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, 2014 (Unaudited)
Filing Date: July 23, 2014
Telkom Indonesia is a state-owned public limited liability company and the dominant telecommunications provider in Indonesia. The company operates through four main segments: Personal (mobile/fixed wireless), Home (fixed line/data/TV), Corporate, and Others. The financial statements are presented in billions of Indonesian Rupiah (IDR).
Key Financial Metrics
| Metric (Billions IDR) | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|
| Total Revenues | 43,542 | 40,160 |
| Operating Profit | 14,193 | 13,846 |
| Profit for the Year (Net Income) | 10,461 | 10,133 |
| Net Income Attributable to Parent | 7,411 | 7,125 |
| Net Cash Provided by Operating Activities | 17,295 | 14,388 |
| Capital Expenditures (Net) | (11,866) | (10,562) |
| Cash and Cash Equivalents (End of Period) | 16,828 | 11,551 |
| Total Assets | 130,160 | 127,951 |
| Total Liabilities | 55,166 | 50,527 |
| Net Debt to Equity Ratio | 11.37% | 9.18% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by 8.4% to Rp43.5 trillion, driven primarily by growth in the Personal segment (mobile cellular) and Data/Internet services.
- Profitability: Operating profit rose 2.5% to Rp14.2 trillion. Net income increased 3.2% to Rp10.5 trillion.
- Impairment Charges: The company recognized an additional impairment loss of Rp190 billion on fixed wireless assets (part of the Personal segment) due to increased competition and declining ARPU, recorded within depreciation and amortization expenses.
- Dividends: The company paid cash and special cash dividends totaling Rp9.9 trillion in May 2014 for the 2013 fiscal year.
- Treasury Stock: The company resold 1.075 billion shares of treasury stock (Phase II) in June 2014, generating proceeds of Rp2.6 trillion and recording a gain of Rp576 billion in additional paid-in capital.
- Debt Levels: Total interest-bearing debt increased to Rp23.7 trillion (from Rp20.3 trillion), with a corresponding increase in the net debt-to-equity ratio to 11.37%.
Guidance, Outlook, Risks, and Unusual Items
- Business Restructuring: A Conditional Business Transfer Agreement was signed on June 27, 2014, to transfer the "Flexi" fixed wireless business unit from the parent company to its subsidiary, Telkomsel, to maximize synergy. An escrow account of Rp897 billion was opened in July 2014.
- Subsequent Events: On July 14, 2014, the company signed a contract for the procurement of the Telkom-3 Substitution (T3S) Satellite System for approximately US$199.7 million.
- Tax Contingencies: Significant tax disputes remain ongoing, including a Supreme Court review regarding a 2008 VAT underpayment claim by Telkomsel (Rp290.6 billion) and a 2002 withholding tax case. Management believes provisions are adequate.
- Legal Contingencies: The company is involved in an investigation by the Business Competition Supervisory Commission (KPPU) regarding alleged SMS cartel practices. A provision of Rp47 billion has been recognized for various legal actions.
- Regulatory Risks: The company is subject to Universal Service Obligation (USO) requirements, contributing 1.25% of gross revenues to rural development programs. Tariff regulations for interconnection and fixed lines are subject to government review.
Investor Verification Checklist
- Fixed Wireless Impairment: Verify the assumptions used for the value-in-use calculation regarding the fixed wireless segment and the likelihood of further impairments if performance targets are not met.
- Flexi Business Transfer: Monitor the regulatory approval status and financial impact of the transfer of the Flexi business to Telkomsel.
- Tax Litigation Outcomes: Track the resolution of the Supreme Court cases regarding Telkomsel's VAT and withholding tax disputes, which could impact future cash flows.
- Debt Covenants: Confirm continued compliance with debt-to-equity and debt service coverage ratios required by lenders, particularly given the increase in total debt.
- Dividend Policy: Assess the sustainability of the high dividend payout ratio (approx. 134% of net income attributable to parent for the period) relative to free cash flow.