TLK

Business Context and Reporting Period

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

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

Filing Date: June 8, 2006

Reporting Period: Year ended December 31, 2005 (Audited)

Business Overview: TELKOM is the principal provider of fixed-line services in Indonesia. Its majority-owned subsidiary, Telkomsel, is the largest mobile cellular operator in the country by subscribers and revenue. The company also provides interconnection, network, data, internet, and other telecommunications services. Shares are listed on the Jakarta and Surabaya Stock Exchanges (TLKM) and American Depositary Shares are listed on the NYSE (TLK) and LSE (TKIA).

Key Financial Metrics (Year Ended Dec 31, 2005)

Note: Figures in Rupiah (Rp) are in millions; Figures in US Dollars (US$) are in thousands. Exchange rate used in filing: approx. 9,830 Rp/US$.

Material Changes vs. Prior Period (2004)

• Revenue Growth: Total operating revenues increased by 23.1% from Rp 33.95 trillion in 2004 to Rp 41.81 trillion in 2005.
  • Cellular: Revenue surged 40% to Rp 14.57 trillion, driven by Telkomsel.
  • Data and Internet: Revenue grew 44% to Rp 6.93 trillion.
  • Fixed Lines: Revenue remained relatively flat, increasing slightly to Rp 10.78 trillion.
• Profitability: Net income increased 20.8% to Rp 7.99 trillion. Operating income rose 17.7% to Rp 17.17 trillion.
• Unusual Items: The 2005 income statement includes a write-down of assets of Rp 616.8 billion and a loss on procurement commitments of Rp 79.4 billion, which were not present in 2004.
• Foreign Exchange: Net loss on foreign exchange decreased significantly from Rp 1.22 trillion in 2004 to Rp 516.8 billion in 2005.
• Debt Reduction: Short-term bank loans decreased drastically from Rp 1.10 trillion in 2004 to Rp 173.8 billion in 2005. Long-term notes and bonds also declined from Rp 2.33 trillion to Rp 1.46 trillion.

Guidance, Outlook, and Risks

Management Commentary: The filing primarily serves to disclose the audited year-end 2005 results to the SEC and Indonesian regulators (BAPEPAM). No specific forward-looking guidance or quantitative outlook for 2006 is provided in this text.

Contingencies and Risks:

• Asset Write-downs: Significant asset write-downs (Rp 616.8 billion) indicate potential impairment risks or strategic adjustments in network assets.
• Procurement Losses: A loss of Rp 79.4 billion on procurement commitments suggests potential contract renegotiations or supply chain cost overruns.
• Foreign Exchange Exposure: Despite improvement, the company still recorded a net foreign exchange loss of Rp 516.8 billion, highlighting currency risk.
• Post-Retirement Obligations: Significant liabilities exist for accrued post-retirement health care benefits (Rp 3.05 trillion) and pension costs (Rp 1.33 trillion).

Investor Verification Checklist

• Asset Write-down Details: Verify the specific nature and justification for the Rp 616.8 billion asset write-down and its impact on future depreciation schedules.
• Procurement Commitments: Investigate the cause of the Rp 79.4 billion loss on procurement commitments to assess future operational efficiency.
• Debt Structure: Confirm the terms of the remaining long-term liabilities, particularly the "Two-step loans" (Rp 4.76 trillion) and "Liabilities of business acquisitions" (Rp 3.13 trillion).
• Minority Interest: Review the impact of the increasing minority interest in net income (Rp 3.06 trillion) on the parent company's distributable earnings.
• Currency Sensitivity: Assess the company's hedging strategies given the continued exposure to foreign exchange losses.