TLK

Business Context and Reporting Period

Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom Indonesia)

Filing Type: Form 6-K (Report of Foreign Private Issuer)

Reporting Period: Six months ended June 30, 2018 (Unaudited)

Business Overview: The Company is a state-owned public limited liability company providing telecommunications networks and services in Indonesia. Its primary operating segments include Mobile, Consumer, Enterprise, and WIB (Wholesale and International Business). The Group operates through significant subsidiaries, most notably PT Telekomunikasi Selular (Telkomsel), in which it holds a 65% interest.

Key Financial Metrics (Six Months Ended June 30, 2018)

Note: All figures are in billions of Indonesian Rupiah (Rp) unless otherwise stated.

Material Changes vs. Prior Period

• Profitability Decline: Operating profit decreased by 23.9% (from Rp 23,786 billion to Rp 18,100 billion), and Net Profit attributable to the parent company dropped by 28.1% (from Rp 12,104 billion to Rp 8,698 billion).
• Revenue Growth: Total revenue increased slightly by 0.5% to Rp 64,368 billion, driven primarily by growth in Data, Internet, and IT services (up 10.9% to Rp 37,610 billion), partially offset by a decline in Cellular usage charges.
• Expense Increases:
  • Impairment Provisions: Provision for impairment of receivables surged to Rp 1,188 billion (up from Rp 325 billion in 2017), significantly impacting General and Administrative expenses.
  • Operating Costs: Operation, maintenance, and telecommunication service expenses rose by 18.9% to Rp 21,883 billion, largely due to increased radio frequency usage charges and IT service costs.
  • Depreciation: Depreciation and amortization expenses increased by 7.3% to Rp 10,331 billion.
• Liquidity and Debt:
  • Cash and cash equivalents decreased by 33.1% to Rp 16,826 billion.
  • Total liabilities increased by 20.0% to Rp 103,643 billion, driven by a significant rise in short-term bank loans (from Rp 2,289 billion to Rp 8,293 billion) and long-term borrowings.
  • Net debt-to-equity ratio increased from 11.14% to 41.98%.
• Dividends: The Company paid cash dividends totaling Rp 26,739 billion during the period (Rp 16,609 billion to shareholders and Rp 10,130 billion to non-controlling interests).

Guidance, Outlook, Risks, and Unusual Items

• Acquisitions: The Group completed the acquisition of a 51% stake in PT Swadharma Sarana Informatika (Swadharma) for Rp 397 billion and increased its stake in Telin Malaysia to 70%. These are expected to strengthen the business portfolio.
• Asset Modernization: Telkomsel accelerated depreciation on certain equipment units (net carrying amount Rp 555 billion) as part of a modernization program, increasing depreciation expense by Rp 125 billion. Conversely, changes in estimated useful lives for buildings and radio software licenses reduced depreciation expense by Rp 67 billion and Rp 484 billion, respectively.
• Tax Contingencies: The Company is involved in several ongoing tax disputes and judicial reviews regarding VAT on international incoming call interconnection services and corporate income tax assessments. Significant amounts are recorded as claims for tax refund or provisions depending on the status of the appeal.
• Financial Risks:
  • Foreign Exchange: The Group has a net liability exposure to the Japanese Yen (approx. Rp 5,049 billion) and a net asset exposure to the US Dollar. A 1% strengthening of the USD would decrease equity/profit by Rp 30 billion.
  • Interest Rate: The Group has significant variable rate borrowings (Rp 38,038 billion). A 25 basis point increase in interest rates would decrease profit by Rp 95.1 billion.
• Subsequent Event: On July 6, 2018, Telkomsel fully paid borrowings from Bank of Tokyo and DBS totaling Rp 3,250 billion.

Key Facts for Investor Verification

• Impairment Provision Spike: Verify the rationale and adequacy of the Rp 1,188 billion provision for impairment of receivables, which is nearly four times the prior year amount.
• Debt Structure Shift: Confirm the sustainability of the increased leverage, specifically the jump in short-term bank loans and the resulting rise in the net debt-to-equity ratio to 41.98%.
• Tax Litigation Outcomes: Monitor the status of ongoing judicial reviews regarding VAT on international interconnection services, as these involve significant potential refunds or liabilities.
• Dividend Policy: Assess the impact of the large dividend payout (Rp 26,739 billion) on future liquidity and capital expenditure plans.
• Segment Performance: Review the divergence between the Mobile segment (which saw a decline in operating profit) and the Data/Internet segment (which drove revenue growth).