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)

Reporting Period: First Half (January 1 – June 30, 2005)

Announcement Date: August 5, 2005

Business Overview: TELKOM is Indonesia's leading telecommunications provider, operating fixed-line, wireless (TELKOMFlexi), and mobile cellular (Telkomsel) services. The Government of Indonesia holds a 51.19% stake. The company reported unaudited consolidated financial results prepared under Indonesian GAAP.

Key Financial Metrics

Balance Sheet and Liquidity

• Cash and Cash Equivalents: Rp 6,010 billion (June 30, 2005) vs. Rp 6,984 billion (June 30, 2004).
• Consolidated Debt: Total debt decreased to Rp 14,925 billion from Rp 18,230 billion. The portion of US Dollar-denominated debt declined from 63.5% to 58.4%.
• Current Ratio: Decreased to 73.97% from 100.37%.
• Debt Service Ratio: Improved to 3.2 times from 2.5 times.

Material Changes vs. Prior Period

Revenue Drivers

• Cellular Revenues: Increased 29.3% (Rp 1,451 billion) driven by a 23% rise in prepaid and 80% rise in post-paid customers.
• Data and Internet: Surged 42.7% (Rp 916 billion) due to TelkomNet Instan usage growth (22.2%) and Telkomsel SMS production growth (49.1%).
• Interconnection: Rose 28.2% (Rp 776 billion) due to increased mobile interconnection and international call usage.
• Fixed Phone: Marginal growth of 0.9% despite a 366.6% increase in fixed wireless (Flexi) lines, offset by a decline in local/long-distance pulse production.
• Network Revenues: Decreased 29.4% due to the elimination of intra-company leased line transactions.

Expense Drivers

• Personnel Expenses: Jumped 40% (Rp 1,070 billion) primarily due to a one-time early retirement cost of Rp 558 billion and a 126% increase in employee income tax.
• Operations & Maintenance: Increased 27.1% due to higher Telkomsel O&M costs, concession fees, and prepaid card costs.
• Other Charges: Decreased 63.6% due to lower interest expenses and reduced foreign exchange losses.

Outlook, Risks, and Operational Highlights

Operational Growth

• Fixed Wireless (TELKOMFlexi): Lines in Service (LIS) grew 366.6% to 3.46 million, covering 219 cities. Prepaid subscriber growth was 1,034.8%.
• Mobile (Telkomsel): Maintained 54% market share with 21.5 million subscribers. Total subscriber base grew 74.3% year-over-year.
• CAPEX: 2005 budget is Rp 12,972 billion. First-half spending was Rp 795 billion (TELKOM) and Rp 3,000 billion (Telkomsel).

Management Commentary and Risks

• Dividend: The Annual General Meeting approved a cash dividend of Rp 152.014 per share (50% of net profit) for the 2004 fiscal year.
• Debt Management: TELKOM refinanced US$ 49 million debt to lower interest rates. Average interest rates for IDR and USD debt decreased.
• Forward-Looking Statements: The filing includes standard disclaimers that projections involve risks and uncertainties that could cause actual results to differ materially.
• Regulatory: The company filed its Form 20-F for 2004 with the SEC on July 14, 2005.

Investor Verification Checklist

• One-Time Costs: Verify the impact of the Rp 558 billion early retirement expense on future personnel costs and whether this is a recurring item.
• Fixed-Line Decline: Assess the long-term sustainability of fixed-line revenue given the decline in pulse production despite subscriber growth in fixed wireless.
• Foreign Exchange Exposure: Monitor the remaining 58.4% USD-denominated debt and the effectiveness of hedging strategies (currently covering ~6.24% of foreign debt).
• ARPU Trends: Review the significant decline in blended ARPU for fixed wireless (-58.8%) and Telkomsel (-17.9%) to understand pricing pressure in the prepaid market.
• Liquidity Position: Investigate the drop in the current ratio to 73.97% and the decrease in cash equivalents despite strong operating cash flow.