Business Context and Reporting Period
Company: Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (Telkom)
Filing Type: Form 6-K (Unaudited Consolidated Financial Statements)
Reporting Period: Nine months ended September 30, 2010 (compared to the same period in 2009)
Business Overview: Telkom is Indonesia's largest full-service telecommunications provider. Its operations are divided into fixed wireline, fixed wireless (Flexi), and cellular (via majority-owned subsidiary Telkomsel) segments. The company also provides data, internet, and IT services.
Key Financial Metrics
| Metric (Rp. Millions) | 9M 2009 | 9M 2010 | Change |
|---|---|---|---|
| Total Operating Revenue | 50,162,799 | 52,122,352 | +3.9% |
| Operating Income | 17,954,291 | 17,194,134 | -4.2% |
| Net Income | 9,300,462 | 8,933,355 | -3.9% |
| EBITDA | 28,150,000 | 28,237,100 | +0.3% |
| EBITDA Margin | 56.1% | 54.2% | -1.9 pts |
| Cash & Cash Equivalents (End of Period) | 7,212,193 | 8,941,289 | +24.0% |
| Total Assets | 95,313,850 | 100,060,741 | +5.0% |
| Total Liabilities | 48,041,041 | 46,433,487 | -3.3% |
| Net Debt to Equity (Gearing) | 42.6% | 30.7% | -11.9 pts |
Material Changes vs. Prior Period
- Revenue Growth Drivers: Consolidated revenue grew 3.9% primarily driven by a 15.0% increase in Data, Internet, and IT services (Rp 2.07 trillion growth) and a 2.6% increase in Cellular revenue. This growth offset an 8.8% decline in Fixed Line revenue.
- Subscriber Growth: The total customer base reached 118.2 million. Telkomsel's cellular base grew 16.7% YoY to 93.1 million subscribers. Broadband subscribers (Speedy and Flash) increased significantly, with mobile broadband (Flash) up 211.1%.
- Expense Increases: Operating expenses rose 8.4% to Rp 34.9 trillion. Key drivers included a 17.4% increase in Operations & Maintenance (due to network expansion and frequency fees) and an 8.3% rise in Depreciation & Amortization.
- Profitability Impact: Net income declined 3.9% despite revenue growth. The primary cause was a sharp decrease in foreign exchange gains, which dropped from Rp 774.8 billion in 9M09 to Rp 131.0 billion in 9M10 due to the appreciation of the Rupiah. Normalized net income (excluding FX gains) actually grew 1.3%.
- Balance Sheet Strength: Total liabilities decreased 3.3%, largely due to a reduction in taxes payable. Cash and cash equivalents increased significantly, improving liquidity.
Guidance, Outlook, and Risks
- Management Commentary: Management highlighted strong momentum in Data, Internet, and IT services, citing successful broadband infrastructure investments. Cellular growth remained robust despite competitive market conditions. Fixed line revenue decline slowed compared to previous periods.
- Capital Expenditure: Consolidated CAPEX for 9M10 was Rp 9.6 trillion (Rp 2.7 trillion for Telkom, Rp 6.4 trillion for Telkomsel). Approximately 71-76% of the annual CAPEX budget was absorbed by September 30, 2010.
- Acquisitions & Investments:
- Telkom acquired 100% ownership of Sigma (IT services) in August 2010.
- Metra (subsidiary) formed a joint venture with SK Telecom (Melon) for digital content exchange.
- Telkom increased its stake in Scicom (Malaysia) to 29.71%.
- Risks and Contingencies:
- Legal: Ongoing investigations and lawsuits regarding SMS cartel practices, monopolistic practices (KPPU), and corruption allegations involving former employees. Management believes these will not have a significant financial impact.
- Taxation: Active tax audits for fiscal years 2006 and 2008. A Tax Collection Letter (STP) for Rp 184 billion was received in October 2010 (subsequent event).
- Regulatory: Tariff regulations and interconnection fees are subject to government decrees. The company is subject to Universal Service Obligation (USO) contributions.
Key Facts for Investor Verification
- FX Sensitivity: Verify the impact of Rupiah appreciation on future earnings, as foreign exchange gains were a significant contributor to net income in 2009 but minimal in 2010.
- Fixed Line Churn: Monitor the continued decline in fixed line revenue (-8.8%) and the effectiveness of the Fixed Business Improvement Program (FBIP) in retaining subscribers.
- Debt Covenants: Confirm compliance with financial covenants, particularly for Telkomsel (EBITDA to Debt Service > 1.25x; Debt to Tangible Net Worth < 2.0x). As of 9M10, actuals were 4.13x and 0.34x respectively.
- Legal Exposure: Track the status of the KPPU SMS cartel case and the Supreme Court review regarding the Temasek cross-ownership ruling, which could impact future strategic decisions.
- CAPEX Execution: Verify the completion of the remaining 24-29% of the 2010 CAPEX budget and its impact on 2011 depreciation expenses.