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: Three months ended March 31, 2009 (Q1 2009), compared to Q1 2008.
Business Overview: The Company is Indonesia's primary telecommunications provider, operating through three main segments: Fixed Wireline, Fixed Wireless, and Cellular (via its subsidiary Telkomsel). It provides local, long-distance, and international telephone services, data, internet, and information technology services. The Company is majority-owned by the Indonesian Government.
Key Financial Metrics (Q1 2009 vs. Q1 2008)
All figures in millions of Indonesian Rupiah (Rp), unless otherwise noted.
| Metric | Q1 2009 | Q1 2008 | Change |
|---|---|---|---|
| Total Operating Revenues | 14,702,178 | 15,031,603 | (2.2%) |
| Operating Income | 5,288,198 | 6,542,488 | (19.2%) |
| Net Income | 2,457,884 | 3,207,334 | (23.4%) |
| Net Income Attributable to Stockholders | 2,457,884 | 3,207,334 | (23.4%) |
| Basic Earnings Per Share (Rp) | 124.46 | 161.50 | (22.9%) |
| Net Cash Provided by Operating Activities | 7,253,304 | 6,158,899 | +17.8% |
| Net Cash Used in Investing Activities | (5,983,361) | (4,131,166) | -44.8% (Increase in outflow) |
| Cash and Cash Equivalents (End of Period) | 6,509,704 | 9,830,473 | (33.8%) |
| Total Assets | 91,292,770 | 81,800,852 | +11.6% |
| Total Liabilities | 43,918,310 | 35,141,454 | +24.9% |
Material Changes and Segment Performance
- Revenue Decline: Total operating revenues decreased by 2.2% primarily due to a decline in Fixed Line revenues (down 16.7%) and Interconnection net revenues (down 15.2%). This was partially offset by growth in Cellular revenues (up 9.2%) and Network revenues (up 20.4%).
- Profitability Pressure: Operating income dropped significantly by 19.2%. This was driven by a 31.2% increase in "Operations, maintenance and telecommunication services" expenses and a 18.6% increase in depreciation expenses, despite a 15.2% reduction in personnel expenses.
- Foreign Exchange Impact: The Company recorded a significant net loss on foreign exchange of Rp 211,718 million in Q1 2009, compared to Rp 45,655 million in Q1 2008, contributing to the decline in net income.
- Capital Expenditures: Investing cash outflows increased substantially, with acquisitions of property, plant, and equipment totaling Rp 5,031,228 million in Q1 2009 compared to Rp 3,600,112 million in Q1 2008.
- Debt Levels: Total liabilities increased by 24.9%. Long-term bank loans increased from Rp 3,830,987 million to Rp 6,393,675 million, reflecting new borrowings to fund infrastructure expansion.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- Tariff Adjustments: The Company implemented tariff adjustments effective August 1, 2008, and April 1, 2009 (internet tariff reduction of ~20%).
- USO Program: Telkomsel was selected to provide Universal Service Obligation (USO) services in rural areas for Rp 1.66 trillion, covering most of Indonesia.
- 3G Expansion: Telkomsel continues to roll out 3G networks and has entered into agreements with vendors (Ericsson, Nokia Siemens, Huawei) for 2G and 3G equipment.
Risks and Contingencies:
- Legal Proceedings: The Company is involved in various legal actions, including land disputes and allegations of monopolistic practices.
- KPPU Case: The Commission for the Supervision of Business Competition (KPPU) found Telkomsel violated anti-monopoly laws regarding cross-ownership with Temasek Holdings. The Supreme Court revoked the instruction to divest ownership, but the case remains under review. A penalty of Rp 15 billion was imposed by the District Court.
- SMS Cartel: The Company and Telkomsel were fined Rp 18 billion and Rp 25 billion respectively by KPPU for alleged SMS cartel practices. Appeals are pending.
- Corruption Allegations: Several employees and former employees are facing corruption charges related to KSO VII and consultancy procurement. Management believes these will not have a significant financial impact.
- Regulatory Changes: The Company is subject to government regulations regarding tariffs, interconnection fees, and frequency usage. Changes in these regulations can impact revenue and costs.
- Foreign Exchange Risk: Significant exposure to foreign currency fluctuations, particularly the US Dollar, impacting both assets/liabilities and operating results.
Key Facts for Investor Verification
- Revenue Mix Shift: Verify the sustainability of the Cellular segment's growth versus the decline in the traditional Fixed Line segment.
- Cost Inflation: Investigate the drivers behind the 31% increase in operations and maintenance expenses and the 18% increase in depreciation.
- Debt Servicing: Assess the impact of the increased long-term debt (up 67% year-over-year) on future interest expenses and cash flow.
- Legal Exposure: Monitor the status of the KPPU monopoly and SMS cartel cases, as well as the corruption allegations, for potential additional penalties or operational restrictions.
- Foreign Exchange Sensitivity: Evaluate the Company's hedging strategies given the significant foreign exchange loss recorded in Q1 2009.
- Capital Allocation: Review the return on the significant capital expenditures (over Rp 5 trillion in Q1 2009) regarding network expansion and 3G rollout.