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: Nine months ended September 30, 2015 (Unaudited)
Filing Date: October 29, 2015
Telkom Indonesia is a state-owned public limited liability company and the dominant telecommunications provider in Indonesia. The Group operates through four main segments: Personal (mobile/fixed wireless), Home (fixed wireline/data), Corporate (enterprise/wholesale), and Others. The financial statements are prepared in accordance with Indonesian Financial Accounting Standards (PSAK).
Key Financial Metrics (Nine Months Ended Sept 30, 2015)
| Metric | 2015 (Billions IDR) | 2014 (Billions IDR) |
|---|---|---|
| Revenues | 75,719 | 65,841 |
| Operating Profit | 23,992 | 21,949 |
| Profit for the Period (Net Income) | 17,337 | 16,101 |
| Net Income Attributable to Parent | 11,545 | 11,268 |
| Net Cash from Operating Activities | 31,310 | 27,364 |
| Net Cash Used in Investing Activities | (19,218) | (15,726) |
| Cash and Cash Equivalents (End of Period) | 26,264 | 17,672 |
| Total Assets | 158,394 | 141,822 |
| Total Liabilities | 71,309 | 55,683 |
| Net Debt-to-Equity Ratio | 12.34% | 8.52% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased by 15.0% to Rp75.7 trillion, driven primarily by a 24.6% increase in Data, Internet, and IT service revenues (Rp34.6 trillion vs. Rp27.8 trillion) and a 6.4% increase in Cellular usage charges.
- Profitability: Operating profit rose 9.3% to Rp24.0 trillion. Net profit increased 7.7% to Rp17.3 trillion. This growth was supported by a reduction in interconnection expenses (down 26.6% to Rp2.7 trillion) and a net foreign exchange gain of Rp77 billion (compared to a loss of Rp203 billion in 2014).
- Capital Expenditures: Cash used in investing activities increased to Rp19.2 trillion, reflecting higher acquisitions of property and equipment (Rp18.1 trillion) and intangible assets (Rp1.0 trillion) to support network expansion.
- Debt Structure: Total debt increased significantly due to the issuance of new bonds in June 2015 (Series A, B, C, and D totaling Rp7.0 trillion) and increased bank loans. Long-term liabilities rose from Rp23.4 trillion to Rp37.4 trillion.
- Dividends: The Company paid cash dividends totaling Rp8.8 trillion in May 2015 for the 2014 fiscal year.
Guidance, Outlook, Risks, and Contingencies
- Restructuring: The Company is in the process of transferring its fixed wireless business (Telkom Flexi) to its subsidiary Telkomsel. A restructuring provision of Rp208 billion was recorded. The transfer is expected to be completed by December 14, 2015.
- Tax Contingencies: Significant tax disputes remain ongoing. Telkomsel is involved in a judicial review regarding a 2008 income tax assessment (Rp429 billion) and a 2010 VAT assessment (Rp290 billion). The Company has also filed objections regarding VAT assessments for 2011 and 2014.
- Legal Contingencies: The Company and Telkomsel are defendants in an SMS cartel case. While the Central Jakarta District Court ruled in their favor in May 2015, the regulator (KPPU) filed a cassation to the Supreme Court in July 2015. A provision of Rp25 billion has been recognized for various legal actions.
- USO Receivables: Outstanding receivables from the Universal Service Obligation (USO) program amount to Rp107.8 billion. Telkomsel filed an arbitration claim in September 2014 which is still in process.
- Regulatory Changes: The Financial Services Authority issued a circular regarding the accounting treatment of leased telecommunication tower assets, effective for periods ending after December 31, 2015. The Group is currently assessing the impact.
Key Facts for Investor Verification
- Debt Covenants: Verify compliance with debt-to-equity and EBITDA-to-finance-cost ratios required by bond indentures and loan agreements, particularly given the significant increase in long-term debt in 2015.
- Fixed Wireless Transition: Monitor the completion of the fixed wireless business transfer to Telkomsel and the associated impact on revenue recognition and restructuring costs.
- Tax Litigation Outcomes: Track the resolution of major tax disputes with the Directorate General of Taxation, specifically the VAT and income tax assessments for Telkomsel, which could materially impact future cash flows.
- Foreign Exchange Exposure: Review the Group's net exposure to foreign currency (primarily USD and JPY), which resulted in a net liability position of approximately Rp7.5 trillion in foreign currency terms as of September 30, 2015.
- Capital Management: Confirm the sustainability of the dividend payout policy given the high capital expenditure requirements for network modernization (e.g., SEA-ME-WE 5 cable system, FTTH rollout).