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: Consolidated financial statements for the years ended December 31, 2005, and December 31, 2006. The report was signed on May 25, 2007.
Business Overview: The Company is Indonesia's primary telecommunications provider, offering fixed-line, cellular, data, and internet services. It operates through three main segments: Fixed Wireline, Fixed Wireless, and Cellular. The Company holds a significant stake in PT Telekomunikasi Selular (Telkomsel), its major cellular subsidiary.
Key Financial Metrics (2006 vs. 2005)
Figures in millions of Indonesian Rupiah (Rp), unless otherwise noted.
| Metric | 2006 | 2005 | Change |
|---|---|---|---|
| Total Operating Revenues | 51,294,008 | 41,807,184 | +22.7% |
| Operating Income | 21,593,241 | 17,170,750 | +25.8% |
| Net Income | 11,005,577 | 7,993,566 | +37.7% |
| Net Income Per Share (Basic) | Rp 547.15 | Rp 396.51 | +38.0% |
| Net Cash Provided by Operating Activities | 26,695,188 | 21,102,680 | +26.5% |
| Total Assets | 75,135,745 | 62,171,044 | +20.9% |
| Total Liabilities | 38,879,969 | 32,573,450 | +19.4% |
| Stockholders' Equity | 28,068,689 | 23,292,401 | +20.5% |
Material Changes and Segment Performance
- Revenue Growth: Total revenue grew significantly, driven primarily by the Cellular segment, which saw revenue increase from Rp 14.57 trillion in 2005 to Rp 20.62 trillion in 2006. Fixed Wireline revenue remained relatively stable, growing slightly from Rp 10.78 trillion to Rp 10.98 trillion.
- Expense Management: Operating expenses increased to Rp 29.70 trillion in 2006 from Rp 24.64 trillion in 2005. Personnel expenses rose to Rp 8.51 trillion, and depreciation increased to Rp 9.18 trillion due to asset additions.
- Asset Write-downs: In 2005, the Company recognized a write-down of Rp 616.8 billion related to fixed wireless assets due to government frequency spectrum regulations. No such write-downs were recorded in 2006.
- Acquisitions: In October 2006, the Company acquired full operational control of KSO VII (Regional Division VII) through an amended agreement with PT Bukaka Singtel International, consolidating its results from October 1, 2006.
Guidance, Outlook, and Risks
- Regulatory Environment: The Company faces ongoing regulatory changes regarding interconnection tariffs. Cost-based interconnection fees were implemented effective January 1, 2007, following amendments to agreements with other operators.
- 3G License: Subsidiary Telkomsel obtained a 3G license in 2006 and began commercial services in September 2006. This involves significant capital commitments and annual usage fees.
- Legal Contingencies:
- Anti-Monopoly: The Supreme Court ruled against the Company in January 2007 regarding an anti-monopoly case involving Warung Telkom kiosks, though management believes the financial impact is not significant.
- Corruption Investigations: Investigations regarding alleged corruption in procurement and interconnection services (Napsindo/Globalcom) were ongoing as of the filing date. Some former employees were indicted, but the Company does not anticipate a significant financial impact.
- Subsequent Events:
- Massive flooding in Jakarta (February 2007) caused infrastructure damage, which is covered by insurance.
- The Company joined the Asia-America Gateway (AAG) undersea cable consortium in April 2007, paying US$30 million.
Investor Verification Checklist
- Debt Covenants: Verify compliance with financial covenants on bonds and bank loans (e.g., Debt-to-Equity ratio not exceeding 2:1 for certain notes).
- Foreign Exchange Exposure: Review the net liability position in foreign currencies (US$, Euro, Yen) which totaled a net liability of approximately Rp 8.0 trillion as of December 31, 2006.
- Capital Expenditures: Confirm the execution of committed capital expenditures totaling over Rp 12.5 trillion as of December 31, 2006, primarily for network expansion and 3G rollout.
- Related Party Transactions: Scrutinize transactions with the Government of Indonesia (two-step loans, concession fees) and Indosat (interconnection agreements), which represent a significant portion of liabilities and expenses.
- Employee Benefits: Assess the funded status of defined benefit pension and post-retirement health care plans, which showed significant unfunded obligations.