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: Nine months ended September 30, 2016 (Unaudited)

Filing Date: October 25, 2016

Telkom Indonesia is a state-owned public limited liability company providing telecommunications networks and services in Indonesia. The Group operates through four main segments: Corporate, Home, Personal, and Others. The Government of the Republic of Indonesia remains the majority shareholder.

Key Financial Metrics (Nine Months Ended Sept 30, 2016)

Earnings Per Share (Basic): Rp 149.57 (2016) vs. Rp 117.60 (2015)

Dividends Paid: Rp 9,293 billion (Parent) and Rp 7,058 billion (Non-controlling interests) during the period.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased by 13.8% to Rp 86.2 trillion, driven primarily by a 27.8% surge in Data, Internet, and IT service revenues (Rp 44.5 trillion vs. Rp 34.9 trillion).
• Profitability: Operating profit rose 26.2% to Rp 30.3 trillion. Net profit attributable to the parent company increased 27.6% to Rp 14.7 trillion.
• Expense Management: Interconnection expenses decreased significantly by 25.4% to Rp 2.0 trillion, while Personnel expenses increased by 9.2% to Rp 10.1 trillion.
• Capital Expenditure: Cash used for acquisition of property and equipment increased to Rp 21.2 trillion (from Rp 18.1 trillion), reflecting continued network modernization.
• Balance Sheet: Total assets grew by 6.8%. Long-term borrowings decreased by 8.2% to Rp 27.7 trillion, while cash reserves increased slightly.

Outlook, Risks, and Contingencies

Management Commentary & Outlook: The Group continues to focus on network modernization, including the replacement of copper cable networks with fiber optics and the expansion of broadband infrastructure. The Personal segment remains the primary revenue driver. Management maintains a prudent capital structure to minimize the cost of capital and safeguard credit ratings.

Key Risks and Contingencies:

• Legal Proceedings (SMS Cartel): The Supreme Court ruled in favor of the KPPU (Business Competition Supervisory Commission) regarding SMS cartel allegations. The Company is considering a judicial review. A provision of Rp 43 billion has been recognized for various legal actions.
• Tax Disputes: Significant ongoing tax assessments and appeals exist regarding VAT and corporate income tax for both the Company and Telkomsel (e.g., VAT interconnection assessments totaling hundreds of billions of Rupiah). Several appeals are pending with the Tax Court or Supreme Court.
• Foreign Exchange Risk: The Group has a net liability exposure to the Japanese Yen (approx. Rp 6.7 trillion equivalent) and a smaller net asset exposure to the US Dollar. A 5% strengthening of the Yen would decrease equity/profit by Rp 43 billion.
• Regulatory Compliance: The Group is subject to strict tariff regulations and Universal Service Obligation (USO) contributions (1.25% of gross revenue).

Investor Verification Checklist

• Tax Litigation Status: Verify the current status of the Supreme Court judicial review regarding the SMS cartel case and the outcome of pending VAT appeals, as these could result in significant additional liabilities.
• USO Receivables: Confirm the collection status of the Rp 469 billion in outstanding receivables from the Universal Service Obligation program awarded by BANI (Arbitration Board).
• Debt Covenants: Review compliance with debt-to-equity and EBITDA-to-finance-cost ratios required by bond indentures and bank loan agreements.
• Fixed Wireless Restructuring: Monitor the completion of the Conditional Business Transfer Agreement (CBTA) transferring fixed wireless assets to Telkomsel, which impacts future revenue recognition and asset bases.
• Capital Expenditure Efficiency: Assess the return on the increased capital expenditure (Rp 21.2 trillion) regarding network modernization and fiber optic deployment.