Business Context and Reporting Period
Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom Indonesia)
Reporting Period: Six months ended June 30, 2015 (Unaudited)
Filing Date: August 3, 2015 (Form 6-K)
Business Overview: A state-owned public limited liability company providing telecommunications networks and services, informatics, and related investments. The Group operates through four main segments: Personal (mobile/fixed wireless), Home (fixed wireline/Pay TV/data), Corporate (enterprise/wholesale/international), and Others (building management). The Government of Indonesia remains the majority shareholder (52.56% of Series B shares).
Key Financial Metrics (Six Months Ended June 30, 2015)
| Metric | 2015 (Rp Billion) | 2014 (Rp Billion) |
|---|---|---|
| Revenues | 48,840 | 43,542 |
| Operating Profit | 15,123 | 14,072 |
| Profit Before Tax | 14,720 | 13,832 |
| Net Profit (Total) | 10,979 | 10,335 |
| Attributable to Owners of Parent | 7,447 | 7,286 |
| Net Cash from Operating Activities | 18,640 | 17,295 |
| Net Cash Used in Investing Activities | (10,134) | (5,532) |
| Net Cash Used in Financing Activities | (2,249) | (9,505) |
| Cash and Cash Equivalents (End of Period) | 24,286 | 16,828 |
| Total Assets | 154,050 | 141,822 |
| Total Liabilities | 71,785 | 55,683 |
| Total Equity | 82,265 | 86,139 |
| Net Debt-to-Equity Ratio | 18.58% | 8.52% |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by 12.2% (Rp 5,298 billion) driven primarily by growth in Data, Internet, and IT services (up 20.5%) and Cellular usage charges.
- Profitability: Operating profit rose 7.5% to Rp 15,123 billion. Net profit attributable to the parent company increased 2.2% to Rp 7,447 billion.
- Cost Structure: Personnel expenses increased significantly by 23.0% (to Rp 5,890 billion), largely due to an Rp 844 billion expense related to an early retirement program. Operations and maintenance expenses rose 30.3% (to Rp 14,028 billion), partly due to higher costs for SIM cards and set-top boxes.
- Debt Position: Total debt increased substantially. Long-term bank loans and bonds saw significant increases due to new issuances (Continuous Bond I Telkom Phase I in June 2015) and borrowings to fund capital expenditures. Net debt-to-equity ratio rose from 8.52% to 18.58%.
- Dividends: Cash dividends paid to stockholders totaled Rp 8,782 billion in the first half of 2015, compared to Rp 9,943 billion in the same period of 2014.
Guidance, Outlook, Risks, and Unusual Items
- Restructuring: The Company is restructuring its fixed wireless business, transferring operations and subscribers to its subsidiary Telkomsel. A restructuring provision of Rp 208 billion was recorded for the "Upgrade Telkomflexi" program. Fixed wireless assets were fully depreciated as of June 30, 2015.
- Capital Expenditures: Significant commitments remain for network modernization, including the SEA-ME-WE 5 cable system and fiber optic network upgrades. Capital expenditures for the period were approximately Rp 11,939 billion.
- Legal Contingencies:
- SMS Cartel: The Central Jakarta District Court ruled in favor of the Company and other operators in May 2015 regarding SMS cartel allegations. The Commission for the Supervision of Business Competition (KPPU) filed a cassation to the Supreme Court in July 2015.
- Tax Disputes: Ongoing disputes with tax authorities regarding VAT and income tax assessments for various years. Some objections are pending appeal or judicial review.
- Land Disputes: A Supreme Court decision in January 2015 rejected the Company's appeal regarding a land dispute in Makassar; a judicial review was requested in February 2015.
- USO Program: Outstanding receivables from the Universal Service Obligation (USO) program amount to Rp 107.8 billion. An arbitration claim was filed in September 2014 and remains in process.
- Foreign Exchange Risk: The Group has a net liability exposure of approximately Rp 1,010 billion in foreign currencies (primarily USD and JPY). A 1% strengthening of the USD would decrease equity/profit by Rp 4 billion.
Key Facts for Investor Verification
- Debt Covenants: Verify compliance with debt-to-equity and EBITDA-to-finance-costs ratios required by bond indentures and loan agreements, particularly given the recent increase in leverage.
- Fixed Wireless Restructuring: Monitor the completion of the transfer of fixed wireless assets and subscribers to Telkomsel and the associated impact on future revenue recognition and cost structures.
- Tax Litigation Outcomes: Track the resolution of ongoing tax assessments and appeals, which could result in significant additional liabilities or refunds.
- USO Receivables: Assess the collectibility of the Rp 107.8 billion outstanding receivable from the USO program pending arbitration.
- Capital Allocation: Review the utilization of proceeds from the June 2015 bond issuance (Rp 7,000 billion) against planned capital expenditure projects.