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: Six months ended June 30, 2017 (Unaudited)
Filing Date: July 28, 2017
Telkom Indonesia is a state-owned public limited liability company headquartered in Bandung, Indonesia. The Group operates through five main segments: Mobile, Consumer, Enterprise, Wholesale and International Business (WIB), and Others. The financial statements are presented in billions of Indonesian Rupiah (IDR).
Key Financial Metrics
| Metric (Billions IDR) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|
| Total Revenues | 64,021 | 56,454 |
| Operating Profit | 23,786 | 19,887 |
| Profit Before Income Tax | 23,255 | 19,498 |
| Profit for the Period | 17,495 | 14,663 |
| Profit Attributable to Parent | 12,104 | 9,926 |
| Net Cash from Operating Activities | 22,260 | 24,689 |
| Net Cash Used in Investing Activities | (14,583) | (14,085) |
| Net Cash Used in Financing Activities | (18,354) | (17,046) |
| Cash and Cash Equivalents (End of Period) | 19,068 | 21,431 |
| Total Assets | 177,843 | 179,611 |
| Total Liabilities | 75,819 | 74,067 |
| Total Equity | 102,024 | 105,544 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 13.4% to Rp64,021 billion, driven primarily by growth in the Mobile segment (Rp44,489 billion) and Data/Internet services.
- Profitability: Operating profit rose 19.6% to Rp23,786 billion. Profit for the period increased 19.3% to Rp17,495 billion.
- Expense Management: While operating expenses increased, the company benefited from a significant reduction in foreign exchange losses (from Rp170 billion loss in 2016 to Rp9 billion loss in 2017).
- Capital Expenditures: Net cash used in investing activities increased slightly to Rp14,583 billion, reflecting continued investment in property and equipment (Rp13,795 billion).
- Dividends: Significant cash outflows in financing activities were due to dividend payments totaling Rp21,020 billion (Rp11,626 billion to parent shareholders and Rp9,394 billion to non-controlling interests).
- Balance Sheet: Cash and cash equivalents decreased by 35.9% to Rp19,068 billion, largely due to dividend distributions and capital expenditures.
Guidance, Outlook, Risks, and Contingencies
- Management Commentary: Management monitors operating results based on a Customer Facing Units (CFU) approach. The Group maintains a debt-to-equity ratio of 18.38% (net debt to equity) as of June 30, 2017, complying with all loan covenants.
- Tax Contingencies: The Company and its subsidiary Telkomsel are involved in ongoing tax disputes with the Directorate General of Taxation regarding VAT and corporate income tax assessments for various years. Some appeals are pending at the Tax Court or Supreme Court. Provisions have been recognized for probable losses.
- Legal Contingencies: The Group and Telkomsel were found liable by the Supreme Court for SMS cartel practices. Penalties of Rp18 billion and Rp25 billion, respectively, were paid in January 2017.
- USO Program: The Group has outstanding receivables related to the Universal Service Obligation (USO) program. Arbitration decisions have been received regarding underpayments by the government agency (BPPPTI), with partial payments received.
- Financial Risks: The Group is exposed to foreign exchange risk (primarily USD and JPY) and interest rate risk. A 1% strengthening of the USD would increase equity/profit by Rp11 billion, while a 5% strengthening of the JPY would decrease it by Rp35 billion.
Key Facts for Investor Verification
- Dividend Payout: Verify the sustainability of the high dividend payout ratio, which consumed a significant portion of operating cash flow (Rp21,020 billion paid vs. Rp22,260 billion operating cash flow).
- Tax Disputes: Monitor the status of ongoing tax litigation with the Indonesian tax authorities, as final outcomes could impact future tax liabilities and cash flows.
- Foreign Exchange Exposure: Assess the impact of Rupiah volatility on the Group's net debt position, which includes significant foreign currency-denominated liabilities.
- Capital Expenditure Efficiency: Review the return on the heavy capital expenditures (Rp13.8 billion) regarding network modernization and fiber optic expansion.
- Non-Controlling Interests: Note that a significant portion of profit (approx. 31%) and equity is attributable to non-controlling interests, primarily Telkomsel (65% owned by Telkom Indonesia).