an announcement. Regarding electrical vehicle project, our capital commitment to the -- to this project is around EUR115 million. So far, we have invested around EUR25 million already. So, going forward, we will continue to release its capital during the project phases, and depends on where we need, when we need, it really depends on the project plan and the progress of the EV company.

Degtyarev Vyacheslav -- Goldman Sachs -- Analyst

Thank you. Can you maybe elaborate on the synergies you see with Turkcell?

Murat Erkan -- Chief Executive Officer

Regarding synergy, it's -- e-mobility is everywhere. So, when we joined this partnership, the TOGG partnership, everyone was thinking that why telco operator joining this EV consortium. But everybody right now, since that e-mobility is trend, the connectivity, entertainment and the car without driver is very important, which needs high speed, low latency and strong customer engagement. So that's the main reason that we have synergies. So Turkcell and TOGG can have lasting together, including smart-living solution in smart city, smart charging, data-based business model, suppliers and partners with no competencies and so on. There are integrated digital services and payment. Payment is very important as well, charging solution and infrastructure, IoT is there. So, there are many, many things may come during the road map, but we'll see what we can help on this side. But I think clearly, Turkcell has vision to finalize this synergy.

Degtyarev Vyacheslav -- Goldman Sachs -- Analyst

Thank you very much.

Operator

[Operator Instructions] Our next question is from the line of Mandaci Ece with UNLU Securities. Please go ahead.

Mandaci Ece -- UNLU Securities -- Analyst

Hi. Thank you very much for the presentation. I have a couple of questions. The first one is on your hedging and FX costs. Compared to the last two years average, we are seeing a higher level FX loss -- net FX loss, when we also include the fair value adjustments. So the currency and fixed rates were also volatile in the previous quarter. So what else has changed specifically for this quarter? Is this TRY518 million FX loss, is there any one-offs in that? Or is this the new base now? Should we consider such a number as quarterly FX losses going forward? And secondly, I want to also ask about your deferred income you have generated for this quarter due to accounting change. Is this also one-off or, we will -- will we going to see such effects in the coming quarters? And thirdly, two days ago there was the emerging market news that you were in talks or started the process for the sale of stake sale in Paycell, minority stake sale in Paycell. Could you also provide your prospects regarding the potential asset sale, and when this could be official or when we should expect such news? So, thank you very much.

Murat Erkan -- Chief Executive Officer

Ece, thank you very much. Let me ask -- let me give the floor to our CFO, Osman, to answer all three questions, and then maybe I can comment at the end of the -- his comment.

Osman Yilmaz -- Executive Vice President-Finance (Chief Financial Officer)

Thank you very much. Hedging and FX cost increased significantly compared to last year, especially compared to the last -- the average of last three quarters. We can associate this increase with rising hedging costs. Short-term swap rates almost more than doubled compared to last year, and this is creating -- this make a negative impact on our FX revenues. On the other hand, we needed to generate Turkish lira for our working capital needs, as well as for dividend payments. Since we hold majority of our cash in hard currency, we need to generate Turkish lira through short-term FX swaps and the cost of this short-term FX swaps are also classified under hedging costs. And one-third of the FX loss that you see in this quarter is associated with this short-term Turkish lira need. Fair value adjustments, hedging cost increase and Turkish lira generation needs make up for the high FX hedging cost this quarter. We expect a gradual decrease in hedging costs and FX loss over the next quarter, unless we see other sharp increase in the dollar TRY parity.

For the second question that you are asking, it is associated with the recent tax legislation that I tried to explain during the presentation. We made use of the right introduced by recent changes in law, which allows us to revalue some of our fixed assets and inventories. As per the law, the respective assets, these are typically network assets, especially mobile network, fixed network and data center investments. These assets can be revalued with PPI, Producer Prices Index, until the year end. And 2% -- we need to pay 2% over this -- over the value of these assets in order to be able to revalue those. This high increasing inflating the value of our fixed assets. It translates into higher amortization and depreciation costs in the following years, which creates a deferred tax income on our balance sheet. By the way, it's a cash impact, because we will be able to pay less tax on -- due to increasing amortization. So it translates into a deferred tax that sit on our balance sheet, and makes a positive impact on our net income.

On the third question, I assume that you're referring to the news that appeared on the merger markets yesterday. It's no surprise, we have been expressing our interest in a potential stake sale, not only at Paycell, but also in other subsidies, including Superonline. We are -- we continue to work on the -- on different alternatives, but I can say that so far we haven't been given any mandates by our shareholders to finalize this process. We still explore alternatives. And if something material happens, we will share with you through the disclosure platforms.

Mandaci Ece -- UNLU Securities -- Analyst

Thank you.

Operator

[Operator Instructions] The next question is from the line of Demirtas Cemal with Ata Invest. Please go ahead.

Demirtas Cemal -- Ata Invest -- Analyst

You mentioned about one-off and you had some recently announced tax investigation numbers, I guess, you recorded in the second quarter. Could you just give us some clarification on that? Thank you.

Operator

I'm sorry. Mr. Demirtas, can you please tell your question again? Because we could not hear you in the beginning. Thank you.

Demirtas Cemal -- Ata Invest -- Analyst

Okay. My question is about effective tax rate. I see that you recorded tax income. Maybe during the presentation, you mentioned about the details, I don't know if I missed it, but that's my first question. And the second question is about the one offs, you mentioned again during the presentation, but I didn't clearly hear. If you could just sort of elaborate that. And what's the latest tax investigation -- tax investigation results impact was seen in second quarter? Did you record that in the second quarter? Thank you.

Osman Yilmaz -- Executive Vice President-Finance (Chief Financial Officer)

Thank you very much. First of all, regarding effective tax rate is, without one-offs, 2% and 3%. And regarding second questions, as we have announced last week, our Company was imposed a tax assessment in relation to the tax investigation that was conducted with respect to the special communication tax for 2017. I would expect the special communication tax, value-added tax and corporate tax for 2018. We also shared that we will benefit from restructuring provisions for this tax assessment and will pay TRY258 million at the end of September. This led to an increase in other expenses.

Demirtas Cemal -- Ata Invest -- Analyst

Okay. It was recorded under other expenses. Thank you.

Operator

[Operator Instructions] The next question is a follow-up question from Cabejsek Ondrej with UBS. Please go ahead.

Cabejsek Ondrej -- UBS -- Analyst

Thank you. I have one follow-up in terms of costs as well. You mentioned about a year ago, I believe, that part of the, and I think it was a half of the selling and marketing expense decline that you saw because of the lockdowns and moving to digital would be sustainable. Now we are -- I know there's been another lockdown in Turkey, but on an annualized basis, that ratio of selling and marketing expenses was more or less flat year-over-year. And you mentioned in your presentation, the ongoing share of digital sales. Can you maybe update us in terms of where you think the sustainability of the -- I mean there is a 1.5 percentage points year-over-year decline in terms of selling and marketing expenses as a percentage of revenues last year, what part of that is or would be sustainable today versus what you said about a year ago? Thank you.

Murat Erkan -- Chief Executive Officer

Thank you very much, Ondrej. First of all, the -- I mean regarding sales and marketing expense increase, the deterioration in selling and marketing expense has been mainly driven by the increase in marketing expense, not just -- not the selling side. We started a new communication campaign on Turkcell Ecosystem, positioning comprising both telco and digital services. We will continue investing in this campaign during the years as well. So this is one of the reason. But regarding selling expenses, either flat or decreased due to the lockdown happened in May as well. Regarding -- is there any other question?

Cabejsek Ondrej -- UBS -- Analyst

May be just if there is an update in terms of how sustainable the levels of 2Q are going forward? Because, I mean, we may have expected a bit of a rebound in terms of selling and marketing compared to last year, as you flagged that's only part of the decrease from a year ago was sustainable. But there was virtually no change in terms of the proportion to relevance. So is that -- is there another assessment today versus what you said a year ago when you said roughly half only of the savings were sustainable, would you say it's more today?

Murat Erkan -- Chief Executive Officer

Yeah. First of all, during the first half, we see that especially sales expenses declined. But during the second half, we would like to see little bit bounce back on the selling, because we will continue to invest in our sales channel. But as you know, we would like to invest more and more on the digital sales channels. This is our focus area. If we can continue to increase digital channels spending and the digital channels expenses, this will help us with more savings. But obviously, it's not going to be the same as the first half. We expect little bit more on the opex increase during the second half.

Cabejsek Ondrej -- UBS -- Analyst

Thank you.

Operator

Our next question is from the line of Demirak Kayahan with Ak Investment. Please go ahead.

Demirak Kayahan -- Ak Investment -- Analyst

Hi, thank you very much for the presentation and opportunity to ask questions. I mean, as a follow-up on the capex side, based on the upper end of your guidance you're roughly looking for $100 million [Phonetic] higher capex compared to the previous quarter. So, what I'm trying to understand, what percentage of that related to additional 100,000 home taxes. And also very roughly, what is the incremental revenue contributions you are looking from this, 600,000 home pass? Or in other words, what is the, I mean, expected payback period for this investment? Thank you.

Murat Erkan -- Chief Executive Officer

Okay. Thank you very much. For the first question, regarding capex increase, almost one-third of them comes from the FX increase, one-third of them comes from fiber investment, and one-third of them growth business, including Ukraine and mobile subscriber base increase as well. Regarding payback, the payback period usually is long-term ROI. But we see during the pandemic, we see that fiber investment return cycle is decreasing. So we'd like to benefit on this side, but obviously, mainly eight years, nine years is payback is acceptable on this -- on the private investment.

Demirak Kayahan -- Ak Investment -- Analyst

Okay. Thank you.

Murat Erkan -- Chief Executive Officer

Because economical -- actually the fiber lifetime is almost 25 years, so eight years is OK.

Operator

The next question is from the -- a follow-up question from Mr. Cabejsek Ondrej with UBS. Please go ahead.

Cabejsek Ondrej -- UBS -- Analyst

So, one more follow-up from me, please. In terms of Superbox, I noticed that the trend of net additions has been going down quite a bit from the peak of about a year ago. And you don't even talk about the product in your presentation anymore. Is that because you think the market for this product is kind of saturated by now? Or are you actively trying to replace it specifically with fiber? Or any update on how you see that going forward? Thank you.

Murat Erkan -- Chief Executive Officer

Thank you. Actually,, your response was quite OK. Since its launch, Superbox has shown substantial growth in the subscriber base, providing the demand for need fixed wireless access product backed by quality network. Our success with Superbox also shown that our Company is ready for the 5G transition period in Q1 2021. Superbox subscriber reached 626,000 on the back of increase of demand and brand awareness, as well as rising household broadband demand in pandemic environment. From now on, we will be more concentrated on monetizing our Superbox subscriber subscription, with a focus on network efficiency, usage optimization and price adjustment. So we recently did some price adjustment. We would like to monetize more Superbox product with a more efficient network infrastructure. So that are the two reasons. And Superbox is not a cheap product. It's a high-quality product with high demand. So -- but we would like to focus on the opex side as well, the cost -- network cost side as well. So it's in a balance, so we are increasing Superbox ARPU in an acceptable level. And Superbox is not a competition for fiber. And we -- I mean, it's a product that specific needs or address the needs of customers in the high-speed and high-quality and mobility environment.

Operator

Mr. Cabejsek, are you finished with your question?

Cabejsek Ondrej -- UBS -- Analyst

Yes. I was on mute. Thank you very much.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you.

Murat Erkan -- Chief Executive Officer

I would like to thanks all the contributor, all the listeners. Thank you very much. Good afternoon, good evening, good morning for everyone. Thanks. Thank you.

Ali Serdar Yagci -- Investor Relations and Corporate Finance Director

Well, thank you. This is the end of our call. Thank you everyone for taking the time to join us today. We hope to meet you in the upcoming quarters. Goodbye.

Duration: 58 minutes

Call participants:

Ali Serdar Yagci -- Investor Relations and Corporate Finance Director

Murat Erkan -- Chief Executive Officer

Osman Yilmaz -- Executive Vice President-Finance (Chief Financial Officer)

Cabejsek Ondrej -- UBS -- Analyst

Degtyarev Vyacheslav -- Goldman Sachs -- Analyst

Mandaci Ece -- UNLU Securities -- Analyst

Demirtas Cemal -- Ata Invest -- Analyst

Demirak Kayahan -- Ak Investment -- Analyst

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