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: Three months ended March 31, 2016 (Unaudited)

Filing Date: April 26, 2016

Telkom Indonesia is a state-owned public limited liability company and the dominant telecommunications provider in Indonesia. The Group operates through four main segments: Corporate, Home, Personal, and Others. The financial statements are presented in billions of Indonesian Rupiah (IDR).

Key Financial Metrics

Earnings Per Share (Basic): Rp 46.72 (Q1 2016) vs. Rp 38.85 (Q1 2015).

Debt Profile: Total interest-bearing debt is approximately Rp 34,964 billion. The Net Debt-to-Equity ratio improved to -0.97% (Net Cash position) from 8.64% in the prior year.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased by 16.6% to Rp 27.5 trillion, driven primarily by the Personal segment (Mobile Cellular) and Data/Internet services.
• Profitability: Operating profit rose 28.5% to Rp 9.6 trillion. Net profit attributable to the parent company increased 20.3% to Rp 4.6 trillion.
• Cost Management: Depreciation and amortization expenses decreased by 13.6% to Rp 4.4 trillion, partly due to the full depreciation of fixed wireless assets following the restructuring of that business unit.
• Segment Performance: The Personal segment generated the majority of operating profit (Rp 9.4 trillion), while the Corporate segment saw a decline in operating results compared to the prior year.
• Cash Flow: Net cash provided by operating activities increased significantly by 41.7% to Rp 13.1 trillion.

Outlook, Risks, and Contingencies

Management Commentary & Outlook: The Group continues to focus on network modernization, including the migration from copper to fiber optics and the expansion of 4G/LTE networks. Capital expenditures remain high to support these infrastructure upgrades. The Group maintains a strong liquidity position with a net cash balance.

Key Risks and Contingencies:

• Legal Proceedings (SMS Cartel): The Supreme Court of Indonesia ruled in favor of the Business Competition Supervisory Commission (KPPU) regarding SMS cartel allegations on February 29, 2016. The Company is considering a judicial review. A provision of Rp 43 billion has been recognized for potential losses.
• Tax Disputes: Significant ongoing tax assessments and appeals exist, particularly regarding Value Added Tax (VAT) on interconnection services and corporate income tax. The Company has filed appeals for assessments totaling hundreds of billions of Rupiah.
• Foreign Exchange Risk: The Group has significant liabilities denominated in foreign currencies (primarily USD and JPY). A strengthening of these currencies against the Rupiah would negatively impact equity and profit.
• Regulatory Changes: Tariffs for telecommunications services are subject to government regulation and price cap formulas. Changes in interconnection tariffs or Universal Service Obligation (USO) requirements could impact margins.

Investor Verification Checklist

• Net Cash Position: Verify the sustainability of the net cash position (Cash > Debt) given the high capital expenditure requirements for network modernization.
• Tax Liability Exposure: Review the status of pending tax appeals, specifically the VAT interconnection disputes, as a final adverse ruling could materially impact future earnings.
• Legal Contingency: Monitor the outcome of the judicial review regarding the SMS cartel case and potential fines or penalties.
• Segment Mix: Analyze the shift in revenue mix towards data and mobile services versus the declining fixed-line and fixed-wireless segments.
• Related Party Transactions: Review the volume of transactions with state-owned enterprises and related parties (approx. 7% of revenue and 5% of expenses) to ensure arm's length pricing.